<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER: 0-21696
ARIAD PHARMACEUTICALS, INC.
(Exact name of Company as specified in its charter)
DELAWARE 22-3106987
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 LANDSDOWNE STREET, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices)(Zip Code)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-0400
Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report: Not Applicable
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of the Company's common stock outstanding as of November 8,
1999 was 22,031,263.
================================================================================
<PAGE> 2
ARIAD PHARMACEUTICALS, INC.
TABLE OF CONTENTS
-----------------
Page No.
-------
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - September 30,
1999 and December 31, 1998 .................................... 1
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1999 and 1998 ................................... 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and
1998 .......................................................... 3
Notes to Unaudited Condensed Consolidated
Financial Statements .......................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................... 17
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS ............................................. 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ..................... 19
ITEM 5. OTHER INFORMATION ............................................. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................. 20
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,455,529 $ 6,501,648
Marketable securities 45,200 7,674,488
Inventory and other 1,523,752 2,018,846
Due from Genomics Center 203,949 332,571
------------- ------------
Total current assets 9,228,430 16,527,553
------------- ------------
Property and equipment:
Leasehold improvements 12,566,650 12,555,301
Equipment and furniture 4,579,816 4,438,399
------------- ------------
Total 17,146,466 16,993,700
Less accumulated depreciation and amortization 10,809,293 8,944,027
------------- ------------
Property and equipment, net 6,337,173 8,049,673
------------- ------------
Investment in Genomics Center 2,707,963 1,902,129
------------- ------------
Intangible and other assets, net 4,180,701 4,306,585
------------- ------------
Total $ 22,454,267 $ 30,785,940
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,764,734 $ 1,861,021
Accounts payable 4,025,435 3,322,439
Accrued liabilities 2,682,334 2,042,641
Advance from Genomics Center 4,083,451 3,162,463
Deferred revenue 333,333 333,333
------------- ------------
Total current liabilities 14,889,287 10,721,897
------------- ------------
Long-term debt 3,295,139
------------
Long-term debt - related party 1,827,962
-------------
Redeemable convertible preferred stock, at liquidation value 5,222,602 5,035,616
------------- ------------
Stockholders' equity:
Series B convertible preferred stock, $.01 par value;
authorized, 5,000,000 shares; issued and outstanding,
3,004,436 shares in 1999 and 2,526,316 shares in 1998
(liquidation preference, $29,747,000) 30,044 25,263
Common stock, $.001 par value; authorized, 60,000,000 shares;
issued and outstanding, 22,019,122 shares in 1999 and
21,938,754 shares in 1998 22,019 21,939
Additional paid-in capital 110,311,483 104,360,924
Accumulated other comprehensive loss (4,800) (34,381)
Accumulated deficit (109,844,330) (92,640,457)
------------- ------------
Stockholders' equity 514,416 11,733,288
------------- ------------
Total $ 22,454,267 $ 30,785,940
============= ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Research revenue
(principally related parties) $ 2,583,349 $ 3,658,801 $ 9,889,822 $ 9,733,270
Interest income, net 18,284 220,925 334,580 829,672
----------- ----------- ------------ ------------
Total revenue 2,601,633 3,879,726 10,224,402 10,562,942
----------- ----------- ------------ ------------
Operating expenses:
Research and development 6,813,407 10,501,734 22,783,873 27,163,834
General and administrative 949,851 629,581 2,564,441 2,005,630
Interest expense 188,876 115,519 386,122 373,643
----------- ----------- ------------ ------------
Total operating expenses 7,952,134 11,246,834 25,734,436 29,543,107
Equity in net loss of Genomics Center 376,715 160,074 1,142,465 223,617
----------- ----------- ------------ ------------
Loss before cumulative effect of
change in accounting principle (5,727,216) (7,527,182) (16,652,499) (19,203,782)
----------- ----------- ------------ ------------
Cumulative effect of change in accounting
principle 364,388
----------- ----------- ------------ ------------
Net loss (5,727,216) (7,527,182) (17,016,887) (19,203,782)
Preferred dividend 63,013 186,986
----------- ----------- ------------ ------------
Net loss attributable to common stockholders $(5,790,229) $(7,527,182) $(17,203,873) $(19,203,782)
=========== =========== ============ ============
Per common share (basic and diluted):
Loss attributable to common stockholders
before cumulative effect of change in
accounting principle $ (.26) $ (.34) $ (.76) $ (.93)
Cumulative effect of change in accounting
principle (.02)
----------- ----------- ------------ ------------
Net loss $ (.26) $ (.34) $ (.78) $ (.93)
=========== =========== ============ ============
Weighted average number of shares of
common stock outstanding 22,019,122 21,886,079 21,995,799 20,645,620
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(17,016,887) $(19,203,782)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,738,780 2,556,336
Deferred revenue (2,799,999)
Stock-based compensation 56,974 50,529
Increase (decrease) from:
Inventory and other 495,094 (1,732,657)
Due from Genomics Center 128,622
Other assets 45,769 138,123
Accounts payable 702,996 (345,126)
Accrued liabilities 639,693 76,440
Advance from Genomics Center 920,988 (1,157,076)
Accrued interest - related party debt 26,974
------------ ------------
Net cash used in operating activities (11,260,997) (22,417,212)
------------ ------------
Cash flows from investing activities:
Acquisitions of marketable securities (210,736) (14,042,569)
Proceeds from sales and maturities of
marketable securities 7,762,175 19,104,065
Investment in Genomics Center (6,973,245) (4,320,652)
Return of investment in Genomics Center 6,032,287 3,819,025
Investment in property and equipment, net (461,519) (1,486,036)
Acquisition of intangible assets (550,845) (486,717)
------------ ------------
Net cash provided by investing activities 5,598,117 2,587,116
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of series B convertible
preferred stock 5,747,000
Proceeds from related party long-term debt 1,800,988
Repayment of borrowings (1,391,426) (1,358,470)
Proceeds from sale/leaseback of equipment 308,753 2,427,875
Proceeds from the issuance of common stock, net
of issuance costs 9,226,060
Proceeds from issuance of stock pursuant to stock
option and purchase plans 151,446 192,285
------------ ------------
Net cash provided by financing activities 6,616,761 10,487,750
------------ ------------
Net increase (decrease) in cash and equivalents 953,881 (9,342,346)
Cash and equivalents, beginning of period 6,501,648 13,858,910
------------ ------------
Cash and equivalents, end of period $ 7,455,529 $ 4,516,564
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. MANAGEMENT STATEMENT
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of September 30, 1999 and the results of
operations for the three month and nine month periods ended September 30,
1999 and 1998. These financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
The results of operations for the three month and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year (Note 9).
2. MARKETABLE SECURITIES
The Company has classified its marketable securities as available-for-sale
and, accordingly, carries such securities at aggregate fair value. At
September 30, 1999 and December 31, 1998, the Company's marketable
securities consisted of the following:
<TABLE>
<CAPTION>
Aggregate Amortized Gross Unrealized
1999 Fair Value Cost Basis Gains Losses
---- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Corporate debt securities $ 45,200 $ 50,000 $ (4,800)
---------- ---------- -------- ---------
Total $ 45,200 $ 50,000 $ (4,800)
========== ========== ======== ========
1998
----
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)
========== ========== ======== ========
</TABLE>
Realized losses on sales of marketable securities amounted to $70,107 during
the quarter ended September 30, 1999 and are classified with interest
income, net in the statement of operations. The net unrealized loss of
$4,800 is included in stockholders' equity as "accumulated other
comprehensive loss".
At September 30, 1999, cash equivalents amounting to $4,500,000 were pledged
to secure the principal amounts of the Company's bank term note and capital
lease obligation with its principal bank which aggregated $3,741,000
(Note 5).
4
<PAGE> 7
3. ACCOUNTING POLICIES
NET LOSS PER SHARE
Net loss per share amounts have been computed based on the weighted average
number of shares outstanding during each period. The Company continues to
be in a net loss position and, therefore, diluted earnings per share are
the same amount as basic earnings per share. The stock options and warrants
were not included in the computation of dilutive earnings per share because
to do so would have been anti-dilutive for all periods presented.
RECLASSIFICATION
Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 presentation.
4. HOECHST-ARIAD GENOMICS CENTER, LLC (NOTE 9)
In March 1997, the Company entered into an agreement which established a
50/50 joint venture with Hoechst Marion Roussel, Inc. ("HMR") to pursue
functional genomics with the goal of identifying genes that encode novel
therapeutic proteins and small-molecule drug targets (the "1997 HMR
Genomics Agreement"). The joint venture, named the Hoechst-ARIAD Genomics
Center, LLC (the "Genomics Center"), is located at the Company's research
facilities in Cambridge, Massachusetts. Under the terms of the 1997 HMR
Genomics Agreement, the Company and HMR agreed to commit $85,000,000 to the
establishment of the Genomics Center and its first five years of operation.
The Company and HMR agreed to jointly fund $78,500,000 of operating and
related costs, and ARIAD agreed to invest up to $6,500,000 in leasehold
improvements and equipment for use by ARIAD in conducting research on
behalf of the Genomics Center. From the formation of the Genomics Center
through September 30, 1999, the Company has invested $6,500,000 in
leasehold improvements and equipment and funded $15,812,000 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 a subsequent investment of $5,747,000 which was completed in
January 1999. 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 (Note 5).
The Company also entered into agreements with the Genomics Center to
provide research and administrative services (the "Services Agreements") to
the Genomics Center on a cost reimbursement basis. ARIAD's costs of
providing the research and administrative services to the Genomics Center
are charged to research and development expense and general and
administrative expense in the condensed consolidated financial statements.
Under the Services Agreements, ARIAD bills the Genomics Center for 100% of
its costs of providing the research and administrative services; however,
because ARIAD is providing 50% of the funding of the Genomics Center, ARIAD
recognizes as revenue only 50% of the billings to the Genomics Center. The
remaining 50% is accounted for as a return of ARIAD's investment in the
Genomics Center. Under the Services Agreements, the Company bills the
Genomics Center in
5
<PAGE> 8
advance for the next quarter's projected services. At September 30, 1999,
the balance sheet advance amount of $4,083,451 represents the projected
amount for the fourth quarter of 1999. Revenue recognized pursuant to the
Services Agreements amounted to $4,889,822 and $3,716,550 for the nine
months ended September 30, 1999 and 1998, respectively. The Genomics Center
had total assets of $6,007,000 and $3,966,000 at September 30, 1999 and
December 31, 1998, respectively, and incurred net losses of $12,044,000 and
$8,073,000 for the nine months ended September 30, 1999 and 1998,
respectively.
The major components of the Genomics Center's financial position and
results of operations are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Advance to ARIAD $ 4,083,000 $ 3,162,000
Other assets 1,924,000 804,000
----------- -----------
Total assets $ 6,007,000 $ 3,966,000
=========== ===========
Liabilities-due to ARIAD $ 204,000 $ 333,000
Other liabilities 334,000 67,000
Equity 5,469,000 3,566,000
----------- -----------
Total liabilities and equity $ 6,007,000 $ 3,966,000
=========== ===========
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Operating expenses:
ARIAD services 3,167,000 3,043,000 9,780,000 7,040,000
Other 747,000 915,000 2,264,000 1,033,000
----------- ----------- ------------ -----------
Net Loss $(3,914,000) $(3,958,000) $(12,044,000) $(8,073,000)
=========== =========== ============ ===========
ARIAD's 50% share of net loss $(1,957,000) $(1,979,000) $ (6,022,000) $(4,037,000)
Elimination of intercompany
transactions 1,580,000 1,819,000 4,880,000 3,813,000
----------- ----------- ------------ -----------
ARIAD's equity in the net loss of
Genomics Center $ (377,000) $ (160,000) $ (1,142,000) $ (224,000)
=========== =========== ============ ===========
</TABLE>
5. LONG-TERM DEBT
As described in Note 4, the Company may fund certain capital commitments to
the Genomics Center through a loan facility made available by HMR. Funds
borrowed by ARIAD pursuant to such loan facility bear interest at the
ninety (90) day LIBOR rate plus 0.25% (5.78% at September 30, 1999) and are
repayable by June 30, 2003 in cash or series B convertible preferred stock,
at the Company's option.
6
<PAGE> 9
At September 30, 1999 loans from HMR, including accrued interest of
$26,974, amounted to $1,827,962 (Note 9).
At September 30, 1999 the Company had outstanding with its principal bank a
five year term loan and a five year capital lease obligation in the
aggregate amount of $3,741,000 which is collateralized by a pledge of
$4,500,000 of cash equivalents.
The Company has not been in compliance with certain financial covenants of
the loan agreement relating to tangible net worth, ratio of debt to
tangible net worth, working capital and current ratio. The Company has
received a waiver from the bank through November 30, 1999 of various events
of default relating to such non-compliance. While the Company has not
received any notification of default, the Company may not be in compliance
with such financial covenants and held in default under its loan agreement
after November 30, 1999. If in default, the debt could be subject to future
acceleration in the absence of refinancing, additional equity, additional
covenant waivers or loan modifications. Accordingly, $3,741,000 payable
to the bank at September 30, 1999 under existing long-term debt agreements
has been classified as current portion of long-term debt.
6. COMPREHENSIVE NET LOSS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income,
which requires businesses to disclose comprehensive income and its
components in their general-purpose financial statements. In accordance
with SFAS No. 130, the comprehensive loss would include the net unrealized
gain on marketable securities of $29,581 and $57,514 for the nine months
ended September 30, 1999, and 1998 respectively, resulting in comprehensive
losses for the periods of $17,046,468 and $19,261,296, respectively.
7. ACCOUNTING CHANGE
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 required that all organizational costs be
expensed as incurred. The Company adopted this SOP effective January 1,
1999 and recorded charges of $364,000 as a cumulative effect of change in
accounting principle.
8. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for fiscal years beginning after June 15, 2000. 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, 2001, as required.
7
<PAGE> 10
9. SUBSEQUENT EVENTS
Planned Sale of Genomics Center
On October 12, 1999, the Company announced that it had entered into a
letter of intent (the "Letter of Intent") with HMR, pursuant to which HMR
confirmed its intention to purchase the Company's 50% ownership interest
(the "ARIAD Interest") in the Genomics Center. Under the terms outlined in
the Letter of Intent, the Company shall receive the following consideration
from HMR for the ARIAD Interest: (i) $40 million in cash, of which $5
million was advanced to the Company as a down payment, (ii) the return of
3,004,436 shares of series B convertible preferred stock, (iii) the
forgiveness by HMR of all long-term debt, including accrued interest, which
as of September 30, 1999 was approximately $1,828,000, and (iv) the rights
to compounds and related technologies resulting from a collaboration on the
development of Src tyrosine kinase inhibitors to treat osteoporosis. The
purchase and sale of the ARIAD Interest is subject to the negotiation and
execution of definitive documentation and the satisfaction of closing
conditions, including approval under the Hart-Scott-Rodino Anti-Trust
Improvement Act of 1976.
Repurchase of Series C Preferred Stock
On October 28, 1999, the Company announced that it had entered into an
agreement with Brown Simpson Strategic Growth Fund, Ltd. and Brown Simpson
Strategic Growth Fund, L.P. (individually, a "Fund", and collectively, the
"Funds") to repurchase (the "Repurchase") an aggregate of 2,000 shares of
series C convertible preferred stock (the "Series C Stock") held by the
Funds and other rights for an aggregate purchase price of $3,250,000,
subject to adjustment under certain circumstances. The closing of the
Repurchase is presently expected to occur on or before December 31, 1999,
subject to the satisfaction of closing conditions. In connection with the
Repurchase, each of the Funds have agreed to forbear during the time prior
to the closing from exercising certain of their rights arising under the
Securities Purchase Agreement dated November 9, 1998 (the "Securities
Purchase Agreement"), the Registration Rights Agreement dated November 9,
1998, and the Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock (the "Certificate of Designations"),
including without limitation: (i) the right to convert or redeem any shares
of Series C Stock, (ii) the right to receive dividends, (iii) the right to
purchase additional shares of Series C Stock from the Company, and (iv) the
right to participate, through a right of first refusal, in certain future
financings of the Company.
Litigation
On October 28, 1999, the Company announced that on October 26, 1999 it
filed an action against both HFTP Investments, LLC ("HFTP"), an affiliate
of Promethean Investment Group, LLC ("Promethean"), and Promethean in the
United States District Court for the Southern District of New York entitled
ARIAD PHARMACEUTICALS, INC. V. PROMETHEAN INVESTMENT GROUP, LLC AND HFTP
INVESTMENTS, LLC, C.A. No. 99-Civ-10794, alleging (i) violations of the
federal securities laws by Promethean and HFTP, including insider trading
and stock manipulation through short sales of the Company's common stock,
(ii) breach of contract, and (iii) breach of the covenant of good faith and
fair dealing. At the time that the action was filed, the Company was in
negotiations to repurchase 3,000 shares of Series C Stock held by HFTP. The
Company is seeking an order enjoining Promethean and HFTP from further
trading in the Company's common stock and damages in an amount to be
determined at trial. Also on October 26, 1999, HFTP filed an action against
the Company in the Chancery Court of the State of Delaware entitled HFTP
INVESTMENTS, LLC V. ARIAD PHARMACEUTICALS, INC., C.A. No. 17501NC,
principally alleging breach of contract by the Company for failure to
recognize and effectuate the conversion by HFTP of 612 shares of Series C
Stock into 1,078,038 shares of the Company's
8
<PAGE> 11
common stock. HFTP is seeking an order requiring the issuance of such
shares and unspecified damages.
On November 1, 1999, HFTP filed a motion to amend and supplement its
complaint to include an allegation of breach of contract for the
anticipated failure by the Company to honor a right of redemption that HFTP
attempted to exercise on November 1, 1999 with respect to 650 shares of
Series C Stock. HFTP also alleges that Company will refuse to honor any
additional redemptions of Series C Stock attempted by HFTP. Based on these
new allegations, HFTP seeks damages in the amount of $2,403,256.50 for the
redemption right that it has attempted to exercise, plus additional amounts
for any redemptions that are refused by Company in the future. Thereafter,
HFTP attempted to exercise its right of redemption with respect to 170
shares of Series C Stock on November 2, 1999, with respect to 1,474 shares
of Series C Stock on November 3, 1999 and with respect to its remaining 94
shares of Series C Stock on November 4, 1999, demanding a total cash
payment of $6,644,724.13 with respect thereto. The Company has not
converted or redeemed any shares of its outstanding convertible preferred
stock held by HFTP and has filed a motion to dismiss or stay the action
filed by HFTP in the Chancery Court of the State of Delaware.
On November 8, 1999, the Company amended its complaint against HFTP and
Promethean in the action pending before the United States District Court
for the Southern District of New York, principally seeking (i) to enjoin
Promethean and HFTP from further artificially manipulating the price of
ARIAD common stock and trading in ARIAD common stock on the basis of
material non-public information, (ii) to rescind the purchase by HFTP of
the 3,000 shares of Series C Stock, (iii) to obtain a judicial
determination that Promethean and HFTP have breached, and that the Company
has complied with, the Securities Purchase Agreement and the Certificate of
Designations, and (iv) to obtain a judicial declaration that HFTP is not
entitled to convert or redeem any shares of Series C Stock under the
Securities Purchase Agreement and the Certificate of Designations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
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
based on its gene regulation technology to treat graft-versus-host disease,
a complication of bone marrow transplantation involving an attack by a
patient's immune system on healthy tissue. This product successfully
completed Phase 1 human clinical trials in May 1999. 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 also has developed
a system referred to as "ARIAD Regulated Gene Expression Technology" or
"ARGENT(TM)" which is designed to control cellular activities using small
molecule 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
9
<PAGE> 12
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.
The Company has agreed to sell to HMR its 50% interest in the Genomics
Center and expects to complete the sale prior to December 31, 1999 (see
Note 9 of Notes to Condensed Consolidated Financial Statements).
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 continuing but decreasing operating
losses for the foreseeable future, primarily due to the planned sale of its
50% interest in the Genomics Center. 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, will terminate upon completion
of the sale of the Company's 50% ownership interest in the Genomics Center
to HMR. If the sale is not completed, operating losses would be expected to
increase. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial. As of September 30,
1999, the Company had an accumulated deficit of $109,844,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE
The Company recognized research revenue of $2,583,000 for the quarter ended
September 30, 1999 compared to $3,659,000 for the same period in 1998.
Research revenue in 1999 is comprised principally of research revenue
recognized under the Company's 1995 collaborative research and development
agreement with HMR (the "1995 HMR Osteoporosis Agreement") and under the
Company's 1997 agreement with HMR to pursue functional genomics (the "1997
HMR Genomics Agreement"). The decrease in research revenue of $1,076,000
for the quarter ended September 30, 1999 when compared to the corresponding
period in 1998 is principally the result of a decrease of $833,000 in the
amortization of deferred revenue recognized in the prior year under the
1995 HMR Osteoporosis Agreement and a slight decrease in the services
provided to the Genomics Center under the Services Agreements.
10
<PAGE> 13
Interest income, net decreased by $203,000 to $18,000 for the quarter ended
September 30, 1999 compared to $221,000 for the same period in 1998
primarily as a result of lower levels of funds invested during the 1999
period and a realized loss of $70,000 on the sale of marketable securities
recorded in the period.
OPERATING EXPENSES
Research and development expenses decreased to $6,813,000 for the quarter
ended September 30, 1999 compared to $10,502,000 for the same period in
1998 due primarily to the higher level of manufacturing, development and
other preclinical development costs incurred in the prior period in
connection with the clinical trials of AP1903 and decreased research
services provided to the Genomics Center under the Services Agreements in
the current period. The Company believes that its research and development
expenses will decrease over the next year as a result of the expected sale
of the Company's 50% ownership interest in the Genomics Center. If such
sale is not completed, the Company would expect research and development
expenses to increase over the next year.
General and administrative expenses increased to $950,000 for the quarter
ended September 30, 1999 compared to $630,000 for the corresponding period
in 1998 primarily due to increased professional and legal expenses incurred
in connection with litigation, the proposed sale of the Company's 50%
interest in the Genomics Center as well as a private placement offering
that was subsequently canceled.
The Company incurred interest expense of $189,000 for the quarter ended
September 30, 1999 compared to $116,000 for the corresponding period in
1998. The increase resulted from a higher level of long-term debt
outstanding during the period.
OPERATING RESULTS
The Company incurred losses of $5,727,000 for the quarter ended September
30, 1999 and $7,527,000 for the corresponding period in 1998, or $(.26) and
$(.34) per share, respectively. The Company expects that substantial
operating losses will continue for several more years, but are expected to
decrease over the next year as a result of the pending sale of the
Company's 50% ownership interest in the Genomics Center. If such sale were
not completed, the Company would expect operating losses to increase over
the next year as its product development activities expand and will
fluctuate as a result of differences in the timing and composition of
revenue earned and expenses incurred.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE
The Company recognized research revenue of $9,890,000 for the nine months
ended September 30, 1999 compared to $9,733,000 for the same period in
1998. The increase in research revenue of $157,000 for the nine months
ended September 30, 1999 when compared to the corresponding period in 1998
is a result of increased services provided to the Genomics Center under the
11
<PAGE> 14
Services Agreements, and the achievement of the second milestone of
$2,000,000 under the 1995 HMR Osteoporosis Agreement partially offset by a
reduction of $2,500,000 in the amortization of deferred revenue recognized
in the prior year relating to this agreement. Research revenue is expected
to decrease over the next year resulting from the termination of the
Services Agreement with the Genomics Center, as a result of the
aforementioned planned sale of the Company's 50% interest in the Genomics
Center.
Interest income, net decreased by $495,000 to $335,000 for the nine months
ended September 30, 1999 compared to $830,000 for the same period in 1998
primarily as a result of lower levels of funds invested during 1999 and a
realized loss on the sale of marketable securities of $70,000 recorded in
the period.
OPERATING EXPENSES
Research and development expenses decreased to $22,784,000 for the nine
months ended September 30, 1999 compared to $27,164,000 for the same period
in 1998 due primarily to decreased manufacturing, development and other
preclinical development costs offset by increased research services
provided to the Genomics Center under the Services Agreements. In addition,
the Company adopted Statement of Position ("SOP") 98-5, Reporting the Cost
of Start-Up Activities, effective January 1, 1999 and recorded charges of
$364,000 as a cumulative effect of change in accounting principle.
The Company expects its research and development expenses to decrease over
the next year as a result of the completion of the planned sale of the
Company's 50% ownership interest in the Genomics Center. If such sale is
not completed, the Company would expect research and development expenses
to increase over the next year.
General and administrative expenses increased to $2,564,000 for the nine
months ended September 30, 1999 compared to $2,006,000 for the
corresponding period in 1998 primarily due to increased professional and
legal services incurred in connection with litigation, the proposed sale of
the Company's 50% interest in the Genomics Center as well as a private
placement offering that was subsequently canceled.
The Company incurred interest expense of $386,000 for the nine months ended
September 30, 1999 compared to $374,000 for the corresponding period in
1998. The increase resulted from a higher level of long-term debt
outstanding during 1998.
OPERATING RESULTS
The Company incurred losses, before the cumulative effect of change in
accounting principle, of $16,652,000 for the nine months ended September
30, 1999 and $19,204,000 for the corresponding period in 1998 or $(.76) and
$(.93) per share, respectively. After such cumulative effect, the Company
incurred losses of $17,017,000 for the nine months ended September 30, 1999
and $19,204,000 for the corresponding period in 1998, or $(.78) and $(.93)
per share, respectively. The Company expects that substantial operating
losses will continue for several more years, but are expected to decrease
over the next year as a result of the aforementioned
12
<PAGE> 15
planned sale of its interest in the Genomics Center. However, operating
losses may subsequently increase as the Company's product development
activities expand and will fluctuate as a result of differences in the
timing and composition of revenue earned and expenses incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and investments in property and
equipment primarily through the private placement and public offering of
its securities, including the sale of Series B Convertible Preferred Stock
("Series B Preferred Stock") to HMR in March 1997 and in January 1999 in
connection with the formation and operation of the Genomics Center,
supplemented by the issuance of long-term debt, sale/leaseback and capital
lease transactions, interest income, government-sponsored research grants
and research revenue under the 1995 HMR Osteoporosis Agreement, the 1997
HMR Genomics Agreement and the Services Agreements.
At September 30, 1999, the Company had cash, cash equivalents and
marketable securities totaling $7,501,000, and a working capital deficiency
of $5,661,000 compared to cash, cash equivalents and marketable securities
totaling $14,176,000 and working capital amounting to $5,806,000 at
December 31, 1998.
On October 12, 1999, the Company announced that it had entered into a
letter of intent (the "Letter of Intent") with HMR, pursuant to which HMR
confirmed its intention to purchase the Company's 50% ownership interest
(the "ARIAD Interest") in the Genomics Center. Under the terms outlined in
the Letter of Intent, the Company shall receive the following consideration
from HMR for the ARIAD Interest: (i) $40 million in cash, of which $5
million was advanced to the Company as a down payment, (ii) the return of
3,004,436 shares of Series B convertible preferred stock, (iii) the
forgiveness by HMR of all long-term debt, including accrued interest, which
as of September 30, 1999 was approximately $1,828,000, and (iv) the rights
to compounds and related technologies resulting from a collaboration on the
development of Src tyrosine kinase inhibitors to treat osteoporosis. The
purchase and sale of the ARIAD Interest is subject to the negotiation and
execution of definitive documentation and the satisfaction of closing
conditions, including approval under the Hart-Scott-Rodino Anti-Trust
Improvement Act of 1976.
The Company has not been in compliance with certain financial covenants of
its loan agreement with its principal bank relating to tangible net worth,
ratio of debt to tangible net worth, working capital and current ratio. The
Company has received a waiver from the bank through November 30, 1999 of
various events of default relating to such non-compliance. While the
Company has not received any notification of default, the Company may not
be in compliance with such financial covenants and held in default under
its loan agreement after November 30, 1999. If in default, the debt could
be subject to future acceleration in the absence of refinancing, additional
equity, additional covenant waivers or loan modifications.
13
<PAGE> 16
The Company believes that its existing capital resources, combined with
funds resulting from the planned sale of its 50% interest in the Genomics
Center to HMR, plus interest income will be adequate to satisfy its capital
and operating requirements through 2001. However, if the pending sale is
not completed, the Company believes that its existing capital resources,
including the $5,000,000 in advanced funds received in connection with the
pending sale of the Genomics Center, combined with funds resulting from
existing planned research and development funding and other sources of
funding, including additional purchases by HMR of the Company's Series B
Preferred Stock and supplemental capital loans from HMR will be adequate to
satisfy its capital and operating requirements substantially through the
first quarter of 2000, excluding any amounts which may be due to the Series
C Investors (see Note 9 of Notes to Financial Statements). 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.
The primary uses of cash during the nine months ended September 30, 1999
were $11,261,000 to finance the Company's operations and working capital
requirements, $461,000 to purchase laboratory equipment, $1,391,000 to
repay long-term debt, $941,000 for net investment in the Genomics Center
and $551,000 to acquire intellectual property. The primary sources of cash
during the nine months ended September 30, 1999 were $5,000,000 of research
funding from the 1995 HMR Osteoporosis Agreement, including $2,000,000
received upon the achievement of the second research milestone under such
agreement, $921,000 in advances from the Genomics Center, $309,000 from the
sale/leaseback of laboratory equipment, $7,762,000 of net proceeds from the
sale and maturity of marketable securities, $5,747,000 from the sale of
Series B Convertible Preferred Stock to HMR and $1,801,000 of proceeds from
related party debt.
In March 1997, the Company entered into a 50/50 joint venture with HMR to
pursue functional genomics with the goal of identifying genes that encode
novel therapeutic proteins and small-molecule drug targets. The Company and
HMR agreed to commit up to $85,000,000 to the establishment of the Genomics
Center and its first five years of operation. The Company and HMR agreed to
jointly fund $78,500,000 of operating and related costs, and ARIAD agreed
to fund up to $6,500,000 in leasehold improvements and equipment for use by
ARIAD in conducting research on behalf of the Genomics Center. From the
formation of the Genomics Center through September 30, 1999, the Company
invested $6,500,000 in leasehold improvements and equipment and funded
$15,812,000 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 Series B Preferred Stock over the
five-year period, including an initial investment of $24,000,000 and a
subsequent investment of $5,747,000, each of which is 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, to fund its commitment to
the Genomics Center, the Company may, at its option, require HMR to make
additional purchases of up to $25,000,000 of Series B preferred stock at
purchase prices based on a premium to the market price of the common stock
at the time
14
<PAGE> 17
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
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, respectively, and $2,026,000 for the three months ended March 31,
2002. 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 will bear interest at the ninety (90) day
LIBOR rate plus 0.25% and are repayable by September 30, 2003 in cash or
series B convertible preferred stock, at the Company's option. At September
30, 1999 loans from HMR including accrued interest of $26,974, amounted to
$1,827,962 (See Note 5 of Notes to Unaudited Condensed Consolidated
Financial Statements).
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 a payment of $2,000,000 which was received on
February 23, 1999 following the achievement of the second milestone. 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 $30,390,000.
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 will decrease substantially
upon the completion of the pending sale of its interest in the Genomics
Center to HMR. 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, 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.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue relates to numerous 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
15
<PAGE> 18
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:
(1) assessment, (2) testing and implementation, and (3) contingency
planning. The Company has completed the assessment phase of its information
technology infrastructure, hardware and software. During this assesment
phase, the Company identified all year 2000 risk areas and assigned each
item a category of risk as follows:
- Significant - Has a significant impact on the Company's financial
position or results of operations
- Moderate - Has a moderate impact on productivity but does not
materially impact the Company's financial position or results of
operations
- Minimal - Has a minor impact on productivity and the Company's
financial position or results of operations.
The second phase of testing and implementation involves fixing or replacing
systems developed internally by the Company and externally by third party
vendors. Internally, this phase is substantially completed and the Company
believes that, with modifications to existing software and conversions to
new software and systems, the year 2000 issue will not pose any material
operational problems for its computer or 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 second phase is ongoing as the Company
continues to solicit and, where feasible, obtain certification of year 2000
compliance from third-party software vendors and continues to determine 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 the Company's needs and, where necessary,
interact with the Company's hardware and software infrastructure in
preparation for the year 2000. This testing and implementation phase is
substantially completed.
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 adverse 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 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
operations.
Monitoring and managing the year 2000 issues will result in additional
direct and indirect costs to the Company. Direct costs include potential
charges by third-party vendors for product enhancements, costs involved in
testing hardware and software products for year 2000 compliance and any
resulting costs for developing and implementing contingency plans for
critical products which are not compliant. The Company estimates the total
cost for upgrading its computer systems, hardware and software is not
likely to exceed $200,000. Indirect costs will principally consist of the
time devoted by its employees and consultants 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.
16
<PAGE> 19
The third phase of contingency planning is ongoing and expected to be
completed by November 30, 1999. As the Company evaluates its internal
compliance efforts, as well as the compliance efforts of third parties
described above, the Company expects to formulate contingency plans for
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 plans 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.
SECURITIES LITIGATION REFORM ACT
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: Except for the historical information contained in this Quarterly
Report on Form 10-Q, the matters discussed herein are forward-looking
statements that involve risks and uncertainties, particularly regarding the
pending sale of its 50% interest in the Genomics Center under the terms
described above, if at all, as well as the risks and uncertainties
regarding the receipt of revenues under the Company's 1995 HMR Osteoporosis
Agreement and the Services Agreements, the actual research and development
expenses and other costs associated with the Genomics Center, the success
of the Company's preclinical studies, the ability of the Company to
succesfully complete clinical studies, the adequacy of the Company's
capital resources and the availability of additional funding, as well as
general economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices,
and other factors discussed under the heading "Cautionary Statement
Regarding Forward-Looking Statements" in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission. As a result of
these factors, actual events or results could differ materially from those
described herein.
ITEM 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 primarily 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
17
<PAGE> 20
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 rates on its
financial position, results of operations and cash flows would not be
material due to the short-term nature of these investments.
At September 30, 1999, the Company has a bank term note at prime plus 1%, a
government sponsored term note at prime plus 2.75% and a subordinated note
at LIBOR (90) day plus 0.25%. These notes are sensitive to interest rate
risk. In the event of a hypothetical 10% increase in the prime rate and
LIBOR rate, the Company would incur approximately $56,000 of additional
interest expense per year.
18
<PAGE> 21
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 28, 1999, the Company announced that on October 26, 1999 it filed an
action against both HFTP Investments, LLC ("HFTP"), an affiliate of Promethean
Investment Group, LLC ("Promethean"), and Promethean in the United States
District Court for the Southern District of New York entitled ARIAD
PHARMACEUTICALS, INC. V. PROMETHEAN INVESTMENT GROUP, LLC AND HFTP INVESTMENTS,
LLC, C.A. No. 99-Civ-10794, alleging (i) violations of the federal securities
laws by Promethean and HFTP, including insider trading and stock manipulation
through short sales of the Company's common stock, (ii) breach of contract, and
(iii) breach of the covenant of good faith and fair dealing. At the time that
the action was filed, the Company was in negotiations to repurchase 3,000 shares
of Series C Stock held by HFTP. The Company is seeking an order enjoining
Promethean and HFTP from further trading in the Company's common stock and
damages in an amount to be determined at trial. Also on October 26, 1999, HFTP
filed an action against the Company in the Chancery Court of the State of
Delaware entitled HFTP INVESTMENTS, LLC V. ARIAD PHARMACEUTICALS, INC., C.A. No.
17501NC, principally alleging breach of contract by the Company for failure to
recognize and effectuate the conversion by HFTP of 612 shares of Series C Stock
into 1,078,038 shares of the Company's common stock. HFTP is seeking an order
requiring the issuance of such shares and unspecified damages.
On November 1, 1999, HFTP filed a motion to amend and supplement its complaint
to include an allegation of breach of contract for the anticipated failure by
the Company to honor a right of redemption that HFTP attempted to exercise on
November 1, 1999 with respect to 650 shares of Series C Stock. HFTP also alleges
that Company will refuse to honor any additional redemptions of Series C Stock
attempted by HFTP. Based on these new allegations, HFTP seeks damages in the
amount of $2,403,256.50 for the redemption right that it has attempted to
exercise, plus additional amounts for any redemptions that are refused by
Company in the future. Thereafter, HFTP attempted to exercise its right of
redemption with respect to 170 shares of Series C Stock on November 2, 1999,
with respect to 1,474 shares of Series C Stock on November 3, 1999 and with
respect to its remaining 94 shares of Series C Stock on November 4, 1999,
demanding a total cash payment of $6,644,724.13 with respect thereto. The
Company has not converted or redeemed any shares of its outstanding preferred
stock held by HFTP and has filed a motion to dismiss or stay the action filed by
HFTP in the Chancery Court of the State of Delaware.
On November 8, 1999, the Company amended its complaint against HFTP and
Promethean in the action pending before the United States District Court for the
Southern District of New York, principally seeking (i) to enjoin Promethean and
HFTP from further artificially manipulating the price of ARIAD common stock and
trading in ARIAD common stock on the basis of material non-public information,
(ii) to rescind the purchase by HFTP of the 3,000 shares of Series C Stock,
(iii) to obtain a judicial determination that Promethean and HFTP have breached,
and that the Company has complied with, the Securities Purchase Agreement and
the Certificate of Designations, and (iv) to obtain a judicial declaration that
HFTP is not entitled to convert or redeem any shares of Series C Stock under the
Securities Purchase Agreement and the Certificate of Designations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) (1) Securities sold. (D) On September 21, 1999 the Company issued an
aggregate of 10,750 options (the "Options") to purchase 10,750 shares of
Common Stock.
(2) Underwriters and other purchasers. No underwriters were involved
in any of the transactions. (D) The Company issued the Options to seven
employees pursuant to the terms of the Company's 1991 Stock Option Plan
for Employees and Consultants.
(3) Consideration. (D) The Options were issued in exchange for services
to be rendered.
(4) Exemption from registration claimed. All of the Options were issued
in reliance upon Section 4(2) of the Securities Act of 1933, as amended,
because none of the transactions involved any public offering by the
Company.
(5) Terms of conversion or exercise. (D) The Options vest equally over a
period of 4 years and are exercisable at a price of $.81 per share until
September 21, 2009.
(6) Use of Proceeds. Not applicable.
(d) Not applicable.
19
<PAGE> 22
ITEM 5. OTHER INFORMATION
Effective on September 22, 1999, Joan S. Brugge, Ph.D. resigned as a
director of the Company to pursue her research, administration and
consulting commitments arising from her affiliation with the Harvard
Medical School.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ARIAD Pharmaceuticals, Inc.
(Company)
By: /s/ Jay R. LaMarche
--------------------------------------
Jay R. LaMarche
Executive Vice President and
Chief Financial Officer
(Duly authorized Officer and Principal
Financial Officer)
Date: November 15, 1999
20
<PAGE> 23
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 FINANCIAL DATA SCHEDULE
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,455
<SECURITIES> 45
<RECEIVABLES> 204
<ALLOWANCES> 0
<INVENTORY> 1,524
<CURRENT-ASSETS> 9,228
<PP&E> 17,146
<DEPRECIATION> (10,809)
<TOTAL-ASSETS> 22,454
<CURRENT-LIABILITIES> 14,889
<BONDS> 7,051
0
30
<COMMON> 22
<OTHER-SE> 462
<TOTAL-LIABILITY-AND-EQUITY> 22,454
<SALES> 0
<TOTAL-REVENUES> 10,224
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386
<INCOME-PRETAX> 0
<INCOME-TAX> (17,017)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,017)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
