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As filed with the Securities and Exchange Commission on March 5, 1999.
Registration No. 333-69689
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ARIAD PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3106987
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
26 LANDSDOWNE STREET
CAMBRIDGE, MASSACHUSETTS 02139-4234
(617) 494-0400
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
JAY R. LAMARCHE
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
ARIAD PHARMACEUTICALS, INC.
26 LANDSDOWNE STREET
CAMBRIDGE, MASSACHUSETTS 02139-4234
(617) 494-0400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
JONATHAN L. KRAVETZ, ESQUIRE
MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 542-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practical after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
[ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment, check the following box.
[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price per Share Aggregate Offering Registration Fee(3)
Price(2)
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value 5,933,362 $1.734375 $10,290,674.72 $2,860.81
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</TABLE>
(1) Includes shares of common stock to be issued upon conversion of the
Company's series C convertible preferred stock, par value $.01 per share and
an indeterminate number of additional shares of common stock as may from
time to time become issuable upon conversion of the series C convertible
preferred stock by reason of stock splits, stock dividends and other similar
transactions, which shares are registered hereunder pursuant to Rule 416,
but does not cover an indeterminate number of common shares based on the
operation of the conversion formula of the series C convertible preferred
stock.
(2) The price of $ 1.734375 per share, which was the average of the high and low
prices of the common stock reported by the Nasdaq Stock Market on December
22, 1998, is set forth solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933, as amended.
(3) Previously paid to the Securities and Exchange Commission.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
Subject to Completion, dated March 5, 1999
ARIAD PHARMACEUTICALS, INC.
5,933,362 SHARES OF COMMON STOCK
o We have registered up to 5,933,362 THIS INVESTMENT INVOLVES
shares of our common stock for sale by A HIGH DEGREE OF RISK.
HFTP Investment, L.L.C., Brown YOU SHOULD PURCHASE
Simpson Strategic Growth Fund, Ltd., SHARES ONLY IF
Brown Simpson Strategic Growth Fund, L.P. YOU CAN AFFORD
A COMPLETE LOSS.
o We will not receive any of SEE "RISK FACTORS"
the proceeds from the selling BEGINNING ON PAGE 2.
stockholders' sale of their common stock.
OUR COMMON STOCK TRADES ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ARIA."
ON FEBRUARY 26, 1999, THE CLOSING SALE PRICE OF ONE SHARE OF OUR COMMON STOCK
AS QUOTED ON THE NASDAQ NATIONAL MARKET WAS $1.81.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________ ____, 1999
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PROSPECTUS SUMMARY
You must also consult the more detailed financial statements, and notes to
financial statements, incorporated by reference in this prospectus. This
prospectus contains forward-looking statements and actual results could differ
materially from those projected in the forward-looking statements as a result of
certain of the risk factors as outlined in this prospectus. Investing in our
common stock is very risky. You should be able to bear a complete loss of your
investment. You should carefully consider the information set forth under the
heading "Risk Factors."
THE COMPANY
ARIAD focuses on the discovery and development of novel and proprietary
drugs based on our understanding of the inner-workings of cells and the genes
involved in disease. We have developed a product to treat graft-versus-host
disease, a complication of bone marrow transplantation involving an attack by a
patient's immune system on healthy tissue, which entered Phase 1 human clinical
trials (safety studies) in December 1998. All of our other drug candidates are
in the pre-clinical stage. None of our products have been approved for marketing
or sale, and we have not received any product revenues to date.
Our research and development programs involve three areas:
o SIGNAL TRANSDUCTION INHIBITORS. Signal transduction inhibitors are drugs
designed to block specific molecular targets in bone cells and white blood
cells. We are currently conducting preclinical animal studies for selected drug
candidates in this program which may be useful to treat diseases affecting the
bones, such as osteoporosis, and the immune system, such as rheumatoid arthritis
and rejection following organ transplantation. In November 1995, we entered into
an agreement with Hoechst Marion Roussel, Inc. to collaborate on the discovery
and development of such drugs to treat osteoporosis and other bone diseases.
o ARGENT(TM). "ARIAD Regulated Gene Expression Technology" or "ARGENT(TM)"
refers to a system we have developed which is designed to control cellular
activities using drugs. This system can be applied in research for discovery of
new drugs and new genes, in gene and cell therapy, and in the manufacture of
biological products. The leading application of this system is the controlled
production of protein drugs by regulated gene therapy. In February 1997, we
entered into a contractual relationship with Genovo, Inc. to jointly develop a
regulated gene therapy system for use in muscle tissue. To date, ARIAD and
Genovo have conducted preclinical studies at the University of Pennsylvania with
this system using genes which stimulate the production of human growth hormone
and red blood cells. Clinical trials have not been initiated for this
application. Another use of this system is our product to treat
graft-versus-host disease. This product may improve the safety and effectiveness
of certain types of bone marrow transplants by selectively killing the cells
responsible for graft-versus-host disease, a complication involving an attack by
a patient's immune system on healthy tissue. A Phase 1 clinical trial for this
product is ongoing.
o FUNCTIONAL GENOMICS. We are working in an area known as functional
genomics, which involves the discovery of new genes and the validation of
molecular targets that may be useful in the treatment of diseases. We are
developing this information as a tool to accelerate the discovery of new drugs
to treat these diseases, such as osteoporosis (bones), atherosclerosis (heart
and blood vessels) and cancer. In March 1997, we established a joint venture
with Hoechst Marion Roussel, named the Hoechst-ARIAD Genomics Center, LLC, to
pursue this area.
Our address is ARIAD Pharmaceuticals, Inc., 26 Landsdowne Street,
Cambridge, Massachusetts 02139, and our telephone number is (617) 494-0400.
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RISK FACTORS
Investing in our common stock is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, in addition to other information in this prospectus.
WE MAY NEVER SUCCEED IN DEVELOPING MARKETABLE DRUGS. We are an early stage
company with no product revenues and we may not succeed in producing drugs for
commercialization. Our main focus is still primarily in conducting research to
advance the complex and specialized technologies we are developing. We are
exploring human diseases at the cellular level. We seek to discover what genes
within cells malfunction to help cause disease, what signals are triggered
within the cells during the disease process to cause the cells to react in
harmful ways, and what chemicals (i.e., drugs) can be developed to halt or
reverse those activities within the cells. As with all discovery science, we
face much trial and error and we may fail at numerous stages along the way.
In our research associated with signal transduction,
o we may not identify the most important signals within the cells;
o since the signals are made up of a chain of chemical reactions between
proteins within the cell, we may fail to identify a good intervention
point to try to block the signal; and
o we may not succeed in developing a chemical capable of blocking the
signal.
In our research related to our ARGENT(TM) system,
o we may not be able to identify drugs which successfully regulate the
delivery of proteins through gene therapy on a long term basis.
In our functional genomics research,
o we might not identify the critical genes involved in disease; and
o we may be unable to discover a chemical capable of blocking the signal or
affecting the same.
In all of our programs, we may find that
o we are unable to recruit, hire and retain the highly skilled scientific
personnel, especially in our functional genomics program, necessary to
achieve success in developing our products and technologies;
o a potential drug, even if it seems to work in animals, may not be
effective, or may even be harmful, when tested in humans;
o even if we prove through human clinical trials that a drug is safe and
effective in humans, we may not be able to manufacture it economically;
and
o a drug may not be well accepted by doctors and patients, or may be less
effective or accepted than competing drugs made by others.
Despite the progress in our research and development programs, we do not
expect to have any drugs on the market for several years.
INSUFFICIENT FUNDING MAY JEOPARDIZE OUR RESEARCH AND DEVELOPMENT PROGRAMS
AND MAY PREVENT COMMERCIALIZATION OF OUR PRODUCTS AND TECHNOLOGIES. We may not
be able to secure the significant funding which is required to maintain and
continue each of our research and development programs at their current levels.
Other than a research and development agreement we entered into with Hoechst
Marion Roussel to develop drugs to treat osteoporosis and other bone diseases,
which expires in November 2000, we have no strategic alliance or other funding
for our signal transduction program. We also do not have any strategic alliance
funding for the advancement of our ARGENT(TM) system, which includes our
regulated gene therapy system and our graft-versus-host disease product. To fund
these programs, as well as our functional genomics program, we are relying
principally on funding provided by Hoechst Marion Roussel under an agreement
entered into in November 1995, under which Hoechst Marion Roussel is required to
make future payments to us of $1.0 million per quarter through November 2000 for
research, plus up to $6.0 million in additional payments upon achievement of
certain research and development milestones. We may fail to achieve future
milestones for payment in a timely manner, or at all. In addition, we rely on
Hoechst Marion Roussel to provide significant funding to sustain our genomics
center. Hoechst Marion Roussel has agreed to fund its 50% share and to finance
our 50% share of the costs associated with operating the genomics center, which
is expected to exceed $30 million, through March 31, 2002; thereafter, we will
likely need more money to sustain the genomics center. Although Hoechst Marion
Roussel has agreed to fund our share of costs in excess of the amount required
by our agreement if such expenditures are approved by both of us, Hoechst Marion
Roussel has no obligation to cover costs beyond what is required under the
agreement. Furthermore, if Hoechst Marion Roussel has a significant strategic
shift in its business focus due to its merger into Aventis Pharma, Hoechst
Marion Roussel may not perform its obligations under its agreements with us.
If our funding from Hoechst Marion Roussel and other sources
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is insufficient, we intend to seek additional funding from collaborations or
public or private financings, which may not be available on terms acceptable to
us, or at all. Insufficient funds may require us to delay, scale back or
eliminate one or more of our research and development programs or to enter into
license arrangements with third parties to commercialize products or
technologies that we would otherwise seek to develop ourselves.
OUR ABILITY TO COMMERCIALIZE CERTAIN OF OUR PRODUCTS MAY DEPEND ON GENOVO'S
ABILITY TO SECURE GENE TRANSFER TECHNOLOGY. Genovo is required under our
agreement to:
o develop a mechanism which is to be used as a vehicle to introduce new
genes into muscle tissue,
o fund the costs associated with the development of this gene transfer
technology, and
o secure the patents and licenses required for such proprietary technology.
This gene transfer technology is necessary to develop and commercialize our
ARGENT(TM) regulated gene therapy system for the controlled production of
protein drugs. The success in developing our gene therapy system may be delayed
or prevented if:
o Genovo is unable to develop gene transfer technology in a timely manner,
o Genovo is unable to obtain the required funding,
o Genovo is unable to acquire rights to such technology from the Trustees
of the University of Pennsylvania and others to the extent required.
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As of February 15, 1999, our agreement with Genovo may be terminated by
either party upon sixty (60) days' prior written notice. Unless both we and
Genovo continue to work together on the development of a regulated gene therapy
system under the terms of our agreement or modified terms, we will have to seek
and obtain gene therapy transfer technology elsewhere. Furthermore, another
strategic partner of Genovo, which is our potential competitor in some markets,
holds a significant minority interest in Genovo and has the ability to influence
Genovo's actions, such as its ability or willingness to perform its obligations
under our agreement or to work with us in the future.
WE HAVE SIGNIFICANT LOSSES AND MAY NEVER BE PROFITABLE. We have incurred
significant operating losses in each year since our inception in 1991, and have
an accumulated deficit of approximately $93 million from our operations through
December 31, 1998. We currently have no product revenue, may never be able to
earn such revenue, and may never have profitable operations, even if we are able
to commercialize any of our products. Over the next several years, we expect to
have substantial increasing operating losses. If our losses continue and we are
unable to successfully develop, commercialize, manufacture and market product
candidates, we may never achieve product revenue or profitability. Losses have
resulted principally from costs incurred in research and development of product
candidates, and from general and administrative costs associated with our
operations, including expenses related to the genomics center. If costs
associated with the genomics center were to increase beyond what is currently
provided for in the 1997 agreement with Hoechst Marion Roussel, as is likely,
and we finance our share of such costs through a loan from Hoechst Marion
Roussel as provided in the genomics center agreements, our outstanding
indebtedness would increase.
THE LOSS OF KEY MEMBERS OF OUR SCIENTIFIC AND MANAGEMENT STAFF COULD DELAY
AND MAY PREVENT THE ACHIEVEMENT OF OUR RESEARCH, DEVELOPMENT AND BUSINESS
OBJECTIVES. Our Chief Executive Officer, Harvey J. Berger, M.D., and
approximately nine officers and key members of our scientific staff responsible
for areas such as clinical development, chemistry research, bioinformatics, cell
biology and genetics, structure-based drug design, molecular technology and
genomics are important to our specialized scientific business. The loss of, and
failure to promptly replace, any one of this group could significantly delay and
may prevent the achievement of research, development and business objectives.
While we have entered into employment agreements with certain of our officers,
they may not remain with us. We are also dependent upon a few of our scientific
advisors, to assist in formulating our research and development strategy.
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WE MAY BE UNABLE TO DEVELOP OR COMMERCIALIZE OUR PRODUCTS IF WE ARE UNABLE
TO OBTAIN OR MAINTAIN CERTAIN LICENSES. We are currently attempting to obtain
licenses for technology useful to the development of certain compounds for, or
components of, our regulated gene therapy system and our graft-versus-host
disease product. Our inability to obtain any one or more of the licenses related
to our regulated gene therapy system which we are seeking, on commercially
reasonable terms or at all, or to circumvent the need for any such license,
could cause significant delays and cost increases and materially affect our
ability to develop and commercialize this system. We also use gene sequences or
proteins encoded by those sequences, and other biological materials, in each of
our research programs which are, or may become, patented by others and to which
we would be required to obtain licenses in order to develop or market our
products. Some of our programs, including our regulated gene therapy system, may
require the use of multiple proprietary technologies. Obtaining such licenses
may require us to make cumulative royalty payments or other payments to several
third parties, potentially reducing amounts paid to us or making the cost of our
products commercially prohibitive.
We have entered into license agreements, either directly or through one of
our subsidiaries, with Stanford University, Harvard University and the
Massachusetts Institute of Technology, under which we have obtained exclusive
rights to technologies useful to our ARGENT(TM) program in general and our
regulated gene therapy system in particular. We have obtained exclusive rights
from Mochida Pharmaceutical Co., Ltd. for certain technology useful to the
development of our graft-versus-host disease product. We have also obtained
non-exclusive access to, and use of, certain database information from Incyte
Pharmaceuticals, Inc. which is useful to the research we are conducting as part
of our functional genomics program. Each of these licenses obligates us to
exercise diligence in pursuing development of product candidates, to make
certain milestone payments (some of which are substantial), and to provide for
royalties (which can be significant). In some instances, we are responsible for
the costs of filing and prosecuting patent applications. The licenses generally
expire upon the earlier of a fixed term of years after the date of the license
or the expiration of the applicable patents, but each license is also terminable
by either party upon default in the obligations of the other party. Our
inability or failure to meet our diligence requirements or make any payments
required under these licenses would result in a reversion of the rights granted
to the licensor which, with respect to the licenses where we have obtained
exclusive rights, would materially affect our ability to develop and market
products based on our ARGENT(TM) program.
COMPETING TECHNOLOGIES MAY RENDER SOME OR ALL OF OUR PROGRAMS OR FUTURE
PRODUCTS NONCOMPETITIVE OR OBSOLETE. Many well-known pharmaceutical, chemical
and specialized biotechnology companies, academic and research institutions and
government agencies, who have substantially greater capital, research and
development capabilities and experience than us, are presently engaged in:
o developing products based on signal transduction,
o exploring the field of gene therapy,
o pursuing functional genomics, and
o conducting research and development programs for the treatment of all the
disease areas in which we are focused.
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Some of these entities already have drug candidates in clinical trials or in
more advanced preclinical studies than our product candidates. They may succeed
in commercializing competitive products before we do, which would give them a
competitive advantage. Competing technologies may render some or all of our
programs or future products noncompetitive or obsolete and we may not be able to
make the enhancements to our technology necessary to compete successfully with
newly emerging technologies.
WE MAY NOT BE ABLE TO PROTECT OUR PATENTS AND PROPRIETARY RIGHTS. We and
our licensors have pending patent applications covering biochemical and cellular
tests useful in drug discovery, new chemical compounds discovered in our signal
transduction program, certain components, configurations and uses of our
ARGENT(TM) system and methods and materials for conducting genetic research.
These patent applications may never issue as patents. In addition, patents
issued to us or our licensors may be challenged and subsequently narrowed,
invalidated or circumvented. In that event, such patents may never afford
meaningful protection for our technologies or products, which would materially
impact our ability to develop and market them. Certain technologies utilized in
our research and development programs are already in the public domain.
Moreover, a number of our competitors have developed technologies, filed patent
applications or obtained patents on technologies that are related to our
business and may cover or conflict with our patent applications. Such conflicts
could limit the scope of the patents that we may be able to obtain or may result
in the denial of our patent applications. If a third party were to obtain patent
or other proprietary protection for any of these technologies, we may be
required to challenge such protections, terminate or modify our programs that
rely on such technologies or obtain licenses for use of these technologies.
WE MAY NOT BE ABLE TO OBTAIN GOVERNMENT REGULATORY APPROVAL FOR OUR PRODUCT
CANDIDATES PRIOR TO MARKETING. To date, we have not submitted an application for
any product candidate to the U.S. Food and Drug Administration, and none of our
product candidates have been approved for commercialization in the United States
or elsewhere. Any product candidate ready for commercialization, would be
subject to an extensive and lengthy governmental regulatory approval process in
the United States and in other countries. We may not be able to obtain
regulatory approval for any products we develop. We have no history of
conducting and managing the clinical testing necessary to obtain such regulatory
approval. Satisfaction of these regulatory requirements, which includes
satisfying the FDA and foreign regulatory authorities 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. Furthermore, the regulatory requirements governing our
potential products are uncertain. This uncertainty may result in excessive costs
or extensive delays in the regulatory approval process, adding to the already
lengthy review process. If regulatory approval of a product is granted, such
approval will be limited to those disease states and conditions for which the
product is proven useful, as demonstrated by clinical trials, and our products
will be subject to ongoing regulatory reviews.
IF WE DEVELOP A PRODUCT FOR COMMERCIAL USE, A SUBSEQUENT PRODUCT
LIABILITY-RELATED CLAIM OR RECALL COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Our business exposes us to potential product liability risks inherent in the
testing, manufacturing and marketing of human therapeutic products, and we may
not be able to avoid significant product liability exposure. A product
liability-related claim or recall could be detrimental to our business. However,
except for insurance covering product use in our clinical trial, we do not
currently have any product liability insurance, and we may not be able to obtain
or maintain such insurance on acceptable terms and we may not be able to obtain
any insurance to provide adequate coverage against potential liabilities. Our
inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent or
limit the commercialization of any products we develop.
EFFORTS TO CONTAIN OR REDUCE THE COST OF HEALTH CARE COULD HURT OUR
REVENUES AND EARNINGS. As a biopharmaceutical company, we expect that our
business could be affected by the efforts of governmental and third-party payors
to contain or reduce the costs of health care. In the near term, our ability to
raise capital could be adversely affected by governmental efforts to assert
greater control over pricing or profitability of prescription pharmaceuticals.
Such efforts could adversely affect the profitability of our existing and
potential collaborators, reduce their cash resources, and discourage them from
investing in our research and development programs. In the longer term, if we
and our collaborators are successful in developing human therapeutic drugs, the
efforts of the government and third party payors to contain or reduce health
care costs could adversely affect our revenues and earnings from such products.
OUR MANAGEMENT AND PRINCIPAL STOCKHOLDERS OWN APPROXIMATELY 25% OF OUR
OUTSTANDING COMMON STOCK AND COULD INFLUENCE MOST MATTERS REQUIRING APPROVAL BY
OUR STOCKHOLDERS. Our directors and officers and several five percent
stockholders and their affiliates beneficially own, in the aggregate, shares
representing approximately 25% of the outstanding shares of our common stock,
series B preferred stock and series C preferred stock. As a result, these
stockholders, acting together, could influence significantly and possibly
control most matters requiring approval by our stockholders. In addition, our
certificate of incorporation does not provide for cumulative voting with respect
to the election of directors. Consequently, the present executive officers,
directors and affiliated individuals and entities may be able to control the
election of the members of our board of directors. Such a concentration of
ownership could affect the liquidity, and have an adverse effect on the price,
of our common stock, and may have the effect of delaying or preventing an
acquisition or change in the control of our company, including transactions in
which stockholders might otherwise receive a premium for their shares over then
current market prices.
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RESULTS OF OUR OPERATIONS AND GENERAL MARKET CONDITIONS FOR BIOTECHNOLOGY
STOCK COULD RESULT IN THE SUDDEN CHANGE IN THE VALUE OF OUR STOCK. As a
biopharmaceutical company, we have experienced significant volatility in our
common stock. Fluctuations in our operating results and general market
conditions for biotechnology stocks could have a significant impact on the
volatility of our common stock price. Over the past twelve months our stock
price has ranged from a high of $5.50 to a low of $1.38 and from January 1, 1999
to February 28, 1999 our stock price has ranged from a high of $4.25 to a low of
$1.50. Factors contributing to such volatility include:
o results of preclinical studies and clinical trials,
o evidence of the safety or efficacy of pharmaceutical products,
o announcements of new collaborations,
o failure to enter into collaborations,
o our funding requirements and the terms of our series C preferred stock
financing,
o announcements of technological innovations or new therapeutic products,
o governmental regulation,
o healthcare legislation, and
o developments in patent or other proprietary rights, including litigation.
IF THE SERIES C PREFERRED STOCK IS CONVERTED OR WE ISSUE ADDITIONAL SHARES
OF EQUITY SECURITIES, THE VALUE OF THOSE SHARES OF COMMON STOCK THEN OUTSTANDING
MAY BE DILUTED. To the extent that we raise additional capital by issuing equity
securities at a price or a value per share less than the then current price per
share of common stock, the value of the shares of common stock then outstanding
will be diluted or reduced. At present we have one arrangement to issue
additional equity securities which could result in dilution to the present
common stockholders. That arrangement involves the issuance of our series C
preferred stock, which is convertible into shares of common stock at a price per
share equal to the lesser of (a) the four lowest closing bid prices during the
22 consecutive trading days prior to the date of conversion, or (b) $2.09 per
share. Based on the number of shares of series C preferred stock presently
outstanding and the applicable conversion price as of February 25, 1999, we
would be required to issue up to 3,122,445 shares of common stock at a price per
share that is approximately $.18 less than the last sale price of the common
stock on February 25, 1999. In anticipation of price fluctuations that may
reduce the conversion price, we have registered for resale up to 5,933,362
shares of common stock which would become issuable upon conversion of the series
C preferred stock if the conversion price fell as low as $.85 per share. If the
conversion price fell even further, then more than 5,933,362 shares of common
stock would be issuable upon conversion of the series C preferred stock. In
addition, subject to certain conditions, we may be required during the month of
September 1999 to sell additional shares of series C preferred stock at the then
current market price and then applicable conversion prices to the original
purchasers of series C preferred stock.
IF OUR COMMON STOCK IS DELISTED FROM THE NASDAQ STOCK MARKET, IT WOULD BE
MORE DIFFICULT FOR STOCKHOLDERS TO SELL SHARES OF OUR COMMON STOCK. In order for
our common stock to continue to be listed on the Nasdaq stock market, we must
comply with all of Nasdaq's continued listing requirements. If Nasdaq determines
that we have violated any of its continued listing requirements, our common
stock could be delisted. The issuance and conversion of our series C preferred
stock could cause Nasdaq to determine that we have violated up to three of its
continued listing requirements. The first of the three applicable Nasdaq rules
requires that our common stock have a minimum bid price per share of $1.00. Our
bid price currently is approximately $1.75 per share. If the series C preferred
stock is converted at its current discount price and the common stock issued
upon conversion is subsequently sold in the public market, the bid price of our
common stock may be
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reduced to less than $1.00 per share, in which case Nasdaq may determine that a
violation exists and our common stock may be delisted. The second applicable
Nasdaq rule requires us to comply with the more onerous requirements for initial
listing if Nasdaq determines that we have undergone a change in control or a
change in financial structure. Depending on the number of shares of common stock
issued upon conversion of the series C preferred stock, Nasdaq may deem the
issuance of such preferred stock to be a change in control or a change in
financial structure and a violation that could result in delisting. The third
applicable Nasdaq rule permits Nasdaq to delist a security if it deems it
necessary to protect investors and the public interest. Therefore, if Nasdaq
determines that the returns on the series C preferred stock are excessive
compared with the returns received by the holders of our common stock, and such
excess returns are egregious, Nasdaq could delist our common stock.
OUR COMPUTER SYSTEM COULD FAIL WHEN THE YEAR CHANGES TO 2000. Many computer
systems will not properly recognize date-sensitive information when the year
changes to 2000. Computers which refer to years in terms of their final two
digits only may interpret the year 2000 to mean the year 1900. If our systems or
software licensed from third parties do not properly recognize such information,
our systems could generate erroneous data or fail. We are in the process of
inventorying our information technology infrastructure, hardware and software,
and have commenced an assessment of our year 2000 compliance. We are also
conducting a more in-depth analysis and testing of our internal systems and are
soliciting and are, where feasible, obtaining certification of year 2000
compliance from third-party software vendors and determining the readiness of
our significant suppliers. We are also working with our external suppliers and
service providers to ensure that they and their systems will be able to support
our needs and, where necessary, interact with our server and networking hardware
and software infrastructure in preparation for the year 2000. This testing phase
is expected to be completed by September 30, 1999. To date, our costs of
becoming year 2000 compliant have not been material. However, if any necessary
modifications, conversions and/or replacements are not made, are not completed
timely, or if any of the Company's suppliers or customers do not successfully
deal with the year 2000 issue, such circumstances could have a material impact
on the Company. The Company's research and development efforts, which rely
heavily on the storage and retrieval of electronic information, could be
interrupted, resulting in the generation of erroneous data, the loss of
information and/or significant delays in any one or all of our research and
development programs. The severity of these possible problems would depend on
the nature of the problem and how quickly it could be corrected or an
alternative implemented, which is unknown at this time. In the extreme, such
problems could disrupt a significant portion of our operations. We expect to
have contingency plans in place by November 30, 1999 to address situations in
which various systems of the Company, or of third parties with which the Company
does business, are not year 2000 complaint. We estimate the total cost for
upgrading our computer system hardware and software are not likely to exceed
$200,000. However, significant uncertainty exists concerning the potential costs
and effects associated with any year 2000 compliance.
8
<PAGE> 11
WHERE TO FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying a copying
fee. Please call the SEC at 1-800-SEC-0330 for more information about the public
reference room operations. Our SEC filings are also available at the SEC's web
site at "http://www.sec.gov." In addition, you can read and copy our SEC filings
at the office of the National Association of Securities Dealers, Inc. at 1735 K
Street, Washington, DC, 20006.
This prospectus is only part of a Registration Statement on Form S-3 that
we have filed with the SEC under the Securities Act of 1933 and therefore omits
certain information contained in the Registration Statement. We have also filed
exhibits and schedules with the Registration Statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may inspect a copy of the Registration Statement, including the
exhibits and schedules, without charge at the public reference room or obtain a
copy from the SEC upon payment of the fees prescribed by the SEC.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and information we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the selling stockholders sell all of their shares of common stock. The
documents we are incorporating by reference are:
o Annual Report on Form 10-K for the year ended December 31, 1997, filed on
March 10, 1998;
o Definitive Proxy Statement, filed on April 16, 1998;
o Current Report on Form 8-K, filed on April 29, 1998;
o Current Report on Form 8-K, filed on November 12, 1998;
o Quarterly Report on Form 10-Q, for the quarter ended March 31, 1998,
filed on May 12, 1998;
o Quarterly Report on Form 10-Q, for the quarter ended June 30, 1998, filed
on August 6, 1998;
o Quarterly Report on Form 10-Q, for the quarter ended September 30, 1998,
filed on November 13, 1998; and
o The description of the common stock contained in our Registration
Statement on Form 10 filed with the SEC on June 25, 1993, including any
amendments or reports filed for the purpose of updating such description.
9
<PAGE> 12
You may request a copy of these filings at no cost by writing or
telephoning our chief financial officer at the following address and number:
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, Massachusetts 02139
(617) 494-0400
This prospectus is part of a Registration Statement we filed with the SEC.
You should rely on the information incorporated by reference provided in this
prospectus and the Registration Statement.
FORWARD LOOKING STATEMENTS
We also caution you that this prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements are based
on management's beliefs and assumptions and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations and embody statements in which
we use words such as "expect," "anticipate, " "intend," "plan," "believe,"
"estimate," or similar expressions.
Forward-looking statements necessarily involve risks and uncertainties,
including those set forth in the Risk Factors section and elsewhere in this
prospectus. Our actual results could differ materially from those anticipated in
the forward-looking statements. The factors set forth in the Risk Factors
sections and other cautionary statements made in this prospectus should be read
and understood as being applicable to all related forward-looking statements
wherever they appear in this prospectus.
USE OF PROCEEDS
All net proceeds from the sale of our common stock will go to the selling
stockholders who offer and sell their shares. Accordingly, we will not receive
any proceeds from the selling stockholders' sale of their common stock.
DIVIDEND POLICY
We have not declared or paid dividends on our common stock in the past and
do not intend to declare or pay such dividends in the foreseeable future. Our
current long-term debt agreements prohibit the payment of cash dividends.
10
<PAGE> 13
SELLING STOCKHOLDERS
The table below lists the selling stockholders and other information
regarding the beneficial ownership of the common stock by each of the selling
stockholders. The second column lists the number of each selling stockholder's
shares (based on its ownership of series C convertible preferred stock) which
would be issuable to the selling stockholder on February 25, 1999 upon
conversion of all of the series C preferred stock then held by such selling
stockholder, including an amount of shares equal to the accrual amount provided
in the certificate of designations for the series C preferred stock, accrued to
February 25, 1999 from the date of issuance. Our conversion calculations in the
second column assumes a conversion price for the series C preferred stock of
$1.625 (which represents the average of the four lowest closing bid prices
during the 22 consecutive trading days prior to and including February 24,
1999). The numbers listed in the second column are subject to fluctuations from
time to time based on changes in the closing bid price of our common stock. The
third column lists each selling stockholder's pro rata portion (based on its
ownership of series C convertible preferred stock) of the 5,933,362 shares of
common stock being registered hereby. The 5,933,362 shares of common stock shown
in the table represent 200% of the shares that would have been issuable to the
selling stockholders on December 23, 1998 upon conversion of all of the series C
preferred stock. Our conversion calculations in the third column assumes a
conversion price for the series C preferred stock of $1.69531255 (which
represents the average of the four lowest closing bid prices during the 22
consecutive trading days prior to and including December 22, 1998). The fourth
column assumes the sale of all of the shares offered by each selling
stockholder.
Pursuant to our series C preferred stock certificate of designations, no
selling stockholder can convert series C preferred stock to the extent such
conversion would cause such selling stockholder's beneficial ownership of the
common stock (other than shares deemed beneficially owned through ownership of
unconverted shares of the series C preferred stock) to exceed 4.9% of the
outstanding shares of common stock. The information provided in the table below
has been obtained from the selling stockholders. The selling stockholders may
sell all, some or none of their shares in this offering. See "Plan of
Distribution."
<TABLE>
<CAPTION>
Names Number of Shares Maximum Number of Shares Beneficially
of Selling Owned Shares Owned After Offering
-------------------------------
Stockholders Prior to Offering Being Offered Number Percent
--------------------------------- --------------------- ------------------------ ------------- --------------
<S> <C> <C> <C> <C>
HFTP Investment, L.L.C.(1) 1,873,467 3,560,018 0 *
Brown Simpson Strategic
Growth Fund, Ltd.(2) 811,836 1,542,674 0 *
Brown Simpson Strategic
Growth Fund, L.P.(3) 437,142 830,670 0 *
</TABLE>
* Less than one percent of the outstanding shares of common stock.
(1) Promethean Investment Group, LLC, a New York limited liability company
("Promethean"), serves as investment advisor to HFTP Investment, L.L.C.
("HFTP") and may be deemed to share beneficial ownership of the shares
beneficially owned by HFTP by reason of shared power to vote and to
dispose of the shares beneficially owned by HFTP. Promethean disclaims
beneficial ownership of the shares beneficially owned by HFTP. Mr.
James F. O'Brien, Jr. indirectly controls Promethean. Mr. O'Brien
disclaims beneficial ownership of the shares beneficially owned by
Promethean and HFTP.
(2) Brown Simpson Asset Management, L.L.C. serves as the investment manager
to Brown Simpson Strategic Growth Fund, Ltd. pursuant to an investment
management contract. The members of Brown Simpson Asset Management,
L.L.C. are Mitchell Kaye, Evan Levine, James Simpson and Matthew Brown.
Such persons may be deemed to have beneficial ownership of the shares
owned by Brown Simpson Strategic Growth Fund Ltd.
(3) The general partner of Brown Simpson Strategic Growth Fund, L.P. is
Brown Simpson Capital, L.L.C., the members of which are Mitchell Kaye,
Evan Levine, James Simpson and Matthew Brown. Such members may be
deemed to have beneficial ownership of the shares owned by Brown
Simpson Strategic Growth Fund, L.P.
11
<PAGE> 14
PLAN OF DISTRIBUTION
The selling stockholders are offering shares of common stock, $.001 par
value per share, which are issuable to them upon conversion of the series C
convertible preferred stock, $.01 par value per share, they acquired from us in
a private placement transaction, pursuant to Stock Purchase Agreements, dated as
of November 9, 1998. This prospectus covers the selling stockholders' resale of
up to 5,933,362 acquired shares of common stock and an indeterminate number of
additional shares as may from time to time become issuable upon conversion of
the series C preferred stock by reason of stock splits, stock dividends and
other similar transactions, but does not cover an indeterminate number of common
shares based on the operation of the conversion formula of the series C
convertible preferred stock.
In accordance with the selling stockholders' registration rights provided
in the Purchase Agreements, we have filed a Registration Statement on Form S-3
with the SEC. The Registration Statement covers the resale of the common stock
from time to time on the Nasdaq National Market or in privately-negotiated
transactions. This prospectus forms a part of the Registration Statement. We
have also agreed to prepare and file such amendments and supplements to the
Registration Statement as may be necessary to keep such Registration Statement
effective until this prospectus is no longer required for the selling
stockholders to sell their shares.
The shares of common stock described in this prospectus may be sold
directly by the selling stockholders, or through underwriters, broker-dealers or
agents. The selling stockholders may also transfer, devise or gift their shares
by other means not described in this prospectus. Accordingly, shares of common
stock may be offered by pledgees, donees, transferees or other successors in
interest that receive such shares as a gift, partnership distribution or other
non-sale related transfer. In addition, any selling stockholders' shares covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to this
prospectus.
The shares of common stock may be sold from time to time by the selling
stockholders in one or more transactions:
o at fixed prices that may be changed,
o at market prices prevailing at the time of sale, or
o at prices related to such prevailing market prices or at negotiated
prices.
The selling stockholders may offer their shares of common stock in one or
more of the following transactions:
o on any national securities exchange or quotation service on which the
common stock may be listed or quoted at the time of sale, including the
Nasdaq National Market,
o in the over-the-counter market,
o in privately negotiated transactions,
o through options,
o by pledge to secure debts and other obligations,
o by a combination of the above methods of sale, or
o to cover short sales made pursuant to this prospectus.
In order to comply with the securities laws of certain states, the shares
must be offered or sold only through registered or licensed brokers or dealers.
In addition, in certain states, the shares may not be offered or sold unless
they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and is
complied with.
12
<PAGE> 15
The selling stockholders and any underwriters, broker-dealers or agents
that participate in the distribution of the shares of common stock may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933. Any
profits on the resale of the shares of common stock and any compensation
received by any underwriter, broker-dealer or agent may be deemed to be
underwriting discounts and commission under the Securities Act.
Under the Securities Exchange Act of 1934, any person engaged in the
distribution of the shares may not simultaneously engage in market-making
activities with respect to the common stock for five business days prior to the
start of the distribution. In addition, each selling stockholder and any other
person participating in a distribution will be subject to the Exchange Act,
which may limit the timing of purchases and sales of common stock by the selling
stockholder or any such other person. These factors may affect the marketability
of the common stock and the ability of brokers or dealers to engage in
market-making activities.
These shares were originally issued to the selling stockholders pursuant to
an exemption from the registration requirements under Sections 4(2) or 3(a)(9)
of the Securities Act or otherwise. We have agreed to register the shares under
the Securities Act and to indemnify and hold the selling stockholders harmless
against certain liabilities under the Securities Act that could arise in
connection with the selling stockholders' sale of their shares. We have agreed
to pay all reasonable fees and expenses incident to the filing of the
Registration Statement.
LEGAL MATTERS
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. of Boston,
Massachusetts, will deliver its opinion that the shares of common stock offered
in this prospectus have been validly issued and are fully paid and
non-assessable.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
included in this prospectus, which is part of the registration statement, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
13
<PAGE> 16
MATERIAL CHANGES
1. SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1998, 1997,
1996, 1995 and 1994 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 registration statement on Form S-3, 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research revenue (principally
related parties) $ 12,143,192 $ 9,233,708 $ 10,304,332 $ 2,102,222 $ 460,084
Interest income 998,743 1,757,327 1,271,895 1,360,225 1,091,820
------------- ------------- ------------- ------------- -------------
Total revenue 13,141,935 10,991,035 11,576,227 3,462,447 1,551,904
------------- ------------- ------------- ------------- -------------
Operating expenses:
Research and development 35,515,270 20,286,945 15,253,874 13,675,025 14,566,444
General and administrative 2,633,923 2,924,972 2,229,273 2,281,247 2,089,380
Interest expense 480,627 410,072 269,131 323,124 359,581
------------- ------------- ------------- ------------- -------------
Total operating expenses 38,629,820 23,621,989 17,752,278 16,279,396 17,015,405
------------- ------------- ------------- ------------- -------------
Equity in net loss of Genomics Center 660,295
Loss before cumulative effect of change
in
------------- ------------- ------------- ------------- -------------
accounting principle (26,148,180) (12,630,954) (6,176,051) (12,816,949) (15,463,501)
Cumulative effect of change in
accounting principle 90,909
------------- ------------- ------------- ------------- -------------
Net loss (26,148,180) (12,630,954) (6,176,051) (12,816,949) (15,372,592)
Preferred dividend 35,616
------------- ------------- ------------- ------------- -------------
Net loss attributable to common $(26,183,796) $(12,630,954) $ (6,176,051) $ (12,816,949) $ (15,372,592)
stockholders
------------- ------------- ------------- ------------- -------------
Per common share (basic and diluted):
Loss before cumulative effect of
change in accounting principle $ (1.25) $ (.66) $ (.33) $ (.72) $ (1.07)
Cumulative effect of change in
accounting principle .01
------------- ------------- ------------- ------------- -------------
Net loss $ (1.25) $ (.66) $ (.33) $ (.72) $ (1.06)
============= ============= ============= ============= =============
Weighted average number of shares of
common stock outstanding 20,966,586 19,252,885 18,999,229 17,738,126 14,515,202
DECEMBER 31,
--------------------------------------------------------------------------
BALANCE SHEET DATA: 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------
Cash, cash equivalents and
marketable securities $ 14,176,136 $ 29,359,457 $ 15,702,300 $ 27,056,234 $ 24,188,848
Working capital 5,805,656 16,538,781 11,901,775 20,995,251 22,117,200
Total assets 30,785,940 47,409,176 27,604,993 37,201,730 33,481,980
Long-term debt 3,295,139 5,156,219 1,472,812 1,540,727 2,459,515
Accumulated deficit (92,640,457) (66,456,661) (53,825,707) (47,649,656) (34,832,707)
Stockholders' equity 11,733,288 28,373,818 16,684,471 22,684,447 28,021,482
</TABLE>
14
<PAGE> 17
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
ARIAD Pharmaceuticals, Inc. ("ARIAD" or the "Company") focuses on the discovery
and development of novel and proprietary drugs based on its understanding of the
inner-workings of cells and the genes involved in disease. The Company has
developed a product to treat graft-versus-host disease, a complication of bone
marrow transplantation involving an attack by a patient's immune system on
healthy tissue, which entered Phase 1 human clinical trials (safety studies) in
December 1998. All of the Company's other drug candidates are in the
pre-clinical stage.
ARIAD's research and development programs involve three areas: Signal
transduction inhibitors, regulated gene therapy and functional genomics. Signal
transduction inhibitors are drugs designed to block specific molecular targets
in bone cells and white blood cells. In November 1995, the Company entered into
an agreement with Hoechst Marion Roussel, Inc. ("HMR") to collaborate on the
discovery and development of such drugs to treat osteoporosis and other bone
diseases. The Company has also developed a system referred to as "ARIAD
Regulated Gene Expression Technology" or "ARGENT(TM)" which is designed to
control cellular activities using drugs. This system can be applied in research
for discovery of new drugs and new genes, in gene and cell therapy, and in the
manufacture of biological products. The leading application of this system is
the controlled production of protein drugs by regulated gene therapy. Another
use of this system is ARIAD's product to treat graft-versus-host disease. This
product may improve the safety and effectiveness of certain types of bone marrow
transplants by selectively killing the cells responsible for graft-versus-host
disease. In addition, the Company is working in an area known as functional
genomics, which involves the discovery of new genes and the validation of
molecular targets that may be useful in the treatment of diseases. ARIAD is
developing this information as a tool to accelerate the discovery of new drugs
to treat these diseases, such as osteoporosis (bones), atherosclerosis (heart
and blood vessels) and cancer. In March 1997, the Company established a joint
venture with Hoechst Marion Roussel, named the Hoechst-ARIAD Genomics Center,
LLC (the "Genomics Center"), to pursue this area.
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, 1998, the Company had
an accumulated deficit of $92,640,000.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUE
The Company recognized research revenue under the Services Agreements,
collaborative research arrangements and government-sponsored grants of
$12,143,000, $9,234,000 and $10,304,000 for the years
15
<PAGE> 18
ended December 31, 1998, 1997 and 1996, respectively. The increase of $2,909,000
or 31.5% in 1998 compared to 1997 was due to an increase of $3,594,000 in
research revenue recognized under the Services Agreements with the Genomics
Center offset by a $685,000 decrease in research revenue recognized under the
1995 HMR Osteoporosis Agreement and government-sponsored research grants. The
decrease in research revenue of $1,070,000 or 10.4% 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. 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 two
years and research revenue recognized under the 1995 HMR Osteoporosis Agreement
is expected to increase in 1999 compared to 1998 primarily due to the
achievement of the second research milestone of $2,000,000 which was received on
February 23, 1999. See "--Liquidity and Capital Resources."
Interest income was $999,000, $1,757,000 and $1,272,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. Interest income decreased by
$758,000 in 1998 compared to 1997 as a result of a lower level of funds
invested. 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.
OPERATING EXPENSES
Research and development expenses were $35,515,000, $20,287,000 and $15,254,000
for the years ended December 31, 1998, 1997 and 1996, respectively. Research and
development expenses increased by $15,228,000 or 75.1% in 1998 compared to 1997
and $5,033,000 or 33.0% in 1997 compared to 1996 primarily due to the expected
increases in research services provided to the Genomics Center under the
Services Agreements and increased drug development costs for the regulated gene
expression technology (ARGENT(TM)), including manufacturing, process development
and other preclinical development activities in preparation for clinical trials
of AP 1903 which commenced in December 1998. AP 1903 is an ARGENT(TM) inducible
apoptosis product to treat graft vs. host disease in patients undergoing
allogeneic bone marrow transplantation. The Company expects its research and
development expenses to increase over the next two years as a result of
increased research services to be provided to the Genomics Center as well as
increased manufacturing and preclinical development costs associated with its
drug candidates and the cost of human clinical trials of AP 1903.
General and administrative expenses were $2,634,000, $2,925,000 and $2,229,000
for the years ended December 31, 1998, 1997 and 1996, respectively. General and
administrative expenses decreased by $291,000 or 10.0% in 1998 compared to 1997
primarily due to the nonrecurrence in 1998 of administrative expenses incurred
in connection with the formation of the Genomics Center in 1997. 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.
The Company incurred interest expense of $481,000 in 1998 compared to $410,000
in 1997 and $269,000 in 1996. The increase of $71,000 in 1998 compared to 1997
was due to the issuance of debt at the end of the second quarter of 1997 and the
increase of $141,000 in 1997 compared to 1996 was due to a higher level of
long-term debt.
16
<PAGE> 19
OPERATING RESULTS
The Company incurred net losses of $26,148,000 in 1998, $12,631,000 in 1997 and
$6,176,000 in 1996. 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. Preferred
dividends of $35,600 were recognized in the fourth quarter of 1998 which are
attributable to the $5,000,000 of Series C Convertible Preferred Stock ("Series
C Preferred Stock") issued on November 9, 1998. The Series C Preferred Stock
carries a 5% annual dividend resulting in net losses attributable to common
stockholders of $26,184,000 in 1998, $12,631,000 in 1997 and $6,176,000 in 1996,
or $1.25, $.66 and $.33 per share, respectively.
At December 31, 1998, the Company had available for federal tax reporting
purposes net operating loss carryforwards of approximately $92,100,000 that
expire commencing in 2006. The Company also had federal research and development
tax credit carryovers of approximately $3,800,000 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 primarily through the
private placement and public offering of its securities, including the sale of
Series C Preferred Stock to investors, the sale of Series B Convertible
Preferred Stock ("Series B Preferred Stock") to HMR, supplemented by the
issuance of long-term debt, operating and capital lease transactions, interest
income, government-sponsored research grants, research revenue under the 1995
HMR Osteoporosis Agreement and, commencing in April 1997, research revenue under
the terms of the Services Agreements with the Genomics Center.
At December 31, 1998, the Company had cash, cash equivalents and marketable
securities totaling $14,176,000 and working capital of $5,806,000 compared to
cash, cash equivalents and marketable securities totaling $29,359,000 and
working capital of $16,539,000 at December 31, 1997.
The primary uses of cash during the year ended December 31, 1998 were
$27,348,000 to finance the Company's operations and working capital
requirements, $1,674,000 to purchase laboratory equipment, $1,817,000 to repay
long-term debt, $523,000 for net investment in the Genomics Center and $759,000
to acquire intellectual property. The primary sources of funds during the year
ended December 31, 1998 were $5,000,000 from the private placement of Series C
Preferred Stock, $9,226,000 from the private placement of common stock and
$2,580,000 from the sale/leaseback of laboratory equipment.
On May 11, 1998, the Company completed a private placement of 2,537,500 shares
of common stock to a group of institutional investors at a price of $4.00 per
share and received net proceeds of approximately $9,226,000 after deducting
selling commissions and offering expenses. The shares were registered under the
Securities Act of 1933, as amended.
On November 9, 1998, the Company completed a private placement of 5,000 shares
of Series C Preferred Stock to a group of institutional investors and received
proceeds of $5,000,000. The Company is required to register the underlying
common shares within 120 days of the closing (March 9, 1999) or incur penalties
of approximately 2% per day.
17
<PAGE> 20
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, 1998, the Company had invested
$6,500,000 in leasehold improvements and equipment and funded $8,839,000 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"). On January 5, 1999, HMR
purchased 428,120 shares of Series B Preferred Stock for $5,747,000,
representing the amount of the subsequent purchase available to ARIAD for 1999
under the agreement. Subsequent commitments by HMR to purchase Series B
Preferred Stock are $8,536,000 and $8,691,000 for each of the years ended
December 31, 2000 and 2001 and $2,026,000 for the three months ended March 31,
2002. Should ARIAD and HMR determine that the Genomics Center require 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 June 30, 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, including the second milestone of
$2,000,000 which was received on February 23, 1999. In addition, HMR has
established a dedicated research group to collaborate with the Company on the
discovery of osteoporosis drugs and has agreed to fund all of the preclinical
and clinical development costs for products that emerge from the collaboration.
The 1995 HMR Osteoporosis Agreement further provides for the payment of
royalties to the Company based on product sales. To date, revenue recognized
under the 1995 HMR Osteoporosis Agreement has amounted to $24,666,000.
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 $12,000,000 per year and may increase. The Company will require substantial
additional funding for its research and product development programs, including
preclinical development and clinical trials, for operating expenses, for the
pursuit of regulatory clearances and for establishing manufacturing, marketing
and sales capabilities. Adequate funds for these purposes,
18
<PAGE> 21
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 planned research and development funding and other sources of funding,
including anticipated strategic alliances, will be adequate to satisfy its
capital and operating requirements through 1999. However, there can be no
assurance that changes in the Company's research and development plans or other
events affecting the Company's revenues or operating expenses will not result in
the earlier depletion of the Company's funds.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue relates to a complex of potential problems arising from the
ways in which computer software can handle dates. Many older systems use a
two-digit date format, as opposed to four digits, to indicate the year. Some of
the Company's computer programs or other information systems that have
time-sensitive software or embedded microcontrollers may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations.
The Company's plan to address year 2000 issues consists of three phases:
assessment, testing and implementation. The Company is in the process of
completing an initial assessment of its information technology infrastructure,
hardware and software which began in Fiscal 1998. Based on this review, the
Company believes that the costs and/or consequences associated with the year
2000 issue are not expected to have a material effect on its business,
operations or future financial condition.
A second, more in-depth analysis is also currently ongoing. Internally, this
review will include the testing of systems developed by the Company. Although
the internal portion of this analysis just recently commenced, the Company
believes that, with modifications to existing software and conversions to new
software and systems, the year 2000 issue will not pose significant operational
problems for its computer and other information systems. If required, the
Company will utilize additional internal and external resources to reprogram,
replace, and test the software and systems for year 2000 modifications.
Externally, the Company's preparations for the year 2000 issue will consist of
soliciting and, where feasible, obtaining certification of year 2000 compliance
from third-party software vendors and determining the readiness of its
significant suppliers. The Company is working with external suppliers and
service providers to ensure that they and their systems will be able to support
our needs and, where necessary, interact with our server and hardware and
software infrastructure in preparation for the year 2000. This testing phase is
expected to be completed by September 30, 1999.
If any necessary modifications, conversions and/or replacements are not made,
are not completed timely, or if any of the Company's suppliers or customers do
not successfully deal with the year 2000 issue, such circumstances could have a
material impact on the operations of the Company. The Company's research and
development efforts, which rely heavily on the storage and retrieval of
electronic information, could be interrupted resulting in significant delays in
any one or all of the Company's research and development programs. The severity
of these possible problems would depend on the nature of the problem and how
quickly it could be corrected or an alternative implemented, which is unknown at
this time. In the extreme, such problems could disrupt a significant portion of
the Company's operation.
While management has not yet specifically determined the costs associated with
its year 2000 readiness efforts, monitoring and managing the year 2000 issue
will result in additional direct and indirect costs to the Company. Direct costs
include potential charges by third-party software vendors for product
enhancements, costs involved in testing software products for year 2000
compliance and any resulting costs for developing and implementing contingency
plans for critical software products which are not enhanced. The Company
estimates the total cost for upgrading its computer system, hardware and
software is not likely to exceed $200,000. Indirect costs will principally
consist of the time devoted by existing employees in monitoring software vendor
progress, testing enhanced software products and implementing any necessary
contingency plans. Such costs have not been material to date. Both direct and
indirect costs of addressing the year 2000 issue will be charged to earnings as
incurred.
19
<PAGE> 22
At the present time, a contingency plan has not been developed. After evaluating
its internal compliance efforts as well as the compliance of third parties as
described above, the Company expects to have contingency plans in place by
November 30, 1999 to address situations in which various systems of the Company,
or of third parties with which the Company does business, are not year 2000
compliant. Some risks of the year 2000 issue, however, are beyond the control of
the Company and its suppliers and customers. For example, no preparations or
contingency plan will protect the Company from a downturn in economic activity
caused by the possible ripple effect throughout the entire economy caused by the
year 2000 issue.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position "SOP" 98-5, Reporting on the Cost of Start-Up Activities,
which will require that all organizational costs be expensed as incurred. SOP
98-5 is effective for fiscal years beginning after December 15, 1998. The
Company will adopt this "SOP" effective January 1, 1999 and will expense
$364,000 in the first quarter of 1999, as a cumulative effect accounting change.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently assessing
the impact of SFAS No. 133 on the consolidated financial statements of the
Company. The Company will adopt this accounting standard on January 1, 2000, as
required.
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains an investment portfolio in accordance with its Investment
Policy. The primary objectives of the company's Investment Policy are to
preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The Company's Investment Policy specifies credit quality
standards for the Company's investments and limits the amount of credit
exposure to any single issue, issuer or type of investment.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less The
Company's marketable securities consist of corporate debt and U.S. Government
securities with maturities of one year or less, but generally less than six
months. These securities are classified as available-for-sale.
Available-for-sale securities are recorded on the balance sheet at fair market
value with unrealized gains or losses reported as a separate component of
stockholders' equity (accumulated other comprehensive loss). Gains and losses
on investment security transactions are reported on the specific-identification
method. Interest income is recognized when earned. A decline in the market
value of any available-for-sale security below cost that is deemed other than
temporary results in a charge to earnings and establishes a new cost basis for
the security. These investments are sensitive to interest rate risk. The
Company believes that the effect, if any, of reasonable possible near-term
changes in the interest rate on its financial position, results of operations
and cash flows should not be material due to the short-term nature of these
investments.
At December 31, 1998, the Company has a bank term note at prime plus 1% and a
government sponsored term note at prime plus 2.75%. These notes are sensitive
to interest rate risk. In the event of a hypothetical 10% increase in the
prime rate, the Company would incur approximately $425,000 of additional
interest expense per year.
4. AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Audited consolidated balance sheets of the Company and its subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998 appear at pages F-1 through F-19 of this
prospectus.
5. CHANGE IN PERSONNEL
Effective March 4, 1999, Dr. Manfred Weigele, former Senior Vice President,
Physical and Chemical Sciences, was appointed Chief Scientific Officer
replacing Dr. Michael Gilman in that position. Dr. Weigele has previously
served as Senior Vice President, Physical and Chemical Sciences from October
1996 to October 1998 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.
20
<PAGE> 23
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ----------------------------------------------------------------------------------F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 -----------------------------------------------------F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996 -------------------------------------------------------------------------------------------------F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 -------------------------------------------------------------------------------------------------F-5
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 1996,
1997 and 1998 -------------------------------------------------------------------------------------------------F-6
Notes to Consolidated Financial Statements --------------------------------------------------------------------F-7
</TABLE>
F-1
<PAGE> 24
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, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1999
F-2
<PAGE> 25
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
Current assets: NOTES 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash and cash equivalents 1 $ 6,501,648 $ 13,858,910
Marketable securities 1,2 7,674,488 15,500,547
Inventory and other 1 2,018,846 758,463
Due from Genomics Center 332,571
--------------- ---------------
Total current assets 16,527,553 30,117,920
--------------- ---------------
Property and equipment: 1,5,6
Leasehold improvements 12,555,301 12,350,100
Equipment and furniture 4,438,399 5,549,127
--------------- ---------------
Total 16,993,700 17,899,227
Less accumulated depreciation and amortization 8,944,027 6,459,857
--------------- ---------------
Property and equipment, net 8,049,673 11,439,370
--------------- ---------------
Investment in Genomics Center 4 1,902,129 1,418,864
--------------- ---------------
Intangible and other assets, net 1,6 4,306,585 4,433,022
--------------- ---------------
Total $ 30,785,940 $ 47,409,176
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 5 $ 1,861,021 $ 1,816,583
Accounts payable 3,322,439 3,299,168
Accrued liabilities 2,042,641 2,849,353
Advance from Genomics Center 4 3,162,463 2,502,921
Deferred revenue 3 333,333 3,111,114
--------------- ---------------
Total current liabilities 10,721,897 13,579,139
--------------- ---------------
Long-term debt 5 3,295,139 5,156,219
---------------
---------------
Deferred revenue 1,3 300,000
---------------
Commitments and contingent liabilities 6,10
Redeemable convertible preferred stock, at liquidation value 7 5,035,616
---------------
Stockholders' equity:
Series B convertible preferred stock, $.01 par value; 4,7,8
authorized, 5,000,000 shares; issued and outstanding,
2,526,316 shares in 1998 and 1997 (liquidation preference, 25,263 25,263
$24,000,000)
Common stock, $.001 par value; authorized, 60,000,000 shares; issued
and outstanding, 21,938,754 shares in 1998
and 19,308,605 shares in 1997 21,939 19,309
Additional paid-in capital 104,360,924 94,833,479
Accumulated other comprehensive loss 2 (34,381) (47,572)
Accumulated deficit (92,640,457) (66,456,661)
--------------- ---------------
Stockholders' equity 11,733,288 28,373,818
--------------- ---------------
Total $ 30,785,940 $ 47,409,176
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 26
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
NOTES 1998 1997 1996
---------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue:
Research revenue (principally
related parties) 1,3,4 $ 12,143,192 $ 9,233,708 $ 10,304,332
Interest income 2 998,743 1,757,327 1,271,895
----------------- ----------------- -----------------
Total revenue 13,141,935 10,991,035 11,576,227
----------------- ----------------- -----------------
Operating expenses:
Research and development 4 35,515,270 20,286,945 15,253,874
General and administrative 2,633,923 2,924,972 2,229,273
Interest expense 5 480,627 410,072 269,131
----------------- ----------------- -----------------
Total operating expenses 38,629,820 23,621,989 17,752,278
Equity in net loss of Genomics Center 1,4 660,295
----------------- ----------------- -----------------
Net loss (26,148,180) (12,630,954) (6,176,051)
Preferred dividend 7 35,616
----------------- ----------------- -----------------
Net loss attributable to common
stockholders $ (26,183,796) $ (12,630,954) $ (6,176,051)
================= ================= =================
Net loss per common share (basic and
diluted) 1 $ (1.25) $ (.66) $ (.33)
================= ================= =================
Weighted average number of shares of common
stock outstanding 1 20,966,586 19,252,885 18,999,229
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 27
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996
-------------- ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (26,148,180) $ (12,630,954) $ (6,176,051)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 3,468,971 2,662,291 2,293,446
Stock-based compensation 72,612 70,302 27,225
Increase (decrease) from:
Deferred revenue (3,077,781) (3,333,332) (3,333,332)
Inventory, accounts receivable and other (1,260,383) 1,810,941 (2,064,944)
Due from the Genomics Center (332,571)
Other assets 53,380 (154,262) (233,021)
Accounts payable 23,271 2,510,886 110,364
Accrued liabilities (806,712) 2,210,327 (121,139)
Advance from Genomics Center 659,542 2,502,921
-------------- ------------------ -----------------
Net cash used in operating activities (27,347,851) (4,350,880) (9,497,452)
-------------- ------------------ -----------------
Cash flows from investing activities:
Acquisitions of marketable securities (14,845,944) (24,890,446) (17,352,936)
Proceeds from sales and maturities of marketable
securities 22,571,606 22,102,315 27,752,510
Investment in Genomics Center (6,237,132) (2,806,093)
Return of investment in Genomics Center 5,714,587 1,357,377
Investment in property and equipment, net (1,673,979) (9,403,738) (1,265,253)
Acquisition of intangible and other assets (758,876) (2,237,571) (451,811)
-------------- ------------------ -----------------
Net cash provided by (used in) investing
activities 4,770,262 (15,878,156) 8,682,510
-------------- ------------------ -----------------
Cash flows from financing activities:
Proceeds from issuance of series B convertible
preferred stock 24,000,000
Proceeds from issuance of redeemable preferred
stock 5,000,000
Proceeds from borrowings 6,000,000
Repayment of borrowings (1,816,642) (1,775,966) (1,558,233)
Proceeds from sale/leaseback of equipment, net 2,579,506 2,762,189 1,391,668
Proceeds from issuance of common stock, net of
issuance costs 9,226,060
Proceeds from issuance of stock pursuant to stock
option and purchase plans 231,403 194,872 138,276
-------------- ------------------ -----------------
Net cash provided by (used in) financing
activities 15,220,327 31,181,095 (28,289)
-------------- ------------------ -----------------
Net (decrease) increase in cash and equivalents (7,357,262) 10,952,059 (843,231)
Cash and equivalents, beginning of year 13,858,910 2,906,851 3,750,082
-------------- ------------------ -----------------
Cash and equivalents, end of year $ 6,501,648 $ 13,858,910 $ 2,906,851
============== ================== =================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 28
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Series B
Convertible Additional
Preferred Stock Common Stock Paid-in
Notes Share Amount Shares Amount Capital
------- ------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 18,965,728 $ 18,966 $ 70,428,410
Exercise of stock options 8 70,995 71 138,205
Stock-based compensation to 1 27,225
consultants
Comprehensive loss:
Net loss
Other comprehensive income - 1
Unrealized gains on marketable
securities 2
Comprehensive loss
------------ ---------- -------------
Balance, December 31, 1996 19,036,723 19,037 70,593,840
Issuance of series B convertible
preferred stock 4,7 2,526,316 $ 25,263 23,974,737
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
Stock-based compensation to
consultants 1 70,302
Comprehensive loss:
Net loss
Other comprehensive income - 1
Unrealized gains on marketable
securities 2
Comprehensive loss
------------ -------------------- ---------- -------------
Balance, December 31, 1997 2,526,316 25,263 19,308,605 19,309 94,833,479
Private placement of common stock 7,8 2,537,500 2,537 9,223,523
Issuance of shares pursuant to stock
option and purchase plans 8 92,649 93 231,310
Stock-based compensation to
consultants 1 72,612
Accretion of preferred dividends
Comprehensive loss:
Net loss
Other comprehensive income - 1
Unrealized gains on
marketable securities 2
Comprehensive loss
------------ -------- ----------- ---------- ---------------
Balance, December 31, 1998 2,526,316 $ 25,263 21,938,754 $ 21,939 $ 104,360,924
============ ======== =========== ========== ===============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Accumulated Stockholders'
Loss Deficit Equity
------------- -------------- --------------
<S> <C> <C> <C>
Balance January 1, 1996 $ (113,273) $ (47,649,656) $ 22,684,447
Exercise of stock options 138,276
Stock-based compensation to 27,225
consultants
Comprehensive loss:
Net loss (6,176,051) (6,176,051)
Other comprehensive income -
Unrealized gains on marketable
securities 10,574 10,574
------------
Comprehensive loss (6,165,477)
---------- ------------ ------------
Balance, December 31, 1996 (102,699) (53,825,707) 16,684,471
Issuance of series B convertible
preferred stock 24,000,000
Exercise of 1992 warrants
Issuance of shares pursuant to stock
option and purchase plans 194,872
Stock-based compensation to
consultants 70,302
Comprehensive loss:
Net loss (12,630,954) (12,630,954)
Other comprehensive income -
Unrealized gains on marketable
securities 55,127 55,127
------------
Comprehensive loss (12,575,827)
---------- ------------ ------------
Balance, December 31, 1997 (47,572) (66,456,661) 28,373,818
Private placement of common stock 9,226,060
Issuance of shares pursuant to stock
option and purchase plans 231,403
Stock-based compensation to
consultants 72,612
Accretion of preferred dividends (35,616) (35,616)
Comprehensive loss:
Net loss (26,148,180) (26,148,180)
Other comprehensive income -
Unrealized gains on
marketable securities 13,191 13,191
------------
Comprehensive loss (26,134,989)
---------- ------------ ------------
Balance, December 31, 1998 $ (34,381) $ (92,640,457) $ 11,733,288
====== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 29
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 focused on the
discovery and development of novel and proprietary drugs based on its
understanding of the inner-workings of cells and the genes involved in
disease. The Company has developed a product to treat graft-versus-host
disease, a complication of bone marrow transplantation involving an attack
by a patient's immune system on healthy tissue, which entered Phase 1 human
clinical trials (safety studies) in December 1998. All of the Company's
other drug candidates are in the pre-clinical stage.
ARIAD's research and development programs involve three areas: Signal
transduction inhibitors, regulated gene therapy and functional genomics.
Signal transduction inhibitors are drugs designed to block specific
molecular targets in bone cells and white blood cells. In November 1995,
the Company entered into an agreement with Hoechst Marion Roussel, Inc.
("HMR") to collaborate on the discovery and development of such drugs to
treat osteoporosis and other bone diseases. The Company has also developed
a system referred to as "ARIAD Regulated Gene Expression Technology" or
"ARGENT(TM)" which is designed to control cellular activities using drugs.
This system can be applied in research for discovery of new drugs and new
genes, in gene and cell therapy, and in the manufacture of biological
products. The leading application of this system is the controlled
production of protein drugs by regulated gene therapy. Another use of this
system is ARIAD's product to treat graft-versus-host disease. This product
may improve the safety and effectiveness of certain types of bone marrow
transplants by selectively killing the cells responsible for
graft-versus-host disease. In addition, the Company is working in an area
known as functional genomics, which involves the discovery of new genes and
the validation of molecular targets that may be useful in the treatment of
diseases. ARIAD is developing this information as a tool to accelerate the
discovery of new drugs to treat these diseases, such as osteoporosis
(bones), atherosclerosis (heart and blood vessels) and cancer. In March
1997, the Company established a joint venture with HMR, named the
Hoechst-ARIAD Genomics Center, LLC (the "Genomics Center"), to pursue this
area.
Principles of Consolidation
The consolidated financial statements include the accounts of ARIAD
Pharmaceuticals, Inc., its wholly owned subsidiary, ARIAD Corporation, and
its 95%-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).
F-7
<PAGE> 30
Accounting Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions 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.
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.
Inventory
Inventories are carried at cost using the first-in, first-out method and
are charged to research and development expense when consumed. Inventory
consisted of bulk pharmaceutical material to be used for multiple
preclinical and clinical drug development programs and amounted to
$1,446,000 at December 31, 1998.
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).
The Company accounts for the impairment of long-lived assets in accordance
with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of.
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.
F-8
<PAGE> 31
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 amortized over a three-year period beginning
November 1995. Accumulated amortization of intangible and other assets at
December 31, 1998 and 1997 was $2,902,000 and $2,111,000, 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 or
drug development milestones is recognized when achieved. Research revenue
is 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. None of the Company's research revenue recognized
is refundable.
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131, Segment
Reporting, which requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company organizes
itself as one segment reporting to the chief operating decision maker.
Products and services consist primarily of research and development
activities with collaborative and strategic partners in the pharmaceutical
industry.
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.
Earnings Per Share
Basic earnings per common share are computed using the weighted average
number of common shares outstanding during each year. Diluted earnings per
common share reflect the effect of the Company's outstanding options,
warrants and convertible securities, except where such items would be
anti-dilutive. Because of the net loss reported in each year, basic and
diluted per share amounts are the same.
F-9
<PAGE> 32
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements.
Recently Issued Financial Accounting Standards
In April 1998 the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Reporting on the Cost of Start-Up
Activities, which will require that all organizational costs be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after December
15, 1998. The Company will adopt this SOP effective January 1, 1999 and
will expense $364,000 in the first quarter of 1999 as a cumulative effect
accounting change.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. The new standard requires that
all companies record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting.
Management is currently assessing the impact of SFAS No. 133 on the
financial statements of the Company. The Company will adopt this accounting
standard on January 1, 2000, as required.
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, 1998 and 1997, the Company's marketable securities consisted
of the following:
<TABLE>
<CAPTION>
Aggregate Amortized Gross Unrealized
1998 Fair Value Cost Basis Gains Losses
- ---- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 583,720 $ 603,222 $ $ (19,502)
Corporate debt securities 7,090,768 7,105,647 3,772 (18,651)
---------------- ---------------- ---------------- ----------------
Total $ 7,674,488 $ 7,708,869 $ 3,772 $ (38,153)
================ ================ ================ ================
1997
- ----
U.S. Government
obligations $ 2,974,292 $ 3,006,012 $ $ (31,720)
Corporate debt securities 12,526,255 12,542,107 2,680 (18,532)
---------------- ---------------- ---------------- ----------------
Total $ 15,500,547 $ 15,548,119 $ 2,680 $ (50,252)
================ ================ ================ ================
</TABLE>
At December 31, 1998, 1997 and 1996 approximately $6,669,000, $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, 1998, 1997 and 1996. Changes in market values resulted in a
reduction of $13,191, $55,127 and $10,574 in net unrealized losses for the
years ended December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, marketable securities amounting to $5,586,000 were
pledged through January 15, 1999 to secure the principal amounts of the
Company's bank term note and capital lease obligation with its principal
bank.
F-10
<PAGE> 33
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
In November 1995, the Company entered into an agreement with 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 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. Revenue recognized under the 1995 HMR Osteoporosis
Agreement amounted to $6,778,000, $7,333,000 and $9,333,000 for 1998, 1997
and 1996, respectively, including, in 1996, $2,000,000 for the achievement
of the first research milestone.
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 $114,000, $543,000 and $971,000 for 1998, 1997 and 1996,
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, 1998, the Company had invested $6,500,000 in leasehold
improvements and equipment and funded $8,839,000 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 convertible preferred stock over the five-year period, including
an initial investment of $24,000,000, which was completed in March 1997 and
$5,747,000 which was completed in January 1999 (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 June 30, 2003 in cash or series B convertible preferred stock,
at the Company's option.
The Company also entered into agreements with the Genomics Center to
provide research and administrative services (the "Services Agreements") to
the Genomics Center on a cost reimbursement basis. ARIAD's costs of
providing the research and administrative services to the Genomics Center
are charged to research
F-11
<PAGE> 34
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. Under the Services
Agreements, the Company bills the Genomics Center in advance for the next
quarter's projected services. At December 31, 1998, the balance sheet
advance amount of $3,162,463 represents the projected amount for the first
quarter of 1999. Revenue recognized pursuant to the Services Agreements
amounted to $4,951,000 and $1,357,000 for the years ended December 31, 1998
and 1997, respectively.
The major components of the Genomics Center's financial position and
results of operations are as follow:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Advance to ARIAD $ 3,162,000 $ 2,503,000
Other assets 804,000 4,000
-------------- -------------
Total assets $ 3,966,000 $ 2,507,000
============== =============
Total liabilities - due to ARIAD $ 400,000 $ -
Equity 3,566,000 2,507,000
-------------- -------------
Total liabilities and equity $ 3,966,000 $ 2,507,000
============== =============
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997
-------------- ---------------
Revenues $ - $ -
Operating expenses:
ARIAD 9,902,000 2,696,000
Other 1,307,000 -
-------------- -------------
Net loss $ (11,209,000) $ (2,696,000)
============== =============
ARIAD's 50% share of net loss $ (5,605,000) $ (1,348,000)
Elimination of intercompany transactions 4,945,000 1,348,000
-------------- -------------
ARIAD's equity in the net (loss) of the
Genomics Center $ (660,000) $ -
============== =============
</TABLE>
5. LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Bank term-note at prime plus 1% (8.75%, at December 31, 1998) payable in monthly
installments of $100,000 plus interest, through July 1, 2002 $ 4,300,000 $ 5,500,000
Capital lease obligation, at 9.0%, payable in monthly installments of
$46,518 including interest, through December 31, 2000 725,205 1,199,007
Government-sponsored seven-year term note, at prime plus 2.75% (10.5%,
at December 31, 1998), payable in monthly installments of $11,905 plus interest,
through November 1, 1999 130,955 273,795
-------------- --------------
Total 5,156,160 6,972,802
Less current portion 1,861,021 1,816,583
-------------- --------------
Long-term debt $ 3,295,139 $ 5,156,219
============== ==============
</TABLE>
F-12
<PAGE> 35
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%. At December 31, 1998, such marketable securities were pledged
resulting in a rate of 6.87%.
The above agreements contain certain covenants that restrict additional
indebtedness, capital spending and stock redemption; prohibit dividend
distributions; and require the Company to pledge its marketable securities
or 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 $1,861,000 in 1999, $1,395,000
in 2000, $1,200,000 in 2001 and $700,000 in 2002. Interest payments during
1998, 1997 and 1996 were $453,000, $395,000 and $231,000, respectively.
6. LEASES, LICENSED TECHNOLOGY AND OTHER COMMITMENTS
Facility Lease
In 1992, the Company entered into a ten-year noncancelable operating lease,
with an option to extend for an additional ten years, 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 40,000 square feet of unimproved space, and in
1997 completed renovations, principally to provide research services to the
Genomics Center (Note 4), at an aggregate cost of $5,327,000. Rent expense
for the years ended December 31, 1998, 1997 and 1996 amounted to
$1,106,000, $945,000, and $803,000, respectively. Future minimum annual
rental payments under the lease are approximately $1,382,000 for each of
the four years 1999 through 2002.
Equipment Leases
The Company utilizes lease credit facilities from various equipment leasing
companies to acquire equipment, which is resold to a lessor at cost, with
no resulting gain or loss recognized. 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. During the years ended December 31,
1998, 1997 and 1996 the Company entered into sales leaseback transactions
amounting to $2,579,000, $2,762,000 and $1,392,000, respectively. Equipment
rental expense for the years ended December 31, 1998, 1997 and 1996
amounted to $1,864,000, $1,011,000 and $1,462,000, 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 $2,282,000 for 1999, $1,585,000 for 2000, $1,305,000 for
2001, $1,231,000 for 2002 and $180,000 for 2003.
Collaborative Agreement
In connection with the establishment of the Genomics Center (Note 4), the
Company entered into a three-year collaborative agreement with Incyte
Pharmaceuticals, Inc. that provides the Company with access to various
genomic data through December 31, 2000. The agreement was amended in
December 1998 to
F-13
<PAGE> 36
provide increased data access and increase the annual fees from $3,000,000
to $3,750,000 commencing in 1999, of which $500,000 is reimbursed annually
by HMR. The amount charged to research expense in 1998 and 1997 was
$2,702,000 and $833,000, respectively. The agreement provides for
additional payments for exclusive licenses, the achievement of certain
milestones in drug development and royalties on net sales. Future minimum
commitments under the collaborative agreement with Incyte Pharmaceuticals,
Inc. are $3,750,000 annually for 1999 and 2000.
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 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 $300,000, $105,000 and $125,000 for 1998, 1997
and 1996, respectively, and are expected to amount to approximately
$187,000 for 1999, $177,000 for 2000, $222,000 for 2001, $182,000 for 2002
and $182,000 for 2003. 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 $2,105,000 and remaining terms of employment ranging up to
three years.
7. STOCKHOLDERS' EQUITY
Series 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, 1998, the Board of Directors had designated 500,000 shares
as series A preferred stock, 5,000,000 shares as series B preferred stock,
25,000 shares as series C preferred stock, and 4,475,000 shares remained
undesignated.
Series B Convertible Preferred Stock ("Series B Preferred Stock")
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). On January 5, 1999, HMR purchased 478,120 shares of
Series B Preferred Stock for $5,747,000, representing the amount available
for 1999 under the agreement. Subsequent commitments by HMR to purchase
Series B Preferred Stock are $8,536,000 and $8,691,000 for each of the
years ended December 31, 2000 and 2001 and $2,026,000 for the three months
ended March 21, 2002. The Series B Preferred Stock is convertible
one-for-one into common stock upon the earliest to occur of: (i) six months
F-14
<PAGE> 37
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 stockholder has voting rights equivalent to common
stockholders, subject to certain restrictions relative to a merger or
acquisition of the Company.
Series C Redeemable Convertible Preferred Stock ("Series C Preferred
Stock")
On November 9, 1998, the Company issued 5,000 shares of the Company's
Series C Preferred Stock to a group of institutional investors (the
"Investors") and received proceeds of approximately $5,000,000. Each share
of Series C Preferred Stock has a liquidation value of $1,000, plus an
additional amount equal to 5% per annum (preferred dividend), accrued from
the date of issue, and is convertible into common stock of the Company
beginning on February 15, 1999, at a conversion price equal to the lower of
a variable conversion price (the "Variable Price") or $2.09 per share.
Subject to certain adjustments, the Variable Price for any given conversion
is based on the average of the four lowest closing bid prices for the
common stock during the 22 trading days preceding the date of conversion.
Under the Securities Purchase Agreement, dated as of November 9, 1998,
between the Company and the Investors (the "Purchase Agreement"), subject
to certain conditions and limitations, the Company will be required to sell
and the Investors will have the right, commencing approximately ten months
after the closing date to purchase two additional shares of Series C
Preferred Stock, at $1,000 per share, for each share then held or
previously converted provided that it has been converted at $2.09 per
share. The Purchase Agreement further provides that, during a six-month
period commencing approximately ten months after the closing date and
subject to certain conditions, the Company will have the right to require
the Investors to purchase up to an aggregate of 5,000 additional shares of
Series C Preferred Stock.
Under certain circumstances and at prices less than $1.95 per share, the
Company may elect to redeem any shares of Series C Preferred Stock that are
presented for conversion. Under certain circumstances relating primarily to
a change of control the Investors have the right to require the Company to
redeem the Series C Preferred Stock at a price equal to the greater of 120%
of the liquidation value, or the market value, at such date. The Company is
required to register the underlying common shares within 120 days of the
closing (March 9, 1999) or incur penalties of approximately 2% per day.
Common Stock
On May 11, 1998, the Company completed a private placement of 2,537,500
shares of common stock to a group of institutional investors at a price of
$4.00 per share and received net proceeds of approximately $9,226,000 after
deducting selling commissions and offering expenses. The shares were
registered under the Securities Act of 1933, as amended.
Warrants
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
F-15
<PAGE> 38
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
The 5% minority interest in AGTI includes shares issued to Stanford
University and Harvard University (3%) issued in 1995 in connection with a
license agreement and shares issued to option holders (2%) upon their
exercise (Note 8).
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, typically over a four year
period, and expire ten years from the date of grant.
Transactions under the Plans for the years ended December 31, 1996, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Number per Share
of Shares
----------------- --------------------
<S> <C> <C>
Options outstanding, January 1, 1996 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
Granted 1,313,775 3.75
Forfeited (240,154) 4.32
Exercised (77,441) 2.08
-----------------
Options outstanding, December 31, 1998 4,538,737 $3.35
=================
Options exercisable, December 31, 1996 1,878,668 $2.18
=================
December 31, 1997 2,197,320 $2.37
=================
December 31, 1998 2,618,294 $2.59
=================
</TABLE>
F-16
<PAGE> 39
The following table sets forth information regarding options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Range of Weighted Weighted Average Number of Option Exercise Price for
Exercise Prices Number of Average Remaining Life Shares Currently Currently
Shares Exercise (years) Exercisable Exercisable
Price
- ---------------- ------------- --------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$1.59-2.69 2,338,983 $1.98 5.0 2,060,366 $1.94
3.55-4.88 1,631,012 4.20 8.4 340,770 4.20
4.88-7.63 568,742 6.46 8.5 217,158 6.11
- ---------------- ------------- --------------- ------------------- ------------------- -------------------
$1.59-7.63 4,538,737 $3.34 6.7 2,618,294 $2.59
================ ============= =============== =================== =================== ===================
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Proforma net loss attributable
to common stockholders $ (27,816,845) $ (13,663,496) $ (6,726,601)
Proforma net loss per share
(basic and diluted) $ (1.33) $ (.71) $ (.35)
</TABLE>
The above disclosure, required by SFAS No. 123, includes only the effect of
grants made subsequent to January 1, 1996. For purposes of calculating the
above disclosure, the fair value of options on their grant date was
measured using the Black-Scholes option pricing model. Key assumptions used
to apply this pricing model included a risk-free interest rate of 5.5% for
1998 and 6% for 1997 and 1996, expected lives of the option grants ranging
from two to six years and expected rates of volatility for the underlying
stock of 82% for 1998, and 78% for 1997 and 1996. Using this model, the
weighted average fair value per option for all options granted to
consultants and employees in 1998, 1997 and 1996 was $2.75, $3.10 and
$2.40, 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, 1998,
options with respect to 1,167,137 shares of AGTI's common stock were
outstanding at an exercise price of $.42 per share, and all option shares
were exercisable. During 1998, options with respect to 62,499 shares were
exercised at an exercise price of $.42 per share and 8,929 shares were
forfeited. If all of the options outstanding at December 31, 1998 had been
exercised, the optionees would own 21.2% of the outstanding shares of AGTI.
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 1998,
15,207 shares of common stock were issued.
F-17
<PAGE> 40
9. INCOME TAXES
At December 31, 1998, the Company had available for federal tax reporting
purposes, net operating loss carryforwards of approximately $92.1 million
which expire commencing in 2006. The Company also had federal research and
development credit carryovers of approximately $3.8 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:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C>
Deferred tax liabilities:
Intangible and other assets $ 1,544,000 $ 1,390,000
Organizational costs 2,000 1,000
------------------ -----------------
Total deferred tax liabilities 1,546,000 1,391,000
------------------ -----------------
Deferred tax assets:
Net operating loss carryforwards 35,446,000 25,383,000
Tax credit carryovers 7,585,000 5,398,000
Depreciation 1,499,000 749,000
Deferred revenue 133,000 1,244,000
Other 58,000 42,000
------------------ -----------------
Total deferred tax assets 44,721,000 32,816,000
------------------ -----------------
Deferred tax assets, net 43,175,000 31,425,000
Valuation allowance (43,175,000) (31,425,000)
------------------ -----------------
Total deferred taxes $ -0- $ -0-
================== =================
</TABLE>
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of December 31, 1998 and 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 1998 and 1997 primarily due to an
increase in the Company's net operating loss carryforwards and tax credit
carryovers.
10. 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.
F-18
<PAGE> 41
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, which is not presently
determinable, could have a material adverse effect on the Company's
financial position, results of operations, and cash flows. No provision for
any loss that may result upon resolution of this matter has been made in
the accompanying consolidated financial statements.
F-19
<PAGE> 42
================================================================================
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell and
seeking offers to buy shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of March 4, 1999. You should not assume that this prospectus is
accurate as of any other date.
TABLE OF CONTENTS
PAGE
Prospectus Summary................................. 1
The Company........................................ 1
Risk Factors....................................... 2
Where to Find More Information..................... 8
Incorporation of Documents by Reference............ 8
Forward Looking Statements......................... 9
Use of Proceeds.................................... 9
Dividend Policy.................................... 9
Selling Stockholders............................... 10
Plan of Distribution............................... 11
Legal Matters...................................... 12
Experts............................................ 12
Material Changes................................... 13
Index to Consolidated Financial
Statements....................................... F-1
================================================================================
================================================================================
5,933,362 SHARES
ARIAD PHARMACEUTICALS, INC.
COMMON STOCK
($.001 PAR VALUE PER SHARE)
----------------
PROSPECTUS
----------------
________, 1999
================================================================================
<PAGE> 43
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Company's estimates (other than the
SEC and Nasdaq registration fees) of the expenses in connection with the
issuance and distribution of the shares of common stock being registered. None
of the following expenses are being paid by the selling stockholders.
ITEM AMOUNT
---- ------
SEC registration fee............................. $ 2,860.81
Nasdaq listing fee............................... 17,500.00
Legal fees and expenses.......................... 40,000.00
Accounting fees and expenses..................... 20,000.00
Miscellaneous fees and expenses.................. 639.19
-------------------
Total............................................ $ 81,000.00
===================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
II-1
<PAGE> 44
The Certificate of Incorporation, as amended, and By-laws of the
Company provide for indemnification of the Company's directors and officers to
the fullest extent permitted by law. The By-laws also permit the Board of
Directors to authorize the Company to purchase and maintain insurance against
any liability asserted against any director, officer, employee or agent of the
Company arising out of his capacity as such. Insofar as indemnification for
liabilities under the Securities Act may be permitted to directors, officers, or
controlling persons of the Company pursuant to the Company's Certificate of
Incorporation, as amended, its By-laws and the Delaware General Corporation Law,
the Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
As permitted by Section 102(b)(7) of the Delaware General Corporation
Law, the Company's Certificate of Incorporation, as amended, provides that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit. As
a result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
4.1 Certificate of Incorporation of the Company, as amended. (Filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form 10 filed
with the Securities and Exchange Commission on June 25, 1993 and
incorporated herein by reference.)
4.2 By-laws of the Company, as amended. (Filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form 10 filed with the
Securities and Exchange Commission on June 25, 1993 and incorporated
herein by reference.)
4.3 Amendment of Certificate of Incorporation of the Company, dated April
8, 1994. (Filed as Exhibit 3.3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 filed with the
Securities and Exchange Commission on April 15, 1994 and incorporated
herein by reference.)
4.4 Amendment of Certificate of Incorporation of the Company, dated October
4, 1994. (Filed as Exhibit 3.4 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 filed with the
Securities and Exchange Commission on March 30, 1995 and incorporated
herein by reference.)
4.5 Amendment of By-laws of the Company, adopted September 16, 1994. (Filed
as Exhibit 3.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 filed with the Securities and
Exchange Commission on March 30, 1995 and incorporated herein by
reference.)
4.6 Certificate of Designations for the Series B Convertible Preferred
Stock. (Filed as Exhibit 3.5 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal period ended March 31, 1997 filed with the
Securities and Exchange Commission on May 13, 1997 and incorporated
herein by reference.)
II-2
<PAGE> 45
4.7 Certificate of Designations for the Series C Convertible Preferred
Stock. (Filed as Exhibit 4.3 to the Registrant's Current Report on Form
8-K for the November 12, 1998 Event and incorporated herein by
reference.)
5.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1)
24.1* Power of Attorney (included on signature page)
* Previously filed with the Securities and Exchange Commission on December 24,
1998.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or any
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
derivation from the low end or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 46
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cambridge and Commonwealth of Massachusetts on the 5th day of March,
1999.
ARIAD PHARMACEUTICALS, INC.
By: /s/Jay R. LaMarche
------------------------
Jay R. LaMarche
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons and in the capacities indicated on the 5th day of March, 1999.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of Directors, President
--------------------------- and Chief Executive Officer (Principal Executive Officer) March 5, 1999
Harvey J. Berger, M.D.
/s/ Jay R. LaMarche Executive Vice President, Chief Financial Officer, Treasurer and
--------------------------- Director (Principal Financial and Accounting Officer) March 5, 1999
Jay R. LaMarche
*
---------------------------
Joan S. Brugge, Ph.D. Director March 5, 1999
*
---------------------------
Vaughn D. Bryson Director March 5, 1999
*
---------------------------
Philip Felig, M.D. Director March 5, 1999
*
---------------------------
John M. Deutch, Ph.D. Director March 5, 1999
*
---------------------------
Joel S. Marcus Director March 5, 1999
*
---------------------------
Sandford D. Smith Director March 5, 1999
*
---------------------------
Ralph Snyderman, M.D. Director March 5, 1999
*
---------------------------
Raymond S. Troubh Director March 5, 1999
</TABLE>
* By executing his name hereto, Jay R. LaMarche is signing this document on
behalf of the persons indicated above pursuant to powers of attorney duly
executed by such persons and filed with the SEC.
By: /s/ Jay R. LaMarche
-------------------------
Jay R. LaMarche
(Attorney-in-Fact)
II-5
<PAGE> 48
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
4.1 Certificate of Incorporation of the Company, as amended. (Filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form 10 filed
with the Securities and Exchange Commission on June 25, 1993 and
incorporated herein by reference.)
4.2 By-laws of the Company, as amended. (Filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form 10 filed with the
Securities and Exchange Commission on June 25, 1993 and incorporated
herein by reference.)
4.3 Amendment of Certificate of Incorporation of the Company, dated April
8, 1994. (Filed as Exhibit 3.3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 filed with the
Securities and Exchange Commission on April 15, 1994 and incorporated
herein by reference.)
4.4 Amendment of Certificate of Incorporation of the Company, dated October
4, 1994. (Filed as Exhibit 3.4 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 filed with the
Securities and Exchange Commission on March 30, 1995 and incorporated
herein by reference.)
4.5 Amendment of By-laws of the Company, adopted September 16, 1994. (Filed
as Exhibit 3.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 filed with the Securities and
Exchange Commission on March 30, 1995 and incorporated herein by
reference.)
4.6 Certificate of Designations for the Series B Convertible Preferred
Stock. (Filed as Exhibit 3.5 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal period ended March 31, 1997 filed with the
Securities and Exchange Commission on May 13, 1997 and incorporated
herein by reference.)
4.7 Certificate of Designations for the Series C Convertible Preferred
Stock. (Filed as Exhibit 4.3 to the Registrant's Current Report on Form
8-K for the November 12, 1998 Event and incorporated herein by
reference.)
5.1* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1)
24.1* Power of Attorney (included on signature page)
* Previously filed with the Securities and Exchange Commission on
December 24, 1998.
II-6
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-69689 of ARIAD Pharmaceuticals, Inc. of our report dated February 10, 1999
appearing in the Prospectus, which is part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
Boston, Massachusetts
March 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM S-3
FILED BY ARIAD PHARMACEUTICALS,INC. FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,502
<SECURITIES> 7,674
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,528
<PP&E> 16,994
<DEPRECIATION> (8,944)
<TOTAL-ASSETS> 30,786
<CURRENT-LIABILITIES> 10,722
<BONDS> 0
5,036
25
<COMMON> 22
<OTHER-SE> 11,686
<TOTAL-LIABILITY-AND-EQUITY> 30,786
<SALES> 0
<TOTAL-REVENUES> 13,142
<CGS> 0
<TOTAL-COSTS> 35,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 481
<INCOME-PRETAX> (26,148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,148)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
