<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 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 Registrant 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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-0400
Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report: Not Applicable
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of the Registrant's common stock outstanding as of
August 5, 1999 was 22,019,122.
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ARIAD PHARMACEUTICALS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 ............................................. 1
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1999 and 1998 .......... 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 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 ............................... 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........ 15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ......................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 16
ITEM 5. OTHER INFORMATION ................................................. 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,796,281 $ 6,501,648
Marketable securities 2,253,089 7,674,488
Inventory and other 1,747,824 2,018,846
Due from Genomics Center 852,793 332,571
------------- ------------
Total current assets 13,649,987 16,527,553
------------- ------------
Property and equipment:
Leasehold improvements 12,566,432 12,555,301
Equipment and furniture 4,573,195 4,438,399
------------- ------------
Total 17,139,627 16,993,700
Less accumulated depreciation and amortization 10,183,000 8,944,027
------------- ------------
Property and equipment, net 6,956,627 8,049,673
------------- ------------
Investment in Genomics Center 2,534,770 1,902,129
------------- ------------
Intangible and other assets, net 4,219,568 4,306,585
------------- ------------
Total $ 27,360,952 $ 30,785,940
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,239,003 $ 1,861,021
Accounts payable 3,889,904 3,322,439
Accrued liabilities 2,492,980 2,042,641
Advance from Genomics Center 3,791,655 3,162,463
Deferred revenue 333,333 333,333
------------- ------------
Total current liabilities 14,746,875 10,721,897
------------- ------------
Long-term debt 1,228,049 3,295,139
------------- ------------
Redeemable convertible preferred stock, at liquidation value 5,159,589 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, 22,005,149 shares in 1999 and
21,938,754 shares in 1998 22,005 21,939
Additional paid-in capital 110,277,371 104,360,924
Accumulated other comprehensive loss (48,880) (34,381)
Accumulated deficit (104,054,101) (92,640,457)
------------- ------------
Stockholders' equity 6,226,439 11,733,288
------------- ------------
Total $ 27,360,952 $ 30,785,940
============= ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
1
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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Research revenue
(principally related parties) $ 2,723,576 $ 3,227,883 $ 7,306,473 $ 6,074,469
Interest income 143,405 295,702 316,296 608,747
----------- ----------- ------------ ------------
Total revenue 2,866,981 3,523,585 7,622,769 6,683,216
----------- ----------- ------------ ------------
Operating expenses:
Research and development 7,824,038 8,989,688 15,970,466 16,725,643
General and administrative 884,343 677,020 1,614,590 1,376,049
Interest expense 91,465 127,542 197,246 258,124
----------- ----------- ------------ ------------
Total operating expenses 8,799,846 9,794,250 17,782,302 18,359,816
Equity in net loss of Genomics Center 427,711 765,750
----------- ----------- ------------ ------------
Loss before cumulative effect of change in
accounting principle (6,360,576) (6,270,665) (10,925,283) (11,676,600)
----------- ----------- ------------ ------------
Cumulative effect of change in accounting
principle 364,388
----------- ----------- ------------ ------------
Net loss (6,360,576) (6,270,665) (11,289,671) (11,676,600)
Preferred dividend 62,329 123,973
----------- ----------- ------------ ------------
Net loss attributable to common
stockholders $(6,422,905) $(6,270,665) $(11,413,644) $(11,676,600)
=========== =========== ============ ============
Per common share (basic and diluted):
Loss attributable to common stockholders
before cumulative effect of change in
accounting principle $ (.29) $ (.30) $ (.50) $ (.58)
Cumulative effect of change in accounting
principle (.02)
----------- ----------- ------------ ------------
Net loss $ (.29) $ (.30) $ (.52) $ (.58)
=========== =========== ============ ============
Weighted average number of shares of
common stock outstanding 22,004,467 20,732,321 21,984,138 20,025,138
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,289,671) $(11,676,600)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,836,170 1,696,616
Deferred revenue (1,966,666)
Stock-based compensation 37,660 35,151
Increase (decrease) from:
Inventory and other 271,022 (1,895,417)
Due from Genomics Center (520,222)
Other assets 131,618 81,328
Accounts payable 567,465 (212,256)
Accrued liabilities 450,339 (1,129,971)
Advance from Genomics Center 629,192 415,391
Accrued interest - related party debt 7,579
------------ ------------
Net cash used in operating activities (7,878,848) (14,652,424)
------------ ------------
Cash flows from investing activities:
Acquisitions of marketable securities (10,373,591)
Proceeds from sales and maturities of marketable securities 5,369,000 11,903,013
Investment in Genomics Center (4,839,988) (3,043,992)
Return of investment in Genomics Center 4,072,223 1,998,303
Investment in property and equipment, net (454,680) (1,406,502)
Acquisition of intangible assets (468,774) (370,524)
------------ ------------
Net cash provided by (used in) investing activities 3,677,781 (1,293,293)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of series B convertible preferred stock 5,747,000
Proceeds from related party long-term debt 1,228,049
Repayment of borrowings (924,736) (903,012)
Proceeds from sale/leaseback of equipment 308,753 2,147,410
Proceeds from the issuance of common stock, net of issuance costs 9,243,622
Proceeds from issuance of stock pursuant to stock option and
purchase plans 136,634 97,792
------------ ------------
Net cash provided by financing activities 6,495,700 10,585,812
------------ ------------
Net increase (decrease) in cash and equivalents 2,294,633 (5,359,905)
Cash and equivalents, beginning of period 6,501,648 13,858,910
------------ ------------
Cash and equivalents, end of period $ 8,796,281 $ 8,499,005
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. MANAGEMENT STATEMENT
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of June 30, 1999 and the results of operations
for the three month and six month periods ended June 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, which
includes consolidated financial statements and notes thereto for the years
ended December 31, 1998, 1997 and 1996.
The results of operations for the three month and six month periods ended
June 30, 1999 are not necessarily indicative of the results to be expected
for the full year.
2. MARKETABLE SECURITIES
The Company has classified its marketable securities as-available-for sale
and, accordingly, carries such securities at aggregate fair value. At June
30, 1999 and December 31, 1998, the Company's marketable securities
consisted of the following:
<TABLE>
<CAPTION>
Gross Unrealized
Aggregate Amortized -----------------
1999 Fair Value Cost Basis Gains Losses
---- ---------- ---------- ----- ------
<S> <C> <C> <C>
U.S. Government obligations $ 575,732 $ 601,388 $(25,656)
Corporate debt securities 1,677,357 1,700,581 (23,224)
---------- ---------- ------ --------
Total $2,253,089 $2,301,969 $(48,880)
========== ========== ====== ========
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>
At June 30, 1999, approximately $1,300,000 of investments in marketable
securities had contractual maturities of one year or less. Realized gains
and losses on sales of marketable securities were not material during the
quarter ended June 30, 1999; the net unrealized loss of $48,880 is included
in stockholders' equity as accumulated other comprehensive loss.
At June 30, 1999, marketable securities amounting to $5,236,000 were
pledged to secure the principal amounts of the Company's bank term note and
capital lease obligation with its principal bank which aggregated
$4,239,000 (Note 5).
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3. NET LOSS PER SHARE
Net loss per share amounts have been computed based on the weighted average
number of shares outstanding during each period. Because of the net loss
reported in each period, diluted and basic per share amounts are the same.
4. HOECHST-ARIAD GENOMICS CENTER, LLC
In March 1997, the Company entered into an agreement which established a
50/50 joint venture with Hoechst Marion Roussel, 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 June 30, 1999, the Company has invested $6,500,000 in leasehold
improvements and equipment and funded $13,679,000 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 advance for the next quarter's projected services. At
June 30, 1999, the balance sheet advance amount of $3,791,655 represents
the projected amount for the third quarter of 1999. Revenue recognized
pursuant to the Services Agreements amounted to $3,306,473 and $1,998,303
for the six months ended June 30, 1999 and 1998, respectively. The Genomics
Center had total assets of
5
<PAGE> 8
$6,440,000 and $3,966,000 at June 30, 1999 and December 31, 1998,
respectively, and incurred net losses of $4,295,000 and $8,131,000 for the
three months and six months ended June 30, 1999, respectively.
The major components of the Genomics Center's financial position and
results of operations are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- -----------
<S> <C> <C>
Advance to ARIAD $3,792,000 $3,162,000
Other assets 2,648,000 804,000
---------- ----------
Total assets $6,440,000 $3,966,000
========== ==========
Total liabilities-due to ARIAD $1,324,000 $ 400,000
Equity 5,116,000 3,566,000
---------- ----------
Total liabilities and equity $6,440,000 $3,966,000
========== ==========
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Operating expenses:
ARIAD services 3,447,000 2,203,000 6,613,000 3,997,000
Other 848,000 -- 1,518,000 117,000
----------- ----------- ----------- -----------
Net Loss $(4,295,000) $(2,203,000) $(8,131,000) $(4,114,000)
=========== =========== =========== ===========
ARIAD's 50% share of net loss
$(2,147,000) $(1,102,000) $(4,065,000) $(2,057,000)
Elimination of intercompany
transactions 1,719,000 1,102,000 3,299,000 1,998,000
----------- ----------- ----------- -----------
ARIAD's equity in the net loss of
Genomics Center $ (428,000) $ -- $ (766,000) $ (59,000)
=========== =========== =========== ===========
</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% and are repayable by June 30, 2003 in
cash or series B convertible preferred stock, at the Company's option. On
May 20, 1999 the Company received loans from HMR in the amount of
$1,228,049 to fund the Company's portion of the excess commitments and such
amount is included in long-term debt.
At June 30, 1999 the Company had outstanding a five year term loan and a
five year capital lease obligation with its principal bank in the aggregate
amount of $4,239,000 which is collateralized by a pledge of $5,236,000 of
marketable securities. As a result of pledging these securities, under the
terms of the loan agreement, the interest rate on the note was adjusted
downward to 90-day LIBOR plus 1.25% from prime plus 1%.
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 June 30, 1999 of various events of
default relating to such non-compliance. While the Company has not received
any notification of default, subsequent to June 30, 1999, the Company is
not in compliance with certain financial covenants and may be held in
default under its loan agreement and, as a result, the debt could be
subject to future acceleration in the absence of refinancing, additional
equity, additional covenant waivers or loan modifications. Accordingly, all
amounts payable to the bank at June 30, 1999 ($4,239,000) under existing
long-term debt agreements have been classified as current portion of
long-term debt.
In an attempt to address its funding requirements, the Company has
engaged in negotiations for a financing with a group of institutional
investors. As presently contemplated, such financing is expected to
consist of an aggregate principal amount of up to $5,000,000 of 10%
secured debentures with a two year maturity and five year warrants to
purchase up to 3,500,000 shares of the Company's common stock at an
exercise price of 110% of the market price at closing. In addition, the
debentures are expected to be secured by all of the Company's assets,
redeemable under certain circumstances and convertible into shares of
common stock if not redeemed within one year of the date of issuance.
Although the Company is currently negotiating this financing,
there can be no assurance that this or any financing will be completed on
the foregoing or similar terms, if at all, within the required time frame.
If the financing is completed, the funds will be used to repay
existing bank debt and fund operations.
6. 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 three 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 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. However, the terms of the Series C Preferred Stock restrict a
holder from converting shares of Series C Preferred Stock to the extent
that such conversion would result in any holder holding
6
<PAGE> 9
more than 4.99% of the then issued and outstanding shares of common stock.
As of June 30, 1999 no conversions of Series C Preferred Stock have
occurred.
7. COMPREHENSIVE NET LOSS
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements. In
accordance with SFAS No. 130, the comprehensive loss would include the net
unrealized loss on marketable securities of $14,499 and the net unrealized
gain on marketable securities of $7,075 for the six months ended June 30,
1999, and 1998 respectively, resulting in comprehensive losses for the
periods of $11,428,143 and $11,669,525, respectively.
8. 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.
9. NEW ACCOUNTING PRONOUNCEMENTS
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
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 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.
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 June 30, 1999, the Company had an
accumulated deficit of $104,054,000.
8
<PAGE> 11
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 1998
REVENUE
The Company recognized research revenue of $2,724,000 for the quarter ended June
30, 1999 compared to $3,228,000 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 the 1997 HMR Genomics Agreement. The decrease in
research revenue of $504,000 for the quarter ended June 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 partially offset by increased services
provided to the Genomics Center under the Services Agreements. Research revenue
resulting from the Services Agreements with the Genomics Center is expected to
increase over the next two years.
Interest income decreased by $153,000 to $143,000 for the quarter ended June 30,
1999 compared to $296,000 for the same period in 1998 primarily as a result of
lower levels of funds invested during the 1999 period.
OPERATING EXPENSES
Research and development expenses decreased to $7,824,000 for the quarter ended
June 30, 1999 compared to $8,990,000 for the same period in 1998 due primarily
to decreased manufacturing development costs and other preclinical development
costs incurred in the prior period offset somewhat by increased research
services provided to the Genomics Center under the Services Agreements in the
current period. The Company expects its research and development expenses to
increase over the next two years as a result of research services to be provided
to the Genomics Center.
General and administrative expenses increased to $884,000 for the quarter ended
June 30, 1999 compared to $677,000 for the corresponding period in 1998
primarily due to increased professional and legal services incurred.
The Company incurred interest expense of $91,000 for the quarter ended June 30,
1999 compared to $128,000 for the corresponding period in 1998. The decrease
resulted from a lower level of long-term debt during the 1999 period.
OPERATING RESULTS
The Company incurred losses of $6,361,000 for the quarter ended June 30, 1999
and $6,271,000 for the corresponding period in 1998, or $(.29) and $(.30) per
share, respectively. The Company expects that substantial operating losses will
continue for several more years, will increase as its
9
<PAGE> 12
product development activities expand and increased services are provided to the
Genomics Center and will fluctuate as a result of differences in the timing and
composition of revenue earned and expenses incurred.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998
REVENUE
The Company recognized research revenue of $7,306,000 for the six months ended
June 30, 1999 compared to $6,074,000 for the same period in 1998. The increase
in research revenue of $1,232,000 for the six months ended June 30, 1999 when
compared to the corresponding period in 1998 is a result of increased services
provided to the Genomics Center under the 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 $1,666,000 in the
amortization of deferred revenue recognized in the prior year relating to this
agreement. Research revenue resulting from the Services Agreements with the
Genomics Center is expected to increase over the next two years.
Interest income decreased by $293,000 to $316,000 for the six months ended June
30, 1999 compared to $609,000 for the same period in 1998 primarily as a result
of lower levels of funds invested during the 1999 period.
OPERATING EXPENSES
Research and development expenses decreased to $15,970,000 for the six months
ended June 30, 1999 compared to $16,726,000 for the same period in 1998 due
primarily to decreased manufacturing development costs and other preclinical
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 increase over the
next two years as a result of research services to be provided to the Genomics
Center.
General and administrative expenses increased to $1,615,000 for the six months
ended June 30, 1999 compared to $1,376,000 for the corresponding period in 1998
primarily due to increased professional and legal services incurred.
The Company incurred interest expense of $197,000 for the six months ended June
30, 1999 compared to $258,000 for the corresponding period in 1998. The decrease
resulted from a lower level of long-term debt during the 1999 period.
10
<PAGE> 13
OPERATING RESULTS
The Company incurred losses, before the cumulative effect of change in
accounting principle, of $10,925,000 for the six months ended June 30, 1999 and
$11,677,000 for the corresponding period in 1998 or $(.50) and $(.58) per share,
respectively. After such cumulative effect, the Company incurred losses of
$11,290,000 for the six months ended June 30, 1999 and $11,677,000 for the
corresponding period in 1998, or $(.52) and $(.58) per share, respectively. The
Company expects that substantial operating losses will continue for several more
years, will increase as its product development activities expand and increased
services are provided to the Genomics Center and will fluctuate as a result of
differences in the timing and composition of revenue earned and expenses
incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and investments in property and
equipment primarily through the private placement and public offering of its
securities, including the sale of Series B Convertible Preferred Stock ("Series
B Preferred Stock") to HMR in connection with the formation and operation of the
Genomics Center in March 1997 and in January 1999, 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 June 30, 1999, the Company had cash, cash equivalents and marketable
securities totaling $11,049,000, and a working capital deficiency of $1,097,000
compared to cash, cash equivalents and marketable securities totaling
$14,176,000 and working capital amounting to $5,806,000 at December 31, 1998.
The Company believes that its existing capital resources will not be adequate
to satisfy its operating requirements beyond the third quarter of 1999.
However, changes in the Company's research and development activities or other
events affecting the Company's revenues, operating expenses or other cash
requirements may result in the earlier depletion of the Company's funds.
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 June 30, 1999 of various events of
default relating to such non-compliance. While the Company has not received any
notification of default, subsequent to June 30, 1999, the Company may be held in
default under its loan agreement and, as a result, the debt could be subject to
future acceleration in the absence of refinancing, additional equity, additional
covenant waivers or loan modifications.
In an attempt to address its funding requirements, the Company has engaged in
negotiations for a financing with a group of institutional investors. As
presently contemplated, such financing is expected to consist of an aggregate
principal amount of up to $5,000,000 of 10% secured debentures with a two year
maturity and five year warrants to purchase up to 3,500,000 shares of the
Company's common stock at an exercise price of 110% of the market price at
closing. In addition, the debentures are expected to be secured by all of the
Company's assets, redeemable under certain circumstances and convertible into
shares of common stock if not redeemed within one year of the date of issuance.
The preceding statements regarding the financing are "forward-looking"
statements based on management's current expectations and are subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in or implied by the statements. Such risks and uncertainties
include, without limitation, whether the definitive financing agreements can be
satisfactorily negotiated and completed and whether the applicable conditions
to closing can be timely satisfied. Although the Company is currently
negotiating this financing, there can be no assurance that this or any
financing will be completed on the foregoing or similar terms, if at all,
within the required time frame. If the financing is completed, the funds will
be used to repay existing bank debt ($4,239,000) and fund operations.
The Company believes that its existing capital resources, combined with funds
resulting from the planned issuance of the above debentures, plus interest
income, planned research and development funding and other sources of funding,
including additional purchases 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 second quarter of 2000.
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 six months ended June 30, 1999 were
$7,879,000 to finance the Company's operations and working capital requirements,
$455,000 to purchase laboratory equipment, $925,000 to repay long-term debt,
$768,000 for net investment in the Genomics Center and $469,000 to acquire
intellectual property. The primary sources of cash during the six months ended
June 30, 1999 were $4,000,000 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, $629,000 in advances from the Genomics
Center, $309,000 from the sale/leaseback of laboratory equipment, $5,369,000 of
net proceeds from the sale and maturity of marketable securities, $5,747,000
from the sale of Series B Preferred Stock to HMR and $1,228,000 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-
11
<PAGE> 14
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 June 30, 1999, the
Company invested $6,500,000 in leasehold improvements and equipment and funded
$13,679,000 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 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 June 30, 2003 in cash or series B
convertible preferred stock, at the Company's option. On May 20, 1999 the
Company received loans from HMR in the amount of $1,228,000 to fund the
Company's portion of excess commitments.
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 $29,390,000.
12
<PAGE> 15
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, 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 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 phase, the assessment, 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
The second phase of testing and implementation, which includes fixing or
replacing systems developed internally by the Company and externally by third
party vendors is ongoing. Internally, this phase is close to completion 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 expected to be completed by September 30, 1999.
13
<PAGE> 16
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.
While management has not yet specifically determined the costs associated with
the Company's year 2000 readiness efforts, 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 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.
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, including but not limited to risks and
uncertainties regarding the receipt of revenues under the Company's 1995 HMR
Osteoporosis Agreement and the Services Agreements, the actual research and
development expenses and other costs associated with the Genomics Center, the
success of the Company's preclinical studies, the ability of the Company to
commence clinical studies, the 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
14
<PAGE> 17
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 and U.S. Government
securities 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 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 June 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 $99,000 of additional interest expense per
year.
15
<PAGE> 18
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On May 18, 1999, the Company extended the exercise deadline for its
Common Stock Purchase Warrants (the "Warrants") from 5:00 p.m. New York
City time on May 20, 1999 to 5:00 p.m. New York City time on December
30, 1999. The extension was effected by an amendment to the Warrant
Agreement between the Company and the State Street Bank and Trust
Company of Boston, Massachusetts, who acts as Warrant Agent for the
Warrants. All other terms of the Warrants remain unchanged. The
Warrants are exercisable at $8.40 per share and are traded on the
Nasdaq Market under the symbol: ARIAW.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on June 29, 1999. Of
25,009,585 shares of common and series B preferred shares issued and
outstanding and eligible to vote as of the record date of May 12, 1999,
a quorum of 20,940,471 shares or 83.73% of the eligible shares were
present in person or represented by proxy.
The following actions were taken at such meeting:
(a) Reelection of the following Class 2 Directors:
<TABLE>
<CAPTION>
Number of Shares
------------------------------------
For Withheld Authority
---------- ------------------
<S> <C> <C>
Philip Felig, M.D. 20,322,164 618,307
Jay R. LaMarche 20,403,615 536,856
Joel S. Marcus 20,324,660 615,811
Continuing Class 3 Directors (terms to expire 2000):
Harvey J. Berger, M.D.
Vaughn D. Bryson
Sandford D. Smith
Raymond S. Troubh
</TABLE>
16
<PAGE> 19
Continuing Class 1 Directors (terms to expire 2001):
Joan S. Brugge, Ph.D.
John M. Deutch, Ph.D.
Ralph Snyderman, M.D.
(b) To approve the issuance by the Company of more than 4,385,500
shares of Common Stock upon conversion of, or as dividends on,
its Series C Convertible Preferred Stock to comply with
certain rules of the Nasdaq Stock Market (9,244,034 shares for
approval, 550,966 shares against approval, 33,910 shares
abstaining and 11,111,561 broker non-votes).
ITEM 5. OTHER INFORMATION
On April 30, 1999, the Board of Directors of the Company amended the Company's
By-laws to change the notification requirements for proposals to be submitted at
stockholders' meetings.
On May 19, 1999, the Company filed suit in the Massachusetts Superior Court
against Michael Z. Gilman, Ph.D. ("Dr. Gilman"), the Company's former Chief
Scientific Officer seeking equitable relief for breach of his employment
agreements in accepting a position as the research director of molecular
biology at Biogen, Inc. ("Biogen"). The Superior Court issued a temporary
injunction on May 19, 1999 restraining Dr. Gilman from using any of the
Company's confidential information in his new employment. On June 21, 1999, Dr.
Gilman filed a counterclaim against the Company seeking an order awarding
damages for breach of contract and barring the Company from enforcing any
provisions of its employment agreements with Dr. Gilman. On May 26, 1999 Biogen
filed a motion to intervene as a defendant in the action which the Superior
Court granted on August 2, 1999. While the Company intends to seek a permanent
injunction and other relief as appropriate, the ultimate outcome of the
litigation with Dr. Gilman is not determinable at this time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
EXHIBIT NO. TITLE
----------- -----
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended June
30, 1999, which report was filed on May 18, 1999 to report that it had
extended the exercise deadline for its Common Stock Purchase Warrants
(the "Warrants") from 5:00 p.m. New York City time on May 20, 1999 to
5:00 p.m.
17
<PAGE> 20
New York City time on December 30, 1999. The extension was effected by
an amendment to the Warrant Agreement between the Company and the State
Street Bank and Trust Company of Boston, Massachusetts, who acts as
Warrant Agent for the Warrants. All other terms of the Warrants remain
unchanged. The Warrants are exercisable at $8.40 per share and are
traded on the Nasdaq Market under the symbol: ARIAW.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARIAD Pharmaceuticals, Inc.
(Registrant)
By: /s/ Jay R. LaMarche
------------------------------------
Jay R. LaMarche
Executive Vice President and
Chief Financial Officer
(Duly authorized Officer and
Principal Financial Officer)
Date: August 20 , 1999
18
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27 FINANCIAL DATA SCHEDULE
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE SIX MONTHS ENDED JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 8,796
<SECURITIES> 2,253
<RECEIVABLES> 853
<ALLOWANCES> 0
<INVENTORY> 1,748
<CURRENT-ASSETS> 13,650
<PP&E> 17,140
<DEPRECIATION> (10,183)
<TOTAL-ASSETS> 27,361
<CURRENT-LIABILITIES> 14,747
<BONDS> 0
0
30
<COMMON> 22
<OTHER-SE> 6,174
<TOTAL-LIABILITY-AND-EQUITY> 27,361
<SALES> 0
<TOTAL-REVENUES> 7,623
<CGS> 0
<TOTAL-COSTS> 17,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> (11,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,290)
<EPS-BASIC> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
