Back to GetFilings.com
1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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_____
ARIAD PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3106987
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26 LANDSDOWNE STREET, CAMBRIDGE, MASSACHUSETTS 02139-4234
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-0400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of the registrant's Common Stock outstanding as of
March 16, 2000: 24,458,228. The number of Common Stock Purchase Warrants
outstanding as of March 16, 2000: 2,054,836.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $511 million as of March 16, 2000, based on the
last reported sales price of the registrant's Common Stock on the Nasdaq
National Market on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement (the "Proxy Statement") to be
used in connection with the Registrant's 2000 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.
================================================================================
2
ITEM 1. BUSINESS
OVERVIEW
We are a biopharmaceutical company focused on the discovery,
development and commercialization of proprietary platform technologies and
therapeutic products based on gene regulation and signal transduction. Our core
competencies in functional genomics, protein engineering and structure-based
drug design allow us to capitalize on the wealth of genetic information being
generated by government, academic and commercial laboratories. We apply this
expertise to the development of proprietary technology platforms that allow
manipulation of signal transduction, gene transcription, and protein secretion
events using small-molecule drugs. We believe that our ability to control the
activity of genes and proteins allows us to broadly apply discoveries in
genomics to the development of innovative therapeutic products.
Our major areas of technology and product development are based on our
proprietary methods of intervention in cellular processes, including the
activation of genes. In our regulated gene therapy program, we are developing
products, regulated by small-molecule drugs, for turning on signal transduction,
gene transcription, and protein secretion events. In our signal transduction
inhibitor program, we are developing orally active small-molecule drugs to turn
off specific signal transduction pathways that are critically involved in
disease. We have 12 product candidates in various stages of research and
development, including one preparing to enter Phase 2 clinical trials, two in
preclinical development and nine in earlier stage research. These product
candidates target large markets that are inadequately served by currently
available therapies. We plan to develop some of our product candidates
ourselves. In addition, we intend to commercialize our enabling platform
technologies by licensing them to pharmaceutical and biotechnology companies for
their research and product development programs.
THE GENOMICS REVOLUTION AND ITS CHALLENGES
The completion of the human genome project will provide broad access to
genetic information. These data represent a blueprint of the body's genetic
makeup, which is the first step in discovering the pathways that cause disease
and defining proteins of potential therapeutic importance. Historically, many
drugs were developed without full appreciation of their mechanisms or genetic
basis, making the process inefficient and often producing drugs that have less
than optimal profiles. By understanding the nature of the body's genetic
blueprint and the genetic basis of disease, gene-targeted drugs can be designed
to prevent or treat the disease at the genetic level rather than to treat the
symptoms.
One of the greatest challenges resulting from the genomics revolution
is devising ways to effectively convert genes into drugs. Currently, recombinant
proteins are administered by injection and must be given frequently. This often
leads to poor patient compliance, especially in children and the elderly. Blood
concentrations of therapeutic proteins may stabilize at levels that are too low
to be effective. Conversely, if blood concentrations of proteins are too high,
they may cause toxicity. In many cases, these problems may prevent development
of an otherwise promising therapeutic protein or severely limit the doses that
can be tolerated.
In gene therapy, the gene encoding a therapeutic protein is
administered to the patient by injection, resulting in protein production by
cells in the body. Genes can be administered to any convenient tissue, because
the engineered cells will then secrete proteins into the bloodstream for
delivery to target cells and tissues. We believe that gene therapy has great
potential as a general
1
3
means of delivering therapeutic proteins, a major class of pharmaceutical
products that encompasses natural hormones, engineered proteins and humanized
monoclonal antibodies. The number of available therapeutic proteins will climb
rapidly as the human genome project is completed, resulting in numerous new
gene-therapy opportunities. We believe that optimal gene therapies must provide
physicians with the ability to control the activity of therapeutic genes.
Without gene regulation, gene therapy has similar disadvantages as
recombinant protein therapy such as blood levels that may be too high or too
low. In addition, most diseases are heterogeneous and dynamic in nature, which
means that physicians need to be able to adjust dosing of therapeutic proteins,
whether administered by gene therapy or recombinant proteins, as the disease
evolves and the effective therapeutic range varies. Finally, we believe that if
gene therapies cannot be withdrawn or turned off, they may not be accepted by
physicians and regulatory authorities. As a result, the ability to carefully
control the activity of genes in vivo, and to turn them off when needed, will be
critical to making gene therapies safe, effective and broadly applied.
OUR SOLUTION
Three of the key problems that need to be addressed in order to
capitalize on the opportunities presented by the genomics revolution are
understanding:
* which genes and proteins are critically involved in disease;
* how to convert these genes into drugs; and
* how to intervene selectively in disease pathways.
Our core competencies in functional genomics, protein engineering and
structure-based drug design enable us to address these key problems. Functional
genomics allows us to identify genes, proteins and signaling pathways that are
involved in disease states and to validate them as points of therapeutic
intervention. Protein engineering allows us to modify the structure and function
of proteins so that they can be utilized optimally in our research and product
candidates. Structure-based drug design allows us to determine the
three-dimensional structure of a protein target, providing a detailed guide to
chemists as they design small-molecule drug candidates. We have two primary
programs, regulated gene therapy and signal transduction inhibitors, which
directly capitalize on our core competencies.
Our proprietary gene regulation technologies, referred to as ARGENT and
RAPID, provide alternatives to conventional approaches to gene therapy, where a
gene is introduced into the body with no way to turn it off or to modulate its
level of activity. Using small-molecule drugs, ARGENT and RAPID-based gene
therapies function analogously to a volume control of a radio, allowing genes
and proteins to be precisely controlled. This enables a physician to maintain
protein levels within desired therapeutic ranges.
Our signal transduction inhibitor program capitalizes on the discovery
of signaling proteins encoded by genes, including those identified through the
human genome project. We can pinpoint particular proteins or signaling pathways
that are critically involved in disease and can focus our drug discovery efforts
on targets that we believe are most likely to lead to potent inhibitors of the
disease process. Structure-based drug design provides an atomic blueprint of the
interaction of our drugs with their molecular targets, which helps define their
mechanism of
2
4
inhibition. We believe that this will increase the likelihood of clinical
benefit to patients with chronic diseases, while minimizing the likelihood of
adverse effects.
Our enabling platform technologies have led to 12 product candidates in
various stages of research and development. We have retained the rights to all
of our product candidates and enabling technologies. They are covered by 96
patents and patent applications, including 29 that have already issued or have
allowed claims in the United States. Seven patents on our ARGENT system have
been issued. Our platform technologies can be leveraged further by developing
additional products with corporate partners.
We believe that we are well-positioned to exploit the opportunities
presented in the genomic era of drug discovery because of our:
* core competencies in genomics, protein engineering and structure-based
drug design;
* enabling platform technologies, including our ARGENT and RAPID systems;
* diverse product candidates, the most advanced of which is a regulated
gene therapy product preparing for Phase 2 clinical trials; and
* intellectual property position.
OUR BUSINESS STRATEGY
Our objective is to become a leading biopharmaceutical company that
discovers, develops, and commercializes proprietary platform technologies and
therapeutic products based on gene regulation and signal transduction.
The key elements of our business strategy to achieve our objective are
as follows:
* Develop and commercialize small-molecule drugs targeting gene
regulation and signal transduction. We focus our research and
development efforts on small-molecule drugs. The major advantages of
small-molecule drugs are their potential for oral administration and
their suitability for treating chronic diseases. In addition, these
drugs can be manufactured by conventional synthetic or fermentation
methods, generally resulting in lower manufacturing costs than for
therapeutic proteins. Our core competencies position us well to pursue
the development and commercialization of small-molecule drugs.
* Pursue programs with multiple product opportunities. Our enabling
platform technologies and core competencies create multiple product
opportunities for us to address significant unmet medical needs. We
intend to penetrate these markets by taking advantage of the knowledge
and intellectual property developed in our product development
programs.
* Provide our enabling platform technologies to academic investigators in
exchange for intellectual property and commercial rights. We currently
have over 275 academic investigators throughout the world using our
platform technologies, including ARGENT and RAPID, for research in
genomics and protein function, or proteomics. As part of our agreements
with the academic institutions, we receive
3
5
specified intellectual property and commercial rights to discoveries made by the
investigators using our technologies.
* License our enabling platform technologies to biotechnology and
pharmaceutical companies for research and manufacturing. We plan to
generate revenues by licensing our enabling platform technologies,
including ARGENT and RAPID, to pharmaceutical and biotechnology
companies for their internal genomics and proteomics research and
protein manufacturing.
* Retain defined commercialization rights to our product candidates. We
intend to maximize the commercial return on our product candidates and
technologies by selectively pursuing advanced clinical development. We
plan to retain the commercialization rights to some of our product
candidates in North America and to develop a focused sales force to
market these products to specialty physicians and specialized treatment
centers. We also plan to establish corporate collaborations or joint
ventures to market and distribute our products outside of North
America. For products that require long-term clinical trials or
extensive marketing to achieve product acceptance, we intend to enter
into collaborations on a worldwide basis.
* Access therapeutic genes and vectors, as needed, through licensing and
corporate partnerships. Our enabling technologies can be applied to the
treatment or prevention of a wide range of diseases in addition to
those that we have targeted. In instances when we need access to
proprietary therapeutic genes, we intend to establish partnerships with
major pharmaceutical and biotechnology companies that have the rights
to those genes. Our strategy for obtaining access to vectors is to form
partnerships with academic institutions and/or gene therapy companies
that are developing appropriate vector technology for particular
product applications. We are currently in discussions with several
entities to obtain rights to the vector technologies we need for our
product development programs. Agreements relating to our access to
vectors and genes would allow us to leverage our technologies into
markets that we cannot enter on our own.
THE SCIENTIFIC BASIS OF OUR TECHNOLOGIES
Our programs leverage our detailed knowledge of how cells convert
extracellular signals into specific cellular responses. The process by which an
external signal is transmitted into and within a cell to elicit a response is
referred to as signal transduction. Signal transduction is generally initiated
by the interaction of extracellular factors with receptors on the cell surface.
These extracellular signals are conveyed, or transduced, to the inner face of
the cell membrane, causing the intracellular portion of the receptor to interact
with specific contact sites, known as domains, on signaling proteins. The
initial intracellular interactions of receptors and their targets stimulate a
series of additional protein interactions that disseminate the signal throughout
the cell, thereby producing a specific cellular response.
Signal transduction pathways often lead to activation of specific genes
in the cell nucleus. Activation of a gene results in its being read by cellular
machinery, leading to manufacture of the corresponding protein. The process of
reading an activated gene is referred to as gene transcription. Transcription of
specific genes is a key point of regulation for many signal transduction
pathways, which leads to production of specific proteins. Like signal
transduction,
4
6
the process of transcription also takes place through a series of interactions
between proteins, which results in the step-wise assembly of proteins called
transcription factors.
Once the protein encoded by a specific gene has been manufactured, it
either stays inside the cell or is exported out of the cell, depending on the
type of protein. The process of exporting a protein out of a cell is referred to
as protein secretion. Proteins that are exported out of the cell include those
that perform extracellular functions, such as communication with other cells.
Examples of secreted proteins include hormones, cytokines, and growth factors.
OUR CORE COMPETENCIES
All of our drug discovery efforts are based on the integration of three
core competencies: functional genomics, protein engineering and structure-based
drug design. We have assembled in-depth capabilities in each of these areas and
believe that we are recognized as a leader in the application of
state-of-the-art chemical, structural and biological approaches to the efficient
design of small-molecule drugs.
Functional genomics
Functional genomics encompasses bioinformatics, molecular and cellular
biology, and molecular genetics. We have developed critical technologies in each
of these areas, including proprietary software tools for gene sequence analysis,
gene expression analysis technologies, and high-throughput screens for gene
function. In addition to their uses in regulated gene therapy, our ARGENT and
RAPID platform technologies are versatile research tools to analyze the function
of genes and proteins.
We deploy functional genomics approaches in both of our major programs.
In our regulated gene therapy program, we seek to identify novel secreted
proteins that have the potential to be delivered using our ARGENT and RAPID
orally active protein therapy systems. In our signal transduction inhibitor
program, we use genomics strategies to identify proteins and pathways that are
involved in disease states and to validate them as drug targets. By focusing our
drug discovery efforts on validated targets, we believe that we can increase the
likelihood that our small-molecule drugs will be specific and effective.
Validated drug targets that are present on the outside of cells also can serve
as starting points for the development of inhibitory monoclonal antibodies which
could be delivered using ARGENT orally active protein therapy.
Protein engineering
The process of redesigning proteins is known as protein engineering and
involves a combination of recombinant DNA techniques, biochemistry, and
structural and computational analysis of proteins. In each of our drug discovery
programs, we rely heavily on the ability to design new proteins with desired
function and binding characteristics. Our ARGENT and RAPID systems are dependent
upon the use of engineered proteins. Using our core competency in protein
engineering, we modify the structure of the proteins that bind to our
small-molecule drugs allowing them to regulate gene expression. In our signal
transduction inhibitor program, we have redesigned proteins to make them more
amenable to structural analysis.
5
7
Structure-based drug design
Determining the three-dimensional structure of a protein target
provides a detailed guide to chemists as they design small-molecule drug
candidates using medicinal chemistry or combinatorial approaches. After
identifying the initial structure, repeated cycles of compound synthesis,
testing and further structural analysis are conducted. This allows the design of
compounds or libraries of compounds to be quickly refined based on detailed
knowledge of their mechanism of binding. This approach, known as structure-based
drug design, accelerates the process of designing and optimizing small-molecule
drugs with high potency and specificity and optimal pharmacological properties.
We focus on the development and use of computational chemistry tools
for analyzing compound binding, which facilitates our optimization of product
candidates. We also use proprietary computer modeling techniques, known as
virtual screening, to analyze the predicted potency of compounds without having
to make and test them. This process can make drug discovery and lead
optimization more efficient by focusing our efforts on the most promising series
of compounds.
Each of our product development programs has been guided and
accelerated by structure-based approaches. In our regulated gene therapy
program, we have high-resolution structures of our gene-targeted drugs bound to
their protein targets. In our signal transduction inhibitor program,
high-resolution structures of our compounds bound to validated protein targets
have been determined routinely and are used to guide drug optimization.
REGULATED GENE THERAPY PROGRAM
Gene Therapy Overview
Gene therapy involves the genetic modification of cells so that they
produce specific therapeutic proteins. Cells are modified either ex vivo,
meaning outside the body, or in vivo, meaning inside the body, using gene
transfer vehicles called vectors. Gene therapy is commonly viewed as a means of
replacing defective genes in patients suffering from genetic diseases. However,
we believe that the potential of gene therapy extends beyond these applications.
Cells can be modified ex vivo to improve their therapeutic properties, such as
by enhancing the ability of bone marrow transplants to recognize and eliminate
cancer cells or engineered in vivo to manufacture specific therapeutic proteins.
Overview of Our Regulated Gene Therapy Program
Our gene regulation technologies can be applied to three distinct
cellular processes: signal transduction, gene transcription and protein
secretion. Our ARGENT system has distinct applications in regulating signal
transduction and gene transcription. In ARGENT signal transduction products,
gene activity is turned on and off with a small-molecule drug. In ARGENT gene
transcription products, the effects of genes are regulated incrementally over a
sustained period of time within a therapeutic range. In RAPID protein secretion
products, the release of proteins from a cell is regulated in a pulse-like
manner within a therapeutic range. Furthermore, our ARGENT and RAPID products
have been designed to function when delivered using any vector system.
6
8
Small-molecule Drugs to Regulate Genes
We have developed a series of technologies that allow the expression of
genes or the activities of gene products, or proteins, to be controlled using
small-molecule drugs. In order to control the activity of therapeutic genes or
their products using a drug, the processes of signal transduction and/or gene
transcription need to be brought under small-molecule control. These processes
proceed in large part through a series of specific interactions between
proteins, known as dimerization. At the core of our ARGENT gene regulation
systems is the concept of inducing these protein interactions with
small-molecule drugs, as shown in the figure below. In the November 1993 issue
of Science, Drs. Stuart Schreiber and Gerald Crabtree, members of our Board of
Scientific and Medical Advisors, reported that small-molecule drugs, which we
call Dimerizer Drugs, can be used to control cellular responses in cells or
whole organisms. Through our subsidiary, ARIAD Gene Therapeutics, Inc., or AGTI,
we have exclusively licensed this technology from Stanford University and
Harvard University.
ACTIVATING SIGNAL TRANSDUCTION USING SMALL-MOLECULE DIMERIZER DRUGS
[PICTURE]
Validation of ARGENT and RAPID for Genomics Research
We have established a web-based academic technology transfer program,
whereby our proprietary ARGENT gene regulation systems are made available to
academic scientists worldwide for research purposes. Since October 1996, we have
provided research kits to over 275 academic investigators for the regulated
dimerization of proteins and transcription of genes. We receive intellectual
property and commercial rights to inventions and discoveries made using our
technologies. We believe that broad distribution of our reagents, coupled with
retention of patent and commercial rights, is an effective way to maximize the
value of our broadly applicable technology. In particular, since the ARGENT
system has special utility in genomics and proteomics research, we may receive
rights to new therapeutic genes and proteins for use in our regulated gene
therapy products. We recently expanded our academic technology transfer program
to include our proprietary gene activation technology and RAPID technology. Kits
based on these two systems are being distributed under the same terms as the
ARGENT kits.
7
9
REGULATED GENE THERAPY: SIGNAL TRANSDUCTION
ARGENT Graft-versus-Host Disease Cell Therapy
We have designed a specific Dimerizer Drug for use in our ARGENT cell
therapy applications. Apoptosis, or programmed cell death, is the natural
cellular suicide mechanism, whereby cells die in a controlled and predetermined
manner. Several signal transduction pathways that lead to cell death are
initiated by clustering of certain proteins at the cell membrane. We have
demonstrated that apoptosis can be artificially stimulated in cells by
clustering of an engineered cell-death protein using a Dimerizer Drug. This
system, therefore, provides a drug-inducible system for controlled elimination
of genetically engineered white blood cells, or T cells.
We have optimized the ARGENT apoptosis system for clinical development.
The intracellular cell-death protein has been linked to an extracellular marker
protein, allowing cells that express the construct to be obtained in pure form,
which is a prerequisite for clinical use in cell therapy. These results were
published in November 1999 in Human Gene Therapy. Our scientists, in
collaboration with Dr. Claudio Bordignon's group of the Instituto Scientifico
H.S. Raffaele, Milan, have demonstrated the ability of our system to eliminate
human T cells in a controlled manner.
We completed a Phase 1 clinical trial of AP1903, our gene-targeted drug
which is the product of structure-based drug design, in healthy volunteers to
assess the safety and tolerability of the drug. No drug-related adverse effects
were seen at any of the doses tested. Even at the lowest dose tested, AP1903
blood levels were at or above the concentration predicted to effectively kill T
cells based on our preclinical studies.
We are planning a Phase 2 trial of our ARGENT graft-versus-host disease
product candidate in patients with relapsed chronic myeloid leukemia undergoing
allogeneic bone marrow transplantation. Graft-versus-host disease, or GvHD, is
an often lethal condition that arises when donor T cells attack healthy host
tissues. The trial will be conducted at the Fred Hutchinson Cancer Research
Center, Seattle. In this trial, T cells will be isolated from the patient and
retrovirally transduced with a cell death gene. The marked T cells will then be
isolated and infused into the patient. AP1903 will be administered to eliminate
the disease-causing donor T cells only if GvHD is observed.
ARGENT Stem Cell Gene Therapy
Regulated receptor dimerization also can be used to achieve the
opposite cellular outcome to apoptosis: drug-stimulated growth of cells. Most
growth factors that elicit proliferation and development of mammalian cells
operate through clustering their cell surface receptors. This means that these
processes also can be stimulated within engineered cells using a Dimerizer Drug
by replacing the cell-death protein with a receptor that signals growth.
This application of our ARGENT system is the basis for development of
regulated stem cell therapies, including the growth of organs or tissues for
transplantation. A key limitation of stem cell gene therapy is the very low
efficiency of gene transfer into stem cells. This inefficiency makes it
difficult to obtain sufficient numbers of stem cells, and therefore their
progeny, that contain therapeutic or corrective genes. Incorporating the ARGENT
growth regulation system into stem cells provides a simple, controlled way to
stimulate the growth of
8
10
rare transduced cells, either in vitro or in vivo. We believe that these
approaches may lead to innovative new cell therapy products to treat a wide
range of otherwise intractable genetic and acquired diseases.
To address the limitations of stem cell therapy, we are pursuing the
use of our ARGENT system in the development of regulated stem cell gene therapy
product candidates. Our collaborator, Dr. C. Anthony Blau, published findings of
a study in 1998 in the Proceedings of the National Academy of Sciences USA in
which mouse bone marrow cells were stimulated to grow in a dose-dependent manner
using our ARGENT growth system. Dr. Blau later reported that our small-molecule
Dimerizer Drug, AP1903, regulated the growth of stem cells derived from human
umbilical cord blood. In vivo experiments are now underway to control the growth
of stem cells using ARGENT.
REGULATED GENE THERAPY: GENE TRANSCRIPTION (ARGENT) AND PROTEIN SECRETION
(RAPID)
We believe that our proprietary technologies, ARGENT regulated
transcription and RAPID regulated protein secretion, complement each other and
together provide a complete portfolio of technologies for producing proteins
using gene therapy and controlling their production with orally active
small-molecule drugs. The following figure shows the process by which patients
may be treated with our orally active protein therapy product candidates. This
process includes one-time or infrequent injection of a vector and repeated
administration of our small-molecule drugs.
ARGENT AND RAPID ORALLY ACTIVE PROTEIN THERAPY PRODUCT CANDIDATES
[PICTURE]
9
11
ARGENT Orally Active Protein Therapy
Our ARGENT orally active protein therapy system is designed to control
the first stage of gene expression, which is the transcriptional reading of the
gene. Our system provides control of the activity of gene transcription through
the administration of a proprietary, orally active Dimerizer Drug. We have
developed multiple classes of Dimerizer Drugs for clinical use in our ARGENT
product candidates, and they are currently undergoing preclinical testing in
animal models prior to selection of a clinical candidate. Importantly, all of
the proteins used to build the ARGENT regulatory components are human in origin,
which we believe should make an unwanted immune response unlikely.
The ARGENT system can be delivered using any vector. In addition, it
can be delivered to any tissue that allows the protein to be secreted into the
bloodstream. In our initial applications of the ARGENT system, we have focused
on adeno-associated virus, or AAV, vectors delivered by injection into muscle.
We are currently completing the optimization of the ARGENT components in AAV
vectors. We also are conducting additional experiments in mice and rhesus
monkeys in anticipation of initiating clinical development of our first ARGENT
product candidate.
In a study published in the July 1999 issue of the Proceedings of the
National Academy of Sciences USA, our scientists and academic collaborators used
AAV-based gene delivery in combination with the ARGENT system to regulate the
production of human growth hormone, or hGH, in mice. Over a greater than 300-day
period, we were able to repeatedly induce hGH production or to hold it steady at
pre-determined levels, simply by varying the dose of the Dimerizer Drug. In the
absence of our drug, production of hGH was undetectable, showing the feasibility
of terminating therapy when necessary. The following figure shows the published
results of this study.
LONG-TERM REGULATED DELIVERY OF HUMAN GROWTH HORMONE IN MICE USING ARGENT
[PICTURE]
We also have demonstrated the use of the ARGENT system to control
production of the therapeutic protein, erythropoietin, or Epo, a red blood cell
stimulant. In a study published in Science in January 1999, our scientists and
academic collaborators used AAV-mediated delivery of the ARGENT system to muscle
to regulate Epo production both in mice and primates. The dose-dependent
increase in Epo resulted in higher numbers of red blood cells in the
bloodstream. Discontinuing drug administration shut down Epo production. After
continued observation, several rhesus monkeys have demonstrated regulatable
production of Epo for over 450 days following a single administration of
vectors.
10
12
RAPID ORALLY ACTIVE PROTEIN THERAPY
Many therapeutic proteins require secretion and clearance from the
blood much more quickly than is feasible with the ARGENT system. One example is
insulin, which must be delivered in brief pulses at mealtimes and in response to
or in anticipation of other activities. In order to be able to deliver such
proteins using a regulated gene therapy approach, much faster protein production
and release is needed. Pulse-like delivery is achieved by regulating the last
step of protein production: protein secretion. Our new technology, called RAPID,
is based on a proprietary method of storing pre-made proteins inside cells as
aggregates or large clusters. Proteins are released almost immediately in fully
active form in response to the administration of one of our RAPID drugs, which
breaks apart the protein clusters.
Our scientists, along with collaborators from the Memorial
Sloan-Kettering Cancer Center and the University of Geneva, published in the
February 4, 2000 issue of Science that insulin and hGH could be delivered in
pulse-like bursts in response to our RAPID drug. The level of protein secretion
depended on the dose of the drug. In addition, we showed that the level of
baseline protein production in the absence of drug could be controlled by
appropriate design of the RAPID system. This may allow us to mimic low-level
production of insulin between mealtimes. We demonstrated the use of the RAPID
system to transiently correct blood sugar levels in diabetic mice. Within
fifteen minutes of adding our RAPID drug, insulin appeared in the blood stream
and rose to peak levels within less than two hours. Levels of insulin and
glucose then returned over the next two hours to baseline levels. Based on these
preclinical data, we are pursuing the development of a RAPID regulated insulin
product for the treatment of insulin-dependent diabetes.
OTHER ARGENT APPLICATIONS
We have identified several additional uses of our gene regulation
technologies, including product opportunities and manufacturing applications.
Dimerizer Hormone Mimetics
The receptors that are activated in the ARGENT GvHD and regulated stem
cell gene therapy products are cell surface proteins that have been genetically
modified to respond to a Dimerizer Drug. Our regulated gene therapy program is
focused on Dimerizer Drugs that target such engineered proteins. However, the
concept of small molecules that promote protein clustering, known as
dimerization, also encompasses molecules that crosslink naturally occurring
proteins. Dimerizer Drugs that target and directly activate endogenous receptors
represent another promising class of therapeutic agents. Examples include
receptors that bind Epo and human growth hormone. Dimerizer Drugs that can
specifically crosslink and activate individual receptors, or Dimerizer Hormone
Mimetics, would have compelling competitive advantages over the currently
administered recombinant proteins.
Gene Activation Technology
The level of protein produced by cells containing the ARGENT system
depends on the activation potency of our transcription factors. We have improved
the activation components of such transcription factors, known as gene activator
proteins. We have several classes of gene activator proteins that are
substantially more potent than previously described versions. In
11
13
addition, we have devised a novel and proprietary way to enhance the potency of
such activators further by bundling a group of gene activator proteins together,
instead of relying on an individual molecule. This new approach allows genes to
be activated under conditions which are normally resistant to activation.
More potent activation of gene transcription allows higher levels of
protein to be produced when using ARGENT, expanding the range of proteins that
can be delivered using our technology. Gene activation is a fundamental step in
a wide variety of commercially important applications, including the control of
gene activity for the purposes of genomic analysis, the activation of endogenous
genes in cells, either in vitro or in vivo, and large-scale manufacturing of
recombinant proteins in cell culture.
SIGNAL TRANSDUCTION INHIBITOR PROGRAM
Overview
Signal transduction is fundamental to numerous cellular processes,
including controlling cell growth and development. Disruption or overstimulation
of signaling pathways is implicated in many disease states. We are using our
detailed knowledge of the structure of intracellular proteins to develop orally
active small-molecule drugs which turn off specific signal transduction pathways
that lead to disease. This contrasts with our regulated gene therapy program,
where our small-molecule drugs turn on specific cellular processes.
Signaling from cell surface receptors is now known to proceed through a
series of regulated interactions between proteins which usually lead to
activation of specific genes and cellular responses. We have targeted
well-defined domains of these interacting proteins to design drugs. By designing
a drug that binds to the interaction site of a protein, subsequent interactions
between proteins can be prevented, interrupting the signaling cascade. If the
signaling pathway is critically involved in disease, this should result in a
beneficial therapeutic effect. The following figure describes the process of
inhibiting a signal transduction pathway with a small-molecule drug.
NORMAL SIGNAL TRANSDUCTION SIGNAL PATHWAY INHIBITED
[PICTURE] [PICTURE]
Drug Discovery Process
Our signal transduction inhibitor program identifies and optimizes
small-molecule drugs using our integrated genomics and structure-based drug
design platform. Our drug discovery
12
14
efforts target several important types of signaling domains, including binding
sites and enzymes. These domains are found in multiple signaling proteins that
are critical to particular disease processes. While these classes of domains
share common structural attributes overall, we believe that their differences
enable the design of specific inhibitory compounds. We anticipate that the
knowledge gained in designing one inhibitor will be applicable to the design of
other inhibitors for other disease applications. This ability to leverage
knowledge of target structure and small-molecule drug design should result in a
more efficient drug discovery process.
We are currently focusing our signal transduction inhibitor program on
intracellular pathways critically involved in three areas: osteoporosis,
immunosuppression, and inflammatory disorders.
Osteoporosis-- Src Signal Transduction Inhibitors
Extensive genomics studies have validated the signaling protein, Src
tyrosine kinase, as a critical target in osteoporosis. Knockout of this protein
in mice, so that the mice no longer have functional Src, results in mice that
suffer from osteopetrosis, a condition characterized by excessive bone formation
that is the opposite of osteoporosis. However, the mice are otherwise normal.
Studies of bone cells from knockout mice have shown that Src appears essential
for bone breakdown. We believe that these functional genomics studies indicate
that a small-molecule inhibitor of Src may be an effective treatment for
osteoporosis.
Using structure-based drug design, we have identified multiple classes
of selective small-molecule compounds that block the Src tyrosine kinase and
inhibit Src cellular activities and bone breakdown. These compounds have been
shown to be effective in ex vivo and in vivo animal models representative of the
osteoporosis disease process. We are conducting comparative in vivo with the aim
of selecting a clinical candidate for development.
Immune-related Diseases-- ZAP Signal Transduction Inhibitors
A critical step in the human immune response is the activation of T
cells, which starts when specific antigens bind to T cells, activating a
signaling pathway that leads to a full-scale immune response. A variety of
functional genomics approaches have validated that a signaling protein called
ZAP is a critical component of the T cell activation pathway. Patients with
severe immunodeficiency have been identified that have a genetic defect in ZAP.
Together, we believe that this functional genomics research indicates that a
small-molecule drug that selectively blocks ZAP may represent an effective
immunosuppressive agent with minimal side effects.
We have benefited extensively from structural knowledge of the ZAP
protein in our drug discovery efforts. Using our molecular structure of ZAP, as
well as the knowledge gained in the Src osteoporosis program, we have identified
multiple classes of lead molecules that bind to ZAP and inhibit the interaction
of the ZAP protein with the T cell receptor. We are evaluating these compounds
using in vitro assays to select the most promising compounds for in vivo testing
in models of immune-related disease and for further optimization.
Inflammation-- NF-(kappa)B Signal Transduction Inhibitors
Inflammation involves the recruitment of white blood cells from the
blood to damaged or infected tissue. Inflammatory molecules function by binding
to specific receptors on leukocytes that then activate signal transduction
pathways, many of which converge on a single transcription
13
15
factor, called NF-(kappa)B. This protein regulates a wide range of genes that
are directly implicated in the inflammatory response. We believe that small
molecules which prevent the activation of NF-(kappa)B may be potent and
selective inhibitors of inflammation.
We have identified the NF-(kappa)B transcription factor and proteins in
the signaling pathways that converge on NF-(kappa)B as excellent targets for our
small-molecule drug discovery program. Appropriate screens and assays have been
developed for generating non-peptide inhibitors of NF-(kappa)B activation. We
believe that we have a particularly strong intellectual property position in
this program based on an exclusive license we obtained to inventions made by Dr.
David Baltimore, a member of our Board of Scientific and Medical Advisors,
relating to the discovery of this pathway in 1985.
14
16
PRODUCT DEVELOPMENT
We have 12 product candidates in various stages of research and
development, including one preparing to enter Phase 2 clinical trials, two in
preclinical development and nine in earlier-stage research, which are listed
below. Some of the components of our gene therapy product candidates may be
covered by third-party intellectual property. We may elect to modify the focus
of our research-stage programs based on new genomics discoveries and/or
corporate partnerships that we may form.
PRODUCT CANDIDATE DISEASE TARGETS TECHNOLOGY STATUS
- ----------------- --------------- ---------- ------
REGULATED GENE THERAPY
Regulated GvHD cell therapy Graft-versus-host disease in cancer ARGENT Preparing for
patients undergoing allogeneic bone phase 2 trials
marrow transplantation
Regulated Epo Anemia ARGENT Preclinical
development
Regulated hGH Growth hormone deficiency ARGENT and RAPID Research
Regulated sTNFR and Rheumatoid arthritis; ARGENT and RAPID Research
IL-1RA osteoarthritis; other inflammatory
disorders
Regulated Factors VIII and IX Hemophilia A and B ARGENT and RAPID Research
Regulated insulin Insulin-dependent diabetes RAPID Research
Regulated endorphins Management of chronic pain RAPID Research
Regulated stem cell therapy Cancer; Organ and tissue ARGENT Research
transplantation; Multiple other
diseases
OTHER ARGENT APPLICATIONS
Dimerizer Hormone Mimetics Anemia; Cancer; Multiple other diseases Small-molecule Research
drugs based on ARGENT
SIGNAL TRANSDUCTION INHIBITORS
Src inhibitor Osteoporosis Signal Transduction Preclinical
Inhibition development
ZAP inhibitor Autoimmune diseases; Organ Signal Transduction Lead
transplantation Inhibition optimization
NF-(kappa)B pathway inhibitors Inflammatory diseases; Arthritis; Signal Transduction Research
Asthma Inhibition
15
17
TARGET MARKETS FOR OUR REGULATED GENE THERAPY PRODUCT CANDIDATES
ARGENT GvHD Cell Therapy
Approximately 40,000 bone marrow transplants, or BMTs, are performed
each year worldwide as a therapy for various neoplastic disorders, in
particular, certain types of leukemias and other hematologic malignancies.
However, a severe complication, called GvHD, limits expansion in the number of
patients who may benefit from allogeneic BMTs. Current treatments reduce or
eliminate T cells prior to transplantation or broadly immunosuppress patients,
but these approaches also remove the powerful therapeutic benefit contributed by
the T cells, such as their ability to attack the underlying cancer cells and
support engraftment of the transplanted marrow.
The market for a product which eliminates GvHD-related morbidity and
mortality without adversely affecting the cancer relapse rate is currently
estimated to be at least $240 million worldwide. An effective treatment for GvHD
is expected to increase by several fold the number of allogeneic BMTs performed
each year, allowing transplants from mismatched unrelated donors and expanding
the applicability of BMTs to solid tumors such as colon cancer.
Regulated Erythropoietin
Anemia is a blood disorder that results in a deficiency of red blood
cells and hemoglobin. Acquired anemia is most commonly caused by renal failure,
AIDS, cancer or chemotherapy. The current standard of care for acquired anemia
is treatment with recombinant Epo administered by injection two or three times a
week. The current worldwide market for this product exceeds $3 billion annually.
We believe that a considerable market exists for an Epo product that
does not require frequent injections. In addition, current market and pricing
considerations suggest that some patients, particularly those with inherited
disorders, could benefit from higher doses of recombinant Epo than currently
used. We believe that a regulated Epo gene therapy product would allow delivery
of higher, more effective doses of Epo to these patients and may have
competitive advantages over current products. We also believe that gene
regulation may be required to bring a gene therapy Epo product to market, due to
the substantial safety concerns that would be associated with clinical use of an
unregulated gene therapy product.
Regulated Insulin
Type 1 insulin-dependent diabetes typically results from autoimmune
destruction of beta cells in the pancreas. Approximately two million people in
North America and Western Europe have type 1 diabetes. These individuals
generally require multiple daily insulin injections and careful attention to
diet and exercise. Type 2 insulin-independent diabetics have not traditionally
been candidates for insulin therapy. However, new orally active drugs that act
to increase insulin sensitivity in these patients are now allowing an increasing
proportion of type 2 diabetics to benefit from insulin injections. As a result,
the number of patients currently receiving multiple daily insulin injections in
North America and Europe is estimated at 5.2 million. There is, therefore, a
large potential market for products that can improve the efficacy of treatment
and
16
18
quality of life of diabetic patients. Long-term studies also have shown that
tight control of blood sugar levels decreases the morbidity and mortality
associated with diabetes, highlighting the potential value and convenience of
our pulse-like orally active protein therapy.
Regulated Human Growth Hormone
Human growth hormone is approved for the treatment of growth hormone
deficiency in children and adults, growth failure associated with chronic renal
insufficiency prior to kidney transplantation, and short stature. Worldwide
annual sales exceed $1 billion. Currently, patients receive recombinant protein
by injection, but this mode of administration does not reproduce the natural
pattern of human growth hormone production in the body, which is a daily pulsing
peaking during the night. In mouse models, we have demonstrated that both the
ARGENT and RAPID systems can be used to stimulate human growth hormone
production in a manner that better approximates natural hormone release.
Regulated Soluble TNF Receptor and Interleukin-1 Receptor Antagonist
Soluble TNF receptor, or sTNFR, and interleukin-1 receptor antagonist,
or IL-1RA, are naturally occurring proteins with anti-inflammatory activities by
virtue of their ability to bind and block inflammation-causing proteins. They
have broad potential utility in treatment of diverse inflammatory diseases, such
as rheumatoid arthritis and inflammatory bowel disease. A sTNFR product
comprising a fusion of the TNF receptor to a portion of an antibody is approved
for the treatment of rheumatoid arthritis and currently has annual sales
exceeding $350 million. An anti-TNF monoclonal antibody is approved for the
treatment of Crohn's Disease. We believe that the ARGENT and RAPID platforms are
well suited for delivery of these proteins using gene therapy approaches, as
second-generation products, delivered either locally to joints or systemically
for chronic prophylaxis. The RAPID system may be particularly appropriate for
delivery of the proteins in response to inflammatory flare-ups. We have
demonstrated regulated sTNFR production using the ARGENT system.
Regulated Coagulation Factors VIII and IX
Hemophilias A and B are genetic diseases characterized by a deficiency
of the blood proteins Factor VIII and Factor IX, respectively. Inadequate blood
levels of these proteins leads to the inability to form blood clots and results
in multiple serious medical complications. Current treatments involve repeated
injection of the proteins, but they are not particularly effective in preventing
the associated bone and joint damage. The annual worldwide cost of treating
hemophilias is estimated to exceed $3 billion. Factor IX, and to a lesser extent
Factor VIII, have been early targets for clinical gene therapy trials, because
modest blood levels of protein would be sufficient to provide therapeutic
effects. We believe that regulation of Factor VIII and Factor IX gene therapy
with ARGENT or RAPID may enhance their therapeutic performance and safety.
Regulated Endorphin
Many diseases or injuries lead to long-term, unremitting pain. Current
treatments for chronic pain generally fall short of therapeutic goals, often
involving invasive surgical procedures or regimens with adverse effects.
Therefore, we believe that a substantial market exists for effective therapies
to treat chronic pain with more favorable risk/benefit ratios. There is
considerable interest in using gene therapy to alleviate chronic pain with
endorphins. Studies
17
19
have shown that gene therapy vectors expressing these proteins can be
administered in animal models of chronic pain, decreasing pain sensitivity of
these animals. We are pursuing development of a product candidate for regulated
delivery of beta-endorphin using our RAPID orally active protein therapy system.
We believe that the ability to deliver modest, constant basal levels of
beta-endorphin, together with the ability to stimulate rapid bursts of higher
protein production in response to pain flare-ups, would be a key advance in pain
treatment.
TARGET MARKETS FOR OUR SIGNAL TRANSDUCTION INHIBITORS
Src Signal Transduction Inhibitor
Osteoporosis is characterized by progressive loss of bone architecture
and mineralization leading to the loss of bone strength and an increased
fracture rate. A prolonged imbalance of bone resorption over formation can occur
in post-menopausal women, as well as in men and women with certain disorders
such as renal osteodystrophy, hypercalcemia and Paget's disease. This imbalance
leads to weaker bone structure and a higher risk of fractures. The estimated
cost of treatment and care for osteoporosis and related fractures exceeds $10
billion per year in the United States alone. Current therapies for osteoporosis
include calcitonin, estrogen replacement therapy, selective estrogen receptor
modulators, and bisphosphonates. Both calcitonin and estrogen replacement
attempt to maintain bone mass by decreasing the rate at which bone is naturally
resorbed by the body. Bisphosphonates are a more recent form of therapy for
osteoporosis. While these compounds appear to perform better than calcitonin and
estrogen replacement therapy in some patients, they have adverse effects that
limit patient compliance and acceptance.
ZAP Signal Transduction Inhibitor
Organ transplant rejection and autoimmune disorders, such as rheumatoid
arthritis, multiple sclerosis and inflammatory bowel disease, are caused by
unwanted reactions by the human immune system. Treatment of these diseases
requires a class of drug known as immunosuppressives. A substantial market
exists for novel small-molecule immunosuppressive drugs that can overcome the
limitations of current therapies. Sales of immunosuppressives for solid organ
transplantation alone exceed $1 billion per year. We believe that a ZAP signal
transduction inhibitor should have a better safety profile than existing
therapies because it will not have the known mechanism based toxicities of
marketed drugs, such as tacrolimus and cyclosporine.
NF-(kappa)B Signal Transduction Pathway Inhibitor
Inflammation is an important defense mechanism against injury, but
white blood cells recruited to sites of damage can lead to a variety of
inflammatory conditions, such as arthritis and asthma. In 1998, worldwide sales
of non-steroidal anti-inflammatory drugs exceeded $6 billion. With the recent
availability of new anti-inflammatory drugs that target COX-2, or receptors
relating to the action of aspirin, we expect the total market to grow
substantially. Inflammatory messengers trigger several signal transduction
pathways which leads to the chronic symptoms and pain associated with
inflammatory diseases. We are developing orally active anti-inflammatory drugs
that target critical steps in the NF-(kappa)B pathway that ultimately leads to
activation of inflammatory response genes.
18
20
RESEARCH AND DEVELOPMENT COLLABORATIONS
In 1995, we began to collaborate with Hoechst Marion Roussel (France)
on the discovery and development of drugs to treat osteoporosis and related bone
diseases. This program was focused on the development of Src inhibitors. In
1997, we established the Hoechst-ARIAD Genomics Center, LLC with Aventis
Pharmaceuticals Inc., formerly known as Hoechst Marion Roussel, Inc., to pursue
functional genomics based upon state-of-the-art technologies and molecular and
cellular genetics and bioinformatics to analyze human genes and identify those
genes that encode novel therapeutic proteins or targets for small-molecule drug
discovery. In a transaction completed on December 31, 1999, we restructured both
of these agreements and received $40 million in cash, the return of 3,004,436
shares of our series B convertible preferred stock, forgiveness of $1.8 million
of long-term debt held by Aventis, all drug candidates and related technologies
resulting from our osteoporosis collaboration, and the right to use certain
genomics and bioinformatics technologies developed in the Genomics Center. As of
March 16, 2000, we received a total of $116 million from Aventis, including
$31.5 million of equity and debt which was returned to us as part of the
restructuring of these agreements. Hoechst Marion Roussel (France) will receive
certain payments related to approval and commercial sales of Src inhibitors.
In 1997, through our subsidiary, AGTI, we entered into a joint venture
agreement for the collaborative research and development of certain gene therapy
technologies with Genovo, Inc. In February 2000, we terminated our agreement
with Genovo to pursue alternative commercial opportunities. Genovo has no rights
to any of our proprietary technologies or product candidates.
In the future, we intend to commercialize our products independently
and through collaborations with biopharmaceutical and pharmaceutical partners.
OUR BOARD OF SCIENTIFIC AND MEDICAL ADVISORS
We have assembled a Board of Scientific and Medical Advisors, or the
Advisory Board, that currently consists of experts in the fields of molecular
and cellular biology, biochemistry, immunology, and organic, physical, and
computational chemistry, and molecular medicine. On an individual basis, members
of the Advisory Board advise us on scientific matters relating to our programs,
including the selection of molecular targets, drug discovery strategies,
clinical applications of proposed products and new technological developments.
Each advisor is engaged under a consulting agreement that requires the advisor
to provide consulting services to us in our field of interest and not to
disclose any of our confidential information. Our Board of Scientific and
Medical Advisors is chaired by Stuart L. Schreiber, Ph.D., Morris Loeb Professor
of Chemistry, Co-Director, Institute of Chemistry and Cell Biology and
Scientific Co-Director, Center of Genomics Research at Harvard University and
Investigator of the Howard Hughes Medical Institute.
OUR LICENSES
We and our subsidiary, AGTI, have entered into license agreements with
various research institutions and universities pursuant to which we and/or AGTI
are the licensee of certain technologies upon which some of our product
candidates are based. A partial summary of certain of these licenses is
presented below.
19
21
- ------------------------------------ -------------- ------------------------------------- ----------------------------
LICENSOR LICENSEE TECHNOLOGY AREA PROGRAM
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Stanford University and Harvard AGTI Regulating cellular processes with Regulated Gene Therapy
University small-molecule drugs (ARGENT)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Massachusetts Institute of AGTI Engineered DNA-binding proteins Regulated Gene Therapy
Technology (ARGENT)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Harvard University AGTI Synthetic gene activators Regulated Gene Therapy
(ARGENT)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Mochida Pharmaceuticals, Ltd. ARIAD Fas cell-death gene Regulated Gene Therapy
(ARGENT)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
University of Pennsylvania ARIAD and Muscle-directed gene therapy Regulated Gene Therapy
AGTI (ARGENT)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Cornell Research Foundation, Inc. ARIAD Three-dimensional structure of Regulated Gene Therapy
drug-binding domain (ARGENT)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Mt. Sinai Hospital, affiliate of ARIAD Src-related signaling domains for Signal Transduction
University of Toronto drug discovery Inhibitors (Src and ZAP)
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Massachusetts Institute of ARIAD NF-(kappa)B pathway for drug Signal Transduction
Technology, Whitehead Institute, discovery Inhibitors (NF-(kappa)B)
and Harvard University
- ------------------------------------ -------------- ------------------------------------- ----------------------------
Stanford University ARIAD NF-AT pathway for drug discovery Signal Transduction
Inhibitors
- ------------------------------------ -------------- ------------------------------------- ----------------------------
All of the licenses are exclusive except those with Mochida
Pharmaceuticals and the University of Pennsylvania. We have agreed to pay
royalties to our licensors on sales of certain products based on the licensed
technologies, as well as, in some instances, milestone payments and patent
filing and prosecution costs. The licenses also impose various milestone,
commercialization, sublicensing, royalty as well as insurance and other
obligations. Failure by us to comply with these requirements could result in the
termination of the applicable agreement which could have a material adverse
effect on our business, financial condition and results of operations.
INTELLECTUAL PROPERTY
Patents and other intellectual property rights are essential to our
business. We file patent applications to protect our technology, inventions and
improvements to our inventions that are considered important to the development
of our business.
Overall, we have 96 patents and patent applications in the United
States. Of those, we own 48 (including four issued patents and two applications
with allowed claims), co-own two applications with the University of
Pennsylvania, and have exclusive licenses from several universities to the
remainder (including 15 issued patents and 31 pending patent applications, seven
of which already have allowed claims). Approximately one third of this patent
portfolio is held by AGTI and an additional one quarter of the portfolio is
licensed to AGTI. In addition, we have recently been assigned seven patent
applications covering small-molecule Src inhibitors developed as part of our
collaboration with Hoechst Marion Roussel (France). We also have secured an
exclusive option on an additional United States patent application and have
several nonexclusive technology licenses from certain institutions in support of
our research programs. We anticipate that we will continue to seek licenses from
universities and others where
20
22
applicable technology complements our research and development efforts. We have
filed patent applications in foreign countries as well, as appropriate.
The majority of the patents and patent applications in our portfolio
cover our technology platforms: gene regulation and gene activation. These
patents and pending applications cover regulatory technologies, specialized
variants of the technologies, critical nucleic acid components, small-molecule
drugs, the identification and use of dimerizer hormone mimetics, and various
uses of the technologies in health care and drug discovery. Patents issued to
date include seven broad patents covering the ARGENT system. These patents
issued beginning in November 1998 and should provide proprietary support for
commercialization of our gene therapy product candidates until at least 2015.
Broad support should be further enhanced and extended by additional patents we
hope to obtain in the ensuing years, including patents based on pending
applications.
Our patent portfolio also covers research tools and methods used in our
drug discovery programs, as well as multiple classes of small-molecule compounds
discovered in that program. Our patent portfolio contains a number of issued
patents and pending applications relating to the NF-(kappa)B and NF-AT signal
transduction pathways, and, in particular, to their use in drug discovery.
We also rely on unpatented trade secrets and proprietary know-how.
However, trade secrets are difficult to protect. We enter into confidentiality
agreements with our employees, consultants and collaborators. In addition, we
believe that certain technologies utilized in our research and development
programs are in the public domain. Accordingly, we do not believe that patent or
other protection is available for these technologies. If a third party were to
obtain patent or other proprietary protection for any of these technologies, we
may be required to challenge such protections, obtain a license for such
technologies or terminate or modify our programs that rely on such technologies.
COMPETITION
The field of gene-based drug discovery is new and rapidly evolving, and
we expect that it will continue to undergo significant technological change. We
anticipate that we will experience intense competition from other companies in
the gene therapy and genomics fields and those that are developing
small-molecule drugs that target signal transduction pathways. We are aware of
many early stage and established companies, including major pharmaceutical and
biotechnology firms, that are pursuing the development of gene-based drugs or
are actively engaged in gene therapy.
In the gene therapy field, these include Avigen, Inc., Cell Genesys,
Inc., Genzyme Corp., Novartis Pharma AG, Targeted Genetics Corp., TransGene
S.A., Transkaryotic Therapies, Inc. and Valentis, Inc. However, to the best of
our knowledge, none of these companies has advanced programs in regulated gene
therapy, and none has started clinical development of regulated gene therapy
products. We are aware of several companies that are developing specific
products to treat GvHD, including Abgenix, Inc., BioTransplant, Inc., Chiron
Corp., Protein Design Labs, Inc. and Repligen Corp. We may also experience
competition from companies that have acquired or may acquire technology from
companies, universities, and other research institutions. As these companies
develop their technologies, they may develop proprietary positions which may
materially and adversely affect us.
21
23
In the area of signal transduction inhibitors, companies such as
BioCryst, Inc., Ligand Pharmaceuticals, Inc., Novartis Pharma AG, Tularik, Inc.,
and Vertex Pharmaceuticals, Inc. are developing drugs to treat human disease by
regulating genes and inhibiting signal transduction pathways. Further, many
pharmaceutical companies have programs in these areas.
COMMERCIALIZATION AND MANUFACTURING
Because of the broad potential applications of our platform
technologies, we intend to develop and commercialize products both on our own
and through corporate partners. We plan to market products in North America to
specialty physicians and specialized treatment centers. When advantageous, we
intend to rely on strategic partners for manufacturing and marketing our
products. We believe our small-molecule drugs can be produced in commercial
quantities through conventional synthetic and natural product fermentation
techniques. We expect to access manufacturing methods for viral and/or non-viral
vectors from potential partners and licensors. Our ability to obtain these
vectors in amounts sufficient to conduct clinical trials of our gene therapy
product candidates and to commercialize such products may affect our commercial
success. We expect to manufacture, package, label, and distribute our product
candidates on our own in some cases and to establish arrangements with third
parties to perform some or all of these functions in other cases.
GOVERNMENT REGULATION
The manufacturing and marketing of our products, if any, and our
ongoing research and development activities are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Any drug developed by us must undergo rigorous preclinical studies and clinical
testing and an extensive regulatory approval process implemented by the FDA
under the federal Food, Drug and Cosmetic Act prior to marketing in the United
States. Satisfaction of such regulatory requirements, which includes
demonstrating that the product is both safe and effective for its recommended
conditions of use, typically takes several years or more depending upon the
type, complexity and novelty of the product and requires the expenditure of
substantial resources. Preclinical studies must be conducted in conformance with
the FDA's good laboratory practice regulations. Before commencing clinical
trials in the United States, we must submit to and receive clearance from the
FDA of an Investigational New Drug Application, or IND. There can be no
assurance that submission of an IND would result in FDA clearance to commence
clinical trials. Clinical testing must meet requirements for institutional
review board oversight, informed consent and good clinical practice and is
subject to continuing FDA oversight. We have a limited history of conducting
preclinical studies and the clinical trials necessary to obtain regulatory
approval. Furthermore, we or the FDA may suspend clinical trials at any time if
either party believes that the subjects participating in such trials are being
exposed to unacceptable risks or if the FDA finds deficiencies in the conduct of
the trials.
Before receiving FDA approval to market a product, we will have to
demonstrate that the product is safe and effective in the patient population
that will be treated. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations which could delay, limit or prevent
regulatory clearances. In addition, delays or rejections may be encountered
based upon additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Similar delays also may
be encountered in foreign countries. There can be no assurance that even after
such time and expenditures, regulatory approval will be obtained for any
products developed by us, or, even if approval is obtained, the labeling for
such products will
22
24
not be required to contain limitations with respect to its condition of
use, which could materially impact the marketability and profitability of the
product. If regulatory approval of a product is granted, such approval will be
limited to those disease states and conditions for which the product has been
shown useful, as demonstrated by clinical trials. Furthermore, approval may
entail ongoing requirements for postmarketing studies. Even if such regulatory
approval is obtained, a marketed product, its manufacturer and its manufacturing
facilities and procedures are subject to continual review and periodic
inspections by the FDA. Discovery of previously unknown problems with a product,
manufacturer manufacturing procedures or facility may result in restrictions on
such product or manufacturer, including costly recalls, an injunction against
continued manufacturing until the problems have been adequately addressed to the
FDA's satisfaction or even withdrawal of the product from the market. There can
be no assurance that any compound developed by us alone or in conjunction with
others will prove to be safe and efficacious in clinical trials and will meet
all of the applicable regulatory requirements needed to receive and maintain
marketing approval. Additionally, the marketing, labeling and advertising for an
approved product is subject to ongoing FDA scrutiny and the failure to adhere to
applicable requirements can result in regulatory action which could have a
material impact on the profitability of the product.
Outside the United States, our ability to market a product will be
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community certain registration
procedures are available to companies wishing to market a product in more than
one member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process includes
all of the risks associated with FDA clearance set forth above.
OUR EMPLOYEES
As of March 16, 2000, we had 56 full-time employees, 34 of whom hold
post-graduate degrees, including 19 with a Ph.D. or M.D. Most of our employees
are engaged directly in research and development. We have entered into
confidentiality and noncompetition agreements with all of our employees. None of
our employees are covered by a collective bargaining agreement, and we consider
relations with our employees to be good.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the
Company's behalf, that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause the actual results of the
Company to be materially different from the historical results or from any
results expressed or implied by such forward-looking statements. Such factors
include, among others, the following factors:
23
25
RISKS RELATING TO OUR BUSINESS
WE MAY NEVER SUCCEED IN DEVELOPING MARKETABLE DRUGS OR GENERATING PRODUCT
REVENUES.
We are an early stage company with no product revenues, and we may not
succeed in producing pharmaceutical products for commercialization. We do not
expect to have any products on the market for several years, if at all. Our main
focus is primarily in conducting research to advance the complex and specialized
technologies we are developing. We are exploring human diseases at the cellular
level. We seek to discover which genes within cells malfunction to cause
disease, which signals are triggered within cells during the disease process to
cause these cells to respond abnormally, and which drugs can halt or reverse
those activities within cells. We also seek to discover multiple regulated gene
therapies and regulated cell therapies that can treat or prevent disease. As
with all science, we face much trial and error, and we may fail at numerous
stages along the way. If we are not successful in developing marketable
products, we will not be profitable.
WE MAY BE UNABLE TO ACCESS VECTORS OR OTHER GENE TRANSFER TECHNOLOGIES THAT WE
WILL NEED TO COMMERCIALIZE OUR GENE THERAPY PRODUCT CANDIDATES.
We may not be able to access the vector technologies required to
develop and commercialize our gene therapy product candidates. We do not own
gene delivery technologies and are reliant on our ability to enter into license
agreements with appropriate academic institutions and/or gene therapy companies
that can provide us with rights to the necessary technology and components of
gene delivery systems. The inability to reach an appropriate agreement with such
an entity on reasonable commercial terms could delay or prevent the preclinical
evaluation, clinical testing, and/or commercialization of our product
candidates. Since many of our potential products are based on gene therapy, our
inability to access gene transfer technology would have significant adverse
effects on a large proportion of our product candidates. If we do not market our
product candidates, we will never become profitable. In addition, the
intellectual property landscape covering gene transfer technologies is currently
uncertain and fragmented. Accordingly, if we select one partner as a source for
selected intellectual property rights, we may find that we have not licensed
sufficient rights to be able to commercialize our products, or we may be forced
to acquire additional rights or discontinue marketing our product candidates
unexpectedly.
WE HAVE INCURRED SIGNIFICANT LOSSES TO DATE AND MAY NEVER BE PROFITABLE.
We have incurred significant operating losses in each year from our
inception in 1991 through 1998 and have an accumulated deficit of approximately
$75 million from our operations through December 31, 1999, after taking into
account a one-time gain of approximately $46 million on the sale on December 31,
1999 of our 50% interest in the Hoechst-ARIAD Genomics Center. It is likely that
significant operating losses will continue for the foreseeable future. We
currently have no product revenues or commitments for future research revenues,
may never be able to earn such revenue, and may never have profitable
operations, even if we are able to commercialize any of our product candidates
or enter into additional research agreements. If our losses continue and we are
unable to successfully develop, commercialize, manufacture and market product
candidates, we may never have product revenues or achieve profitability. Losses
have resulted principally from costs incurred in research and development of
product candidates and from general and administrative costs associated with our
operations, including expenses related to the Hoechst-ARIAD Genomics Center.
24
26
INSUFFICIENT FUNDING MAY JEOPARDIZE OUR RESEARCH AND DEVELOPMENT PROGRAMS AND
MAY PREVENT COMMERCIALIZATION OF OUR PRODUCTS AND TECHNOLOGIES, PARTICULARLY IF
WE DO NOT ENTER INTO ANY ADDITIONAL COLLABORATIVE RESEARCH AGREEMENTS.
All of our operating revenue to date has been generated through
collaborative research agreements that have expired or been terminated.
Accordingly, may not be able to secure the significant funding which is required
to maintain and continue each of our research and development programs at their
current levels. We do not have any committed strategic alliance funding for the
advancement of any of our programs. Although, we intend to seek additional
funding from collaborations or public or private financings, these may not be
available on terms acceptable to us, or at all. If we cannot secure adequate
financing, we may be required to delay, scale back or eliminate one or more of
our research and development programs or to enter into license arrangements with
third parties to commercialize products or technologies that we would otherwise
seek to develop ourselves.
BECAUSE WE DO NOT OWN ALL OF THE OUTSTANDING STOCK OF OUR SUBSIDIARY, ARIAD GENE
THERAPEUTICS, INC., WE MAY NOT REALIZE ALL OF THE POTENTIAL FUTURE ECONOMIC
BENEFIT FROM PRODUCTS DEVELOPED BASED ON TECHNOLOGY LICENSED TO OR OWNED BY OUR
SUBSIDIARY.
Our subsidiary, AGTI, holds licenses from Harvard University, Stanford
University, and other universities relating to ARGENT, a key technology in our
regulated gene therapy product development program. Minority stockholders,
including Harvard University, Stanford University and certain former members of
our management, currently own approximately 6% of the issued and outstanding
capital stock of AGTI. Current members of our senior management and our Advisory
Board also have the ability to acquire, through the exercise of outstanding
stock options, an additional 16% of AGTI's capital stock. We do not currently
have a license agreement with AGTI that provides us with rights to develop and
commercialize products based on the licenses relating to ARGENT. In order to
commercialize any product based on this technology, we will either license this
technology on terms to be determined or commercialize these products directly
through AGTI. The economic benefit to our stockholders from products we
commercialize will be diluted by any royalties paid under a future license
agreement, if any, with AGTI. The economic benefit to our stockholders from
products, if any, AGTI may commercialize would be reduced in an amount related
to the percentage owned by the minority stockholders of AGTI.
Alternatively, we may acquire all of the interests of the minority
stockholders in AGTI for cash, shares of our common stock or other securities of
ours, if any. If we acquire these minority interests for either form of
consideration, it will result in dilution to our stockholders. The economic
value of the minority stockholders' interest is difficult to quantify in the
absence of a public market, and the market price of our publicly-traded common
stock may not accurately reflect its value. Accordingly, the market could change
its perception of the value of this minority interest in our subsidiary at any
time in reaction to our increased emphasis on these products, announcements
regarding these products or for other reasons, any of which could result in a
decline in our stock price. In addition, if we acquire the minority interest at
a cost greater than the value attributed to them by the market, this also could
result in a decline in our stock price. If we choose to acquire these interests
through a short-form merger in which we do not solicit the consent of the
minority stockholders of AGTI, we could become subject to an appraisal
procedure, which would result in additional expense and diversion of management
resources.
25
27
BECAUSE OUR MANAGEMENT BENEFICIALLY OWNS A SIGNIFICANT PERCENTAGE OF THE CAPITAL
STOCK OF OUR SUBSIDIARY, AGTI, THERE MAY BE CONFLICTS OF INTEREST PRESENT IN
DEALINGS BETWEEN ARIAD AND AGTI.
Five members of our senior management team have the right to acquire up
to 7.7% of the outstanding capital stock of AGTI. The same members of our
management beneficially own 10.5% of our outstanding common stock. As a result,
the market may perceive conflicts of interest to exist in dealings between AGTI
and us. AGTI is the exclusive licensee of the ARGENT intellectual property from
Harvard University and Stanford University and, in the event that we
commercialize products based on ARGENT, we will have to negotiate the terms of a
license agreement with AGTI or acquire all of the capital stock of AGTI. Because
of the apparent conflicts of interest, the market may be more inclined to
perceive the terms of any transaction between us and AGTI as being unfair to us.
Any such perception could cause the market price of our common stock to decline.
WE HAVE NO EXPERIENCE IN MANUFACTURING ANY OF OUR PRODUCT CANDIDATES ON A
COMMERCIAL BASIS, WHICH RAISES UNCERTAINTY AS TO OUR ABILITY TO COMMERCIALIZE
OUR PRODUCT CANDIDATES.
We have no experience in, and currently lack the resources and
capability to, manufacture any of our product candidates on a commercial basis.
Our ability to conduct clinical trials and commercialize our product candidates
will depend, in part, on our ability to manufacture our products on a large
scale, either directly or through third parties, at a competitive cost and in
accordance with FDA and other regulatory requirements. We currently do not have
the capacity to manufacture drugs in large quantities. We depend on third-party
manufacturers or collaborative partners for the production of our product
candidates for preclinical research and clinical trials and intend to use
third-party manufacturers to produce any products we may eventually
commercialize. If we are not able to obtain contract manufacturing on
commercially reasonable terms, we may not be able to conduct or complete
clinical trials or commercialize our product candidates, and we do not know
whether we will be able to develop such capabilities.
IF WE ARE UNABLE TO ESTABLISH SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
TO ENTER INTO AGREEMENTS WITH THIRD PARTIES TO DO SO, WE MAY BE UNABLE TO
SUCCESSFULLY MARKET AND SELL ANY PRODUCTS.
We currently have no sales, marketing or distribution capabilities. If
we are unable to establish sales, marketing or distribution capabilities either
by developing our own sales, marketing and distribution organization or by
entering into agreements with others, we may be unable to successfully sell any
products we are able to begin to commercialize. If we are unable to effectively
sell our products, our ability to generate revenues will be harmed. We may not
be able to hire, in a timely manner, the qualified sales and marketing personnel
we need, if at all. In addition, we may not be able to enter into any marketing
or distribution agreements on acceptable terms, if at all. If we cannot
establish sales, marketing and distribution capabilities as we intend, either by
developing our own capabilities or entering into agreements with third parties,
sales of future products, if any, may be harmed.
IF OUR PRODUCT CANDIDATES ARE NOT ACCEPTED BY PHYSICIANS AND INSURERS, WE WILL
NOT BE SUCCESSFUL.
Our success is dependent on acceptance of our product candidates. They
may not achieve significant market acceptance among patients, physicians or
third-party payors, even if we obtain necessary regulatory and reimbursement
approvals. Failure to achieve significant market
26
28
acceptance will harm our business. We believe that recommendations by physicians
and health care payors will be essential for market acceptance of any product
candidates. In the past, there has been concern regarding the potential safety
and effectiveness of gene therapy products. Physicians and health care payors
may conclude that any of our product candidates are not safe.
THE LOSS OF KEY MEMBERS OF OUR SCIENTIFIC AND MANAGEMENT STAFF COULD DELAY AND
MAY PREVENT THE ACHIEVEMENT OF OUR RESEARCH, DEVELOPMENT AND BUSINESS
OBJECTIVES.
Our Chief Executive Officer, Harvey J. Berger, M.D., our Senior Vice
President and Chief Scientific Officer, Manfred Wiegele, Ph.D., and our Senior
Vice President, Drug Development, John D. Iuliucci, Ph.D., and other key
officers and members of our scientific staff responsible for areas such as
clinical development, drug discovery, cell biology and genetics, structure-based
drug design and protein engineering are important to our specialized scientific
business. We also are dependent upon a few of our scientific advisors to assist
in formulating our research and development strategy. The loss of, and failure
to promptly replace, any one of this group could significantly delay and may
prevent the achievement of our research, development and business objectives.
While we have entered into employment agreements with all of our officers, they
may not remain with us.
COMPETING TECHNOLOGIES MAY RENDER SOME OR ALL OF OUR PROGRAMS OR FUTURE PRODUCTS
NONCOMPETITIVE OR OBSOLETE.
Many well-known pharmaceutical, healthcare and biotechnology companies,
academic and research institutions and government agencies, who have
substantially greater capital, research and development capabilities and
experience than us, are presently engaged in:
* developing products based on signal transduction,
* developing gene therapy products, and
* conducting research and development programs for the treatment of all
the disease areas in which we are focused.
Some of these entities already have product candidates in clinical
trials or in more advanced preclinical studies than we do. They may succeed in
commercializing competitive products before us, which would give them a
competitive advantage. Competing technologies may render some or all of our
programs or future products noncompetitive or obsolete, and we may not be able
to make the enhancements to our technology necessary to compete successfully
with newly emerging technologies. If we are unable to compete in our chosen
markets, we will not become profitable.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPRIETARY RIGHTS.
We and our licensors have pending patent applications covering
biochemical and cellular tests useful in drug discovery, new chemical compounds
discovered in our drug discovery programs, certain components, configurations
and uses of our ARGENT and RAPID systems and methods and materials for
conducting genomics research. These patent applications may not issue as patents
and may not issue in all countries in which we develop, manufacture or sell our
products. In addition, patents issued to us or our licensors may be challenged
and subsequently narrowed, invalidated or circumvented. In that event, such
patents may not afford meaningful
27
29
protection for our technologies or product candidates, which would materially
impact our ability to develop and market them. Certain technologies utilized in
our research and development programs are already in the public domain.
Moreover, a number of our competitors have developed technologies, filed patent
applications or obtained patents on technologies and compositions that are
related to our business and may cover or conflict with our patent applications.
Such conflicts could limit the scope of the patents that we may be able to
obtain or may result in the denial of our patent applications. If a third party
were to obtain intellectual proprietary protection for any of these
technologies, we may be required to challenge such protections, terminate or
modify our programs that rely on such technologies or obtain licenses for use of
these technologies.
WE MAY BE UNABLE TO DEVELOP OR COMMERCIALIZE OUR PRODUCT CANDIDATES IF WE ARE
UNABLE TO OBTAIN OR MAINTAIN CERTAIN LICENSES.
We have entered into license agreements for some of our technologies,
either directly or through AGTI. We are currently attempting to obtain
additional licenses for technology useful to our regulated gene therapy program.
Our inability to obtain any one or more of these licenses, on commercially
reasonable terms, or at all, or to circumvent the need for any such license,
could cause significant delays and cost increases and materially affect our
ability to develop and commercialize our product candidates. We also use gene
sequences or proteins encoded by those sequences and other biological materials
in each of our research programs which are, or may become, patented by others
and to which we would be required to obtain licenses in order to develop or
market our product candidates. Some of our programs, including our regulated
gene therapy program, may require the use of multiple proprietary technologies,
especially vectors and therapeutic genes. Obtaining licenses for these
technologies may require us to make cumulative royalty payments or other
payments to several third parties, potentially reducing amounts paid to us or
making the cost of our products commercially prohibitive.
Some of our licenses obligate us to exercise diligence in pursuing the
development of product candidates, to make specified milestone payments, and to
pay royalties. In some instances, we are responsible for the costs of filing and
prosecuting patent applications. These licenses generally expire upon the
earlier of a fixed term of years after the date of the license or the expiration
of the applicable patents, but each license is also terminable by the other
party upon default by us of our obligations. Our inability or failure to meet
our diligence requirements or make any payments required under these licenses
would result in a reversion to the licensor of the rights granted which, with
respect to the licenses where we have obtained exclusive rights, would
materially and adversely affect our ability to develop and market products based
on our licensed technologies.
IF WE DEVELOP A PRODUCT FOR COMMERCIAL USE, A SUBSEQUENT PRODUCT
LIABILITY-RELATED CLAIM OR RECALL COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
Our business exposes us to potential product liability risks inherent
in the testing, manufacturing and marketing of pharmaceutical products, and we
may not be able to avoid significant product liability exposure. A product
liability-related claim or recall could be detrimental to our business. In
addition, except for insurance covering product use in our clinical trials, we
do not currently have any product liability insurance, and we may not be able to
obtain or maintain such insurance on acceptable terms, or we may not be able to
obtain any insurance to provide adequate coverage against potential liabilities.
Our inability to obtain sufficient
28
30
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or limit the commercialization
of any products we develop.
RISKS RELATING TO GOVERNMENTAL APPROVALS
WE HAVE LIMITED EXPERIENCE IN CONDUCTING CLINICAL TRIALS, WHICH MAY CAUSE DELAYS
IN COMMENCING AND COMPLETING CLINICAL TRIALS OF OUR PRODUCT CANDIDATES.
Clinical trials must meet FDA and foreign regulatory requirements. We
have limited experience in conducting the preclinical studies and clinical
trials necessary to obtain regulatory approval. Consequently, we may encounter
problems in clinical trials that may cause us or the FDA or foreign regulatory
agencies to delay, suspend or terminate these trials. If the clinical trials of
our products fail, we will not be able to market our product candidates.
Problems we may encounter include the chance that we may not be able to conduct
clinical trials at preferred sites, obtain sufficient test subjects or begin or
successfully complete clinical trials in a timely fashion, if at all.
Furthermore, we, the FDA or foreign regulatory agencies may suspend clinical
trials at any time if we or they believe the subjects participating in the
trials are being exposed to unacceptable health risks or if we or they find
deficiencies in the clinical trial process or conduct of the investigation. The
FDA and foreign regulatory agencies could also require additional clinical
trials, which would result in increased costs and significant development
delays. Our failure to adequately demonstrate the safety and effectiveness of a
therapeutic drug under development could delay or prevent regulatory approval of
the product candidate and could have a material adverse effect on our business.
ADVERSE MEDICAL EVENTS AND/OR A HOSTILE REGULATORY AND POLITICAL ENVIRONMENT
COULD DELAY OR PREVENT THE COMMERCIALIZATION OF OUR GENE THERAPY PRODUCT
CANDIDATES.
The recent death of a patient in a clinical trial of
adenovirus-mediated gene therapy has heightened awareness of the potential risks
associated with early-stage clinical evaluation of gene therapies. In addition,
several deaths in other gene therapy clinical trials have recently been
publicized. While not apparently caused by the gene transfer procedure, these
deaths were not promptly reported to the FDA. As a result of these events, the
field of gene therapy has come under greater scrutiny from regulatory
authorities, politicians and the public at large. The FDA has halted all
clinical trials of gene therapy at the University of Pennsylvania, and U.S.
Senate hearings have been held to examine the broader questions of the safety
and ethics of gene therapy. Although we do not anticipate using adenoviral
vectors in our product candidates, the new environment of greater scrutiny for
gene therapy may significantly delay the development of our gene therapy product
candidates. We may be required to conduct more extensive preclinical testing in
order to perform clinical trials on our product candidates. Regulatory approval
of our gene therapy product candidates may require more extensive clinical
studies than anticipated, which could delay commercialization of our gene
therapy product candidates. Further adverse events in gene therapy trials and/or
decisions of regulatory and other governmental agencies could result in a
moratorium or even termination of all clinical studies on gene therapy at some
or all medical centers in the United States or other countries. Such events
could seriously jeopardize the development and commercialization of our gene
therapy product candidates. In addition, should our product candidates be
approved for marketing, adverse public perception of the gene therapy field may
limit our ability successfully to market any gene therapy products.
29
31
WE MAY NOT BE ABLE TO OBTAIN GOVERNMENT REGULATORY APPROVAL FOR OUR PRODUCT
CANDIDATES PRIOR TO MARKETING.
To date, we have not submitted a marketing application for any product
candidate to the FDA or any foreign regulatory agency, and none of our product
candidates have been approved for commercialization in the United States or
elsewhere. Any product candidate ready for commercialization would be subject to
an extensive and lengthy governmental regulatory approval process in the United
States and in other countries. We may not be able to obtain regulatory approval
for any products we develop or even if approval is obtained, the labeling for
such products may be required to bear limitations that could materially impact
the marketability and profitability of the product involved. We have no history
of conducting and managing the clinical testing necessary to obtain such
regulatory approval. Satisfaction of these regulatory requirements, which
includes satisfying the FDA and foreign regulatory authorities that the product
is both safe and effective under its recommended conditions of use, typically
takes several years or more depending upon the type, complexity and novelty of
the product and requires the expenditure of substantial resources. Furthermore,
the regulatory requirements governing our potential products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the regulatory
approval process, adding to the already lengthy review process. If regulatory
approval of a product is granted, such approval will be limited to those disease
states and conditions for which the product is proven useful, as demonstrated by
clinical trials, and our products will be subject to ongoing regulatory reviews.
Although we have been granted orphan drug designation by the FDA for AP1903, the
small-molecule drug used in our GvHD cell therapy product candidate, this
designation may be challenged by others or may prove to be of no practical
benefit.
WE WILL NOT BE ABLE TO SELL OUR PRODUCT CANDIDATES, IF WE OR OUR THIRD-PARTY
MANUFACTURERS FAIL TO COMPLY WITH FDA MANUFACTURING REGULATIONS.
Before we can begin to commercially manufacture our product candidates,
we must either secure manufacturing in an approved manufacturing facility or
obtain regulatory approval of our own manufacturing facility and process. In
addition, manufacture of our product candidates must comply with the FDA's
current Good Manufacturing Practices requirements, commonly known as cGMP. The
cGMP requirements govern, among other things, quality control and documentation
policies and procedures. We, or any third-party manufacturer of our product
candidates, may not be able to comply with cGMP requirements, which would
prevent us from selling such products. Material changes to the manufacturing
processes of our products after approvals have been granted are also subject to
review and approval by the FDA or other regulatory agencies.
EVEN IF WE BRING PRODUCTS TO MARKET, WE MAY BE UNABLE TO EFFECTIVELY PRICE OUR
PRODUCTS OR OBTAIN ADEQUATE REIMBURSEMENT FOR SALES OF OUR PRODUCTS, WHICH WOULD
PREVENT OUR PRODUCTS FROM BECOMING PROFITABLE.
If we succeed in bringing our product candidates to the market, they
may not be considered cost-effective, and reimbursement to the consumer may not
be available or may not be sufficient to allow us to sell our products on a
competitive basis. In both the United States and elsewhere, sales of medical
products and treatments are dependent, in part, on the availability of
reimbursement to the consumer from third-party payors, such as government and
private insurance plans. Third-party payors are increasingly challenging the
prices charged for pharmaceutical products and services. Our business is
affected by the efforts of government and third-party payors to contain or
reduce the cost of health care through various means. In the United States,
there have been and will continue to be a number of federal and state proposals
to
30
32
implement government controls on pricing. In addition, the emphasis on
managed care in the United States has increased and will continue to increase
the pressure on the pricing of pharmaceutical products. We cannot predict
whether any legislative or regulatory proposals will be adopted or the effect
these proposals or managed care efforts may have on our business.
31
33
ITEM 2. PROPERTIES
We have leased approximately 100,000 square feet (approximately 40,000
square feet currently under sublease to third parties) of laboratory and office
space at 26 Landsdowne Street, located in University Park at M.I.T., in
Cambridge, Massachusetts. The lease is for a ten-year term ending in July of
2002, with two consecutive five-year renewal options. We believe that our
currently leased facility will, in large part, be adequate for our research and
development activities at least through the year 2002.
ITEM 3. LEGAL PROCEEDINGS
We were named as a defendant in a purported class action lawsuit
commenced in June 1995 in the U.S. District Court for the Southern District of
New York. The action named as defendants us; the underwriter of our initial
public offering and a market maker in our common stock, D. Blech & Co.; the
managing director and sole shareholder of D. Blech & Co. and our former
director, David Blech; certain of our directors and the qualified independent
underwriter for our initial public offering, Shoenberg Hieber, Inc.
Plaintiff alleged, among other things, that our registration statement
for our initial public offering was false and misleading; that Blech & Co. and
David Blech participated in purported sham sales of our securities after the
offering in an alleged attempt to artificially inflate the sales prices of our
common stock; and that all of the defendants knew, or should have known, of this
alleged scheme and are liable for failing to disclose the alleged scheme to the
investing public. There were no allegations asserting specific acts of
participation or wrongdoing by us. Plaintiff alleged that the foregoing
constituted violations of Sections 11 and 12(2) of the Securities Act of 1933,
Section 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934 and
common law fraud, and sought unspecified damages, costs and attorneys' fees.
We filed a motion to dismiss, which was denied in June 1996. In late
1998, the parties stipulated to, and the Court approved, the certification of a
class of persons who purchased our securities from the time of our initial
public offering on May 20, 1994 through and including September 21, 1994.
In December 1999, we reached an agreement in principle with the plaintiff
to settle the matter. The parties have yet to enter into a formal settlement
agreement, which if, and when, executed will have to be submitted to the Court
for approval. There can be no assurance that the settlement agreement will be
signed and, if signed, if, and when, the Court will approve the settlement. We
believe, however, based on discussions leading to the agreement in principle,
that such settlement will not have a material adverse effect on our financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1999.
32
34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has been traded on the Nasdaq National Market under
the symbol "ARIA" since September 19, 1994. The following table sets forth the
high and low sales prices of our common stock as quoted on the Nasdaq National
Market for the periods indicated.
1998: HIGH LOW
------------- -------------
First Quarter $ 5 1/2 $ 3 1/2
Second Quarter 5 1/16 3
Third Quarter 4 1/4 1 7/8
Fourth Quarter 2 7/8 1 3/8
1999:
First Quarter $ 4 1/4 $ 1 5/16
Second Quarter 1 29/32 1 1/4
Third Quarter 1 3/8 23/32
Fourth Quarter 3 1/2
HOLDERS
The approximate number of holders of record of our common stock as of
March 16, 2000 was 450, and the approximate total number of holders of our
common stock as of March 16, 2000, was 34,000.
DIVIDENDS
We have not declared or paid dividends on our common stock in the past
and do not intend to declare or pay such dividends in the foreseeable future.
Our current long-term debt agreement prohibits the payment of cash dividends.
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 5 of "Notes to
Consolidated Financial Statements.")
33
35
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1999, 1998, 1997,
1996 and 1995 and for the years then ended have been derived from the audited
consolidated financial statements of the Company, certain of which are included
elsewhere in this Annual Report on Form 10-K, and are qualified by reference to
such financial statements. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements,
and the notes thereto, and other financial information included herein.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- ------------
Revenue:
Research revenue (principally related
parties) $ 12,467,920 $ 12,143,192 $ 9,233,708 $ 10,304,332 $ 2,102,222
Interest income 444,748 998,743 1,757,327 1,271,895 1,360,225
------------ ------------ ------------ ------------ ------------
Total revenue 12,912,668 13,141,935 10,991,035 11,576,227 3,462,447
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development 28,844,388 35,515,270 20,286,945 15,253,874 13,675,025
General and administrative 3,938,246 2,633,923 2,924,972 2,229,273 2,281,247
Interest expense 521,437 480,627 410,072 269,131 323,124
------------ ------------ ------------ ------------ ------------
Total operating expenses 33,304,071 38,629,820 23,621,989 17,752,278 16,279,396
------------ ------------ ------------ ------------ ------------
Gain on sale of Genomics Center 46,440,178
------------ ------------ ------------ ------------ ------------
Equity in net loss of Genomics Center (1,492,309) (660,295)
------------ ------------ ------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle 24,556,466 (26,148,180) (12,630,954) (6,176,051) (12,816,949)
Cumulative effect of change in accounting
Principle (364,388)
------------ ------------ ------------ ------------ ------------
Net income (loss) 24,192,078 (26,148,180) (12,630,954) (6,176,051) (12,816,949)
Repurchase and accretion costs attributable to
redeemable convertible preferred stock (6,434,799) (35,616)
------------ ------------ ------------ ------------ ------------
Net income (loss) attributable to
Common stockholders $ 17,757,279 $(26,183,796) $(12,630,954) $ (6,176,051) $(12,816,949)
============ ============ ============ ============ ============
34
36
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1999 1998 1997 1996 1995
------------- -------------- ------------- ------------- -------------
Per common share (basic):
Income (loss) attributable to common
Stockholders before cumulative effect of
change in accounting principle $ .82 $ (1.25) $ (.66) $ (.33) $ (.72)
Cumulative effect of change in
Accounting principle (.02)
------------- -------------- ------------- ------------- -------------
Net income (loss) - basic $ .80 $ (1.25) $ (.66) $ (.33) $ (.72)
============= ============== ============= ============= =============
Weighted average number of shares of
Common stock outstanding - basic 22,004,646 20,966,586 19,252,885 18,999,229 17,738,126
Per common share (diluted):
Income (loss) before cumulative effect of
change in accounting principle $ .71 $ (1.25) $ (.66) $ (.33) $ (.72)
Cumulative effect of change in
Accounting principle (.01)
------------- -------------- ------------- ------------- --------------
Net income (loss) - diluted $ .70 $ (1.25) $ (.66) $ (.33) $ (.72)
============= ============== ============= ============= =============
Weighted average number of shares
of common stock outstanding - diluted 34,448,015 20,966,586 19,252,885 18,999,229 17,738,126
AS OF DECEMBER 31,
--------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995
------------- -------------- ------------- ------------- ------------
Cash, cash equivalents and marketable
securities $ 28,319,870 $ 14,176,136 $ 29,359,457 $ 15,702,300 $ 27,056,234
Working capital 22,730,439 5,805,656 16,538,781 11,901,775 20,995,251
Total assets 44,236,013 30,785,940 47,409,176 27,604,993 37,201,730
Long-term debt 1,900,000 3,295,139 5,156,219 1,472,812 1,540,727
Redeemable convertible preferred stock 8,070,415 5,035,616
Accumulated deficit (74,883,178) (92,640,457) (66,456,661) (53,825,707) (47,649,656)
Stockholders' equity 27,067,472 11,733,288 28,373,818 16,684,471 22,684,447
35
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction
with "Selected Consolidated Financial Data" and our consolidated financial
statements and the related notes included elsewhere in this prospectus.
OVERVIEW
We are a biopharmaceutical company focused on the discovery,
development and commercialization of proprietary platform technologies and
therapeutic products based on gene regulation and signal transduction. Our core
competencies in functional genomics, protein engineering and structure-based
drug design allow us to capitalize on the wealth of genetic information being
generated by government, academic and commercial laboratories. We apply this
expertise to the development of proprietary technology platforms that allow
manipulation of signal transduction, gene transcription, and protein secretion
events using small-molecule drugs. We believe that our ability to control the
activity of genes and proteins allows us to broadly apply discoveries in
genomics to the development of innovative therapeutic products.
AVENTIS RELATIONSHIP
From November 1995 through December 1999, substantially all of our
research revenue and the majority of our research expenses were incurred in
collaboration or in partnership with Aventis Pharmaceuticals Inc., formerly
known as Hoechst Marion Roussel, Inc., and its affiliates.
In November 1995, we entered into an agreement with Hoechst Marion
Roussel, S.A. to collaborate on the discovery and development of drugs to treat
osteoporosis and related bone diseases, one of our signal transduction inhibitor
programs. In March 1997, we entered into an agreement, which established a 50/50
joint venture, called the Hoechst-ARIAD Genomics Center, LLC, or the Genomics
Center, with Aventis to pursue functional genomics with the goal of identifying
genes that encode novel therapeutic proteins and small-molecule drug targets. We
recognized aggregate revenue under these agreements of $12,468,000 in 1999,
$11,729,000 in 1998 and $8,690,000 in 1997.
On December 31, 1999, we completed the sale of our 50% interest in the
Genomics Center to Aventis and received $40,000,000 in cash, 3,004,436 shares
our series B preferred stock, the forgiveness of $1,857,000 of long-term debt we
owed to Aventis, drug candidates and related technologies resulting from the
1995 Osteoporosis Agreement and the right to use certain genomics and
bioinformatics technologies developed by the Genomics Center. We recorded a net
gain on the sale of $46,440,000. As a result of this sale, the revenue generated
in our relationship with Aventis will not recur, and we expect to realize a
reduction of revenue in fiscal 2000 of at least $12,468,000, which will be
offset by an expected reduction in research and development expenses associated
with the Genomics Center of approximately $16,700,000.
GENERAL
Since our inception in 1991, we have devoted substantially all of our
resources to our research and development programs. We receive no revenue from
the sale of pharmaceutical products, and substantially all revenue to date has
been received in connection with our relationship with Aventis. Except for the
gain on the sale of the Genomics Center in December 1999, which resulted in net
income for fiscal 1999, we have not been profitable since inception. We expect
to incur substantial and increasing operating losses for the foreseeable future,
36
38
primarily due to the expansion of our research and development programs and
manufacturing and clinical development. We expect that losses will fluctuate
from quarter to quarter and that these fluctuations may be substantial. As of
December 31, 1999, we had an accumulated deficit of $74,883,000, after including
a one-time gain of $46,440,000 on the sale of our 50% interest in the Genomics
Center on December 31, 1999.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUE
We recognized research revenue under our services agreements,
collaborative research arrangements and government-sponsored grants of
$12,468,000, $12,143,000 and $9,234,000 for the years ended December 31, 1999,
1998 and 1997, respectively. The increase of $325,000 or 2.7% in 1999 compared
to 1998 was due to an increase of $1,517,000 in research revenue recognized
under our services agreements with the Genomics Center and the achievement of
the second milestone of $2,000,000 under the 1995 HMR Osteoporosis Agreement,
partially offset by a reduction of $3,078,000 in the amortization of deferred
revenue recognized in the prior year relating to the 1995 Osteoporosis Agreement
and a decrease of $114,000 in government-sponsored research grant revenue
recognized in the prior year. The increase of $2,909,000 or 31.5% in 1998
compared to 1997 was due to an increase of $3,594,000 in research revenue
recognized under our services agreements with the Genomics Center, partially
offset by a $685,000 decrease in research revenue recognized under the 1995 HMR
Osteoporosis Agreement and government-sponsored research grants. We expect
research revenue to decrease over the next year resulting from the termination
of our services agreement with the Genomics Center and the termination of the
1995 Osteoporosis Agreement as a result of the sale of our 50% ownership
interest in the Genomics Center. As of January 1, 2000, we have no research
arrangements or government-sponsored grants that will generate revenue in 2000.
Interest income was $445,000, $999,000 and $1,757,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Interest income decreased
by $554,000 in 1999 compared to 1998 as a result of a lower level of funds
invested and a realized loss on the sale of marketable securities of $70,000
recorded in 1999. Interest income decreased by $758,000 in 1998 compared to 1997
as a result of a lower level of invested funds.
OPERATING EXPENSES
Research and development expenses were $28,844,000, $35,515,000 and
$20,287,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Research and development expenses decreased by $6,671,000 or 18.8% due primarily
to decreased manufacturing development and other preclinical development costs
incurred in 1998, partially offset by increased research services provided to
the Genomics Center under our services agreements in 1999. Research and
development expenses increased by $15,228,000 or 75.1% in 1998 compared to 1997
primarily due to increases in research services provided to the Genomics Center
under our services agreements and increased product development costs for our
regulated gene therapy product candidates, including manufacturing, process
development and other preclinical development activities in preparation for
clinical trials of AP1903 that commenced in December 1998. AP1903 is the
small-molecule drug used in our GvHD cell therapy product
37
39
candidate. We expect our research and development expenses to decrease over the
next year as a result of the sale of our 50% ownership interest in the Genomics
Center.
General and administrative expenses were $3,938,000, $2,634,000 and
$2,925,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
General and administrative expenses increased by $1,304,000 or 49.5% in 1999
compared to 1998 primarily due to increased professional and legal services
incurred in connection with litigation, as well as a proposed private placement
offering that was not undertaken. General and administrative expenses decreased
by $291,000 or 9.9% in 1998 compared to 1997 primarily due to nonrecurrence in
1998 of administrative expenses incurred in connection with the formation of the
Genomics Center in 1997.
We incurred interest expense of $521,000 in 1999 compared to $481,000
in 1998 and $410,000 in 1997. The increase of $40,000 in 1999 compared to 1998
was due to the amortization of financing costs relating to the issuance of
series C preferred stock in 1998, offset by a reduction in the level of debt
outstanding. The increase of $71,000 in 1998 compared to 1997 was due to the
issuance of debt at the end of the second quarter in 1997.
ACCOUNTING CHANGE
We adopted Statement of Position, or SOP 98-5, Reporting the Cost of
Start-Up Activities, effective January 1, 1999 and recorded a charge of $364,000
as a cumulative effect of change in accounting principle.
OPERATING RESULTS
We reported income before cumulative effect of change in accounting
principle of $24,556,000 in 1999 and incurred losses of $26,148,000 in 1998 and
$12,631,000 in 1997. After such cumulative effect, we reported net income of
$24,192,000 for 1999. Our results for 1999 include a gain on the sale of our 50%
interest in the Genomics Center of $46,440,000. We expect that substantial
operating losses will be reported for several more years, but are expected to
decrease over the next year as a result of the sale of our interest in the
Genomics Center. However, operating losses are expected to subsequently increase
as our product development activities expand and will fluctuate as a result of
differences in the timing and composition of revenue earned and expenses
incurred. On December 31, 1999 and January 14, 2000, we repurchased and retired
all of our series C preferred stock and recorded a charge of $6,185,000 in 1999
representing the premium paid on the repurchase, which has been deducted from
net income in determining net income attributable to common stockholders.
Accretion costs attributable to the series C preferred stock of $250,000 and
$36,000 were also recognized in 1999 and 1998, respectively. We reported net
income attributable to common stockholders of $17,757,000 in 1999 or $.80 per
share (basic) and $.70 per share (diluted). We reported net losses attributable
to common stockholders of $26,184,000 in 1998 and $12,631,000 in 1997 or $1.25
and $.66 per share (basic), respectively. At December 31, 1999, we had available
for federal tax reporting purposes and net operating loss carry forwards of
approximately $67,400,000 that expire commencing in 2006. We also had federal
research and development tax credit carryovers of approximately $5,200,000 that
expire commencing in 2006. The utilization of both the net operating loss carry
forwards and tax credits is subject to certain limitations under federal tax
laws.
38
40
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations and investments primarily through the
private placement and public offering of our securities, including the sale of
series C preferred stock to investors and the sale of series B preferred stock
to Aventis Pharmaceuticals Inc., supplemented by the issuance of long-term
debt, operating and capital lease transactions, interest income,
government-sponsored research grants, research revenue under the 1995
Osteoporosis Agreement, research revenue under the terms of our services
agreements with the Genomics Center, and, in December 1999, the sale to Aventis
of our 50% interest in the Genomics Center.
At December 31, 1999, we had cash and cash equivalents totaling
$28,320,000, exclusive of $6,925,000 of cash, subsequently expended on January
14, 2000, to repurchase the remaining series C preferred stock, and working
capital of $22,730,000 compared to cash, cash equivalents and marketable
securities totaling $14,176,000 and working capital of $5,806,000 at December
31, 1998.
The primary uses of cash during the year ended December 31, 1999 were
$21,724,000 to finance our operations and working capital requirements, $677,000
to purchase laboratory equipment, $2,056,000 to repay long-term debt,
$10,325,000 for the repurchase and retirement of series C preferred stock and
$710,000 to acquire intellectual property.
The primary sources of funds during the year ended December 31, 1999
were:
* $6,468,000 of research revenue from Aventis under our services
agreements,
* $6,000,000 of research funding from the 1995 Osteoporosis Agreement,
including $2,000,000 received upon the achievement of the second
research milestone under this agreement,
* $1,699,000 from the net return of investment in the Genomics Center,
* $309,000 from the sale/leaseback of laboratory equipment,
* $7,805,000 of proceeds from the sale and maturity of marketable
securities,
* $5,747,000 from the sale of series B preferred stock to Aventis,
* $1,801,000 of borrowings from Aventis, and
* $40,000,000 from the sale of our 50% ownership interest in the Genomics
Center to Aventis.
We have substantial fixed commitments under various research and
licensing agreements, consulting and employment agreements, lease agreements and
long-term debt instruments. These fixed commitments currently aggregate in
excess of $4,600,000 per year and may increase. We will require substantial
additional funding for our research and 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 us.
We have issued 2,125,225 publicly traded warrants, each of which
entitles its holder to purchase one share of our common stock at an exercise
price of $8.40 per share. The warrants expire on December 30, 2000. As of March
16, 2000, 70,389 warrants have been exercised for
39
41
an aggregate exercise price of $591,000, and 2,054,836 warrants remain
outstanding. If all of the remaining outstanding warrants are exercised, we
would receive proceeds of $17,261,000. On March 27, 2000, we issued a call
notice for the redemption of the warrants. If the market price of our common
stock continues to trade at a per share price above the exercise price of the
warrants, which is $8.40 per share, the warrants are likely to be exercised, and
we would receive the proceeds from the exercise.
We believe that our available funds will be adequate to satisfy our
capital and operating requirements at least through 2001. However, there can be
no assurance that changes in our research and development plans or other events
affecting our revenues or operating expenses will not result in the earlier
depletion of our funds.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue relates to numerous potential problems arising from
the way that some computer software misinterprets dates after December 31, 1999,
which could result in a computer system failure or miscalculations causing
disruptions of operations. We believe that the year 2000 issue has been
successfully addressed through our year 2000 compliance plan. The total cost for
upgrading our computer systems, hardware and software was less than $200,000. We
did not experience any difficulties related to the year 2000 issue on January 1,
2000, and have not experienced any material difficulties to date. We will
continue to monitor our computer systems for potential difficulties through the
remainder of the calendar year 2000.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or 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. Our management is currently assessing the impact of SFAS
No. 133, as amended, on our consolidated financial statements. We will adopt
this accounting standard on January 1, 2001, as required.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We maintain an investment portfolio in accordance with our investment
policy to preserve principal, maintain proper liquidity to meet operating needs
and maximize yields. Our investment policy specifies credit quality standards
for our investments and limits the amount of credit exposure to any single
issue, issuer or type of investment.
We invest cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. Our
marketable securities generally 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
40
42
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. We
believe 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 December 31, 1999, we have a bank term note at prime plus 1%. This
note is sensitive to interest rate risk. In the event of a hypothetical 10%
increase in the prime rate (90 basis points), we would incur approximately
$26,000 of additional interest expense per year.
41
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
ARIAD Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of ARIAD
Pharmaceuticals, Inc. and its subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ARIAD Pharmaceuticals, Inc. and its
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1999 the Company changed
its method of accounting for start-up activities.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 2000
42
44
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
----------------------------------
Current assets: NOTES 1999 1998
------- --------------- ---------------
Cash and cash equivalents 1 $ 28,319,870 $ 6,501,648
Marketable securities 1,2 7,674,488
Inventory and other current assets 1 1,608,695 2,018,846
Due from Genomics Center 1,4 332,571
--------------- ---------------
Total current assets 29,928,565 16,527,553
--------------- ---------------
Property and equipment: 1,5,6
Leasehold improvements 12,566,650 12,555,301
Equipment and furniture 4,413,453 4,438,399
--------------- ---------------
Total 16,980,103 16,993,700
Less accumulated depreciation and amortization 13,645,750 8,944,027
--------------- ---------------
Property and equipment, net 3,334,353 8,049,673
--------------- ---------------
Investment in Genomics Center 1,4 1,902,129
--------------- ---------------
Intangible and other assets, net 1,6 10,973,095 4,306,585
--------------- ---------------
Total $ 44,236,013 $ 30,785,940
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 5 $ 1,200,000 $ 1,861,021
Accounts payable 2,276,447 3,322,439
Accrued liabilities 3,695,972 2,042,641
Advance from Genomics Center 4 25,707 3,162,463
Deferred revenue 1,3 333,333
--------------- ---------------
Total current liabilities 7,198,126 10,721,897
--------------- ---------------
Long-term debt 5 1,900,000 3,295,139
--------------- ---------------
Commitments and contingent liabilities 6,10
Redeemable convertible preferred stock 7 8,070,415 5,035,616
--------------- ---------------
Stockholders' equity: 4,7,8
Series B convertible preferred stock, $.01 par value; authorized,
5,000,000 shares; issued and outstanding, 2,526,316 shares
in 1998 (liquidation preference, $24,000,000) 25,263
Common stock, $.001 par value; authorized, 60,000,000 shares;
issued and outstanding, 22,031,888 shares in 1999 and 21,938,754
shares in 1998 22,032 21,939
Additional paid-in capital 101,928,618 104,360,924
Accumulated other comprehensive loss 2 (34,381)
Accumulated deficit (74,883,178) (92,640,457)
--------------- ---------------
Stockholders' equity 27,067,472 11,733,288
--------------- ---------------
Total $ 44,236,013 $ 30,785,940
=============== ===============
See notes to consolidated financial statements.
43
45
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
----------------------------------------------------------- ----------------- ----------------- ------------------
Revenue: NOTES:
Research revenue (principally related
parties) 1,3,4 $ 12,467,920 $ 12,143,192 $ 9,233,708
Interest income 2 444,748 998,743 1,757,327
----------------- ----------------- ------------------
Total revenue 12,912,668 13,141,935 10,991,035
----------------- ----------------- ------------------
Operating expenses:
Research and development 4 28,844,388 35,515,270 20,286,945
General and administrative 3,938,246 2,633,923 2,924,972
Interest expense 5 521,437 480,627 410,072
----------------- ----------------- ------------------
Total operating expenses 33,304,071 38,629,820 23,621,989
----------------- ----------------- ------------------
Gain on sale of Genomics Center 4 46,440,178
Equity in net loss of Genomics Center 1,4 (1,492,309) (660,295)
----------------- ----------------- ------------------
Income (loss) before cumulative effect of
change in accounting principle 1 24,556,466 (26,148,180) (12,630,954)
Cumulative effect of change in accounting
principle (364,388)
----------------- ----------------- ------------------
Net income (loss) 24,192,078 (26,148,180) (12,630,954)
Repurchase and accretion costs attributable to
redeemable convertible preferred stock 7 (6,434,799) (35,616)
----------------- ----------------- ------------------
Net income (loss) attributable to common
stockholders $ 17,757,279 $ (26,183,796) $ (12,630,954)
================= ================= ==================
Earnings (loss) per share:
Per common share (basic): 1
Income (loss) attributable to common
stockholders before cumulative effect of
change in accounting principle $ .82 $ (1.25) $ (.66)
Cumulative effect of change in accounting
principle 1 (.02)
----------------- ----------------- ------------------
Net income (loss) - basic $ .80 $ (1.25) $ (.66)
================= ================= ==================
Weighted average number of shares of common
stock outstanding - basic 22,004,646 20,966,586 19,252,885
Per common share (diluted): 1
Income (loss) before cumulative effect of
change in accounting principle $ .71 $ (1.25) $ (.66)
Cumulative effect of change in accounting
principle 1 (.01)
----------------- ----------------- ------------------
Net income (loss) - diluted $ .70 $ (1.25) $ (.66)
================= ================= ==================
Weighted average number of shares of common
stock outstanding - diluted 34,448,015 20,966,586 19,252,885
See notes to consolidated financial statements.
44
46
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $ 24,192,078 $(26,148,180) $(12,630,954)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 3,682,100 3,468,971 2,662,291
Stock-based compensation 86,179 72,612 70,302
Gain on sale of the Genomics Center (46,440,178)
Increase (decrease) from:
Deferred revenue (3,077,781) (3,333,332)
Inventory and other 584,510 (1,260,383) 1,810,941
Due from Genomics Center 332,571 (332,571)
Other assets 72,016 53,380 (154,262)
Accounts payable (1,045,992) 23,271 2,510,886
Accrued liabilities (50,287) (806,712) 2,210,327
Advance from Genomics Center (3,136,756) 659,542 2,502,921
------------ ------------ ------------
Net cash used in operating activities (21,723,759) (27,347,851) (4,350,880)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of investment in
Genomics Center 40,000,000
Acquisitions of marketable securities (210,736) (14,845,944) (24,890,446)
Proceeds from sales and maturities of marketable
securities 7,805,425 22,571,606 22,102,315
Investment in Genomics Center (6,260,924) (6,237,132) (2,806,093)
Return of investment in Genomics Center 7,960,230 5,714,587 1,357,377
Investment in property and equipment, net (676,924) (1,673,979) (9,403,738)
Acquisition of intangible and other assets (709,992) (758,876) (2,237,571)
------------ ------------ ------------
Net cash provided by (used in) investing
activities 47,907,079 4,770,262 (15,878,156)
------------ ------------ ------------
(Continued)
45
47
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of series B convertible
preferred stock 5,747,000 24,000,000
Proceeds from related party long-term debt 1,800,988
Proceeds from issuance of redeemable convertible
preferred stock 5,000,000
Repurchase of redeemable convertible preferred
stock (10,325,000)
Proceeds from borrowings 6,000,000
Repayment of borrowings (2,056,160) (1,816,642) (1,775,966)
Proceeds from sale/leaseback of equipment, net 308,753 2,579,506 2,762,189
Proceeds from issuance of common stock, net of
issuance costs 9,226,060
Proceeds from issuance of stock pursuant to stock
option and purchase plans 159,321 231,403 194,872
------------ ------------ ------------
Net cash (used in) provided by financing
activities (4,365,098) 15,220,327 31,181,095
------------ ------------ ------------
Net increase (decrease) in cash and
equivalents 21,818,222 (7,357,262) 10,952,059
Cash and equivalents, beginning of year 6,501,648 13,858,910 2,906,851
------------ ------------ ------------
Cash and equivalents, end of year $ 28,319,870 $ 6,501,648 $ 13,858,910
============ ============ ============
(Concluded)
See notes to consolidated financial statements.
46
48
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
SERIES B ACCUMULATED
CONVERTIBLE ADDITIONAL OTHER
PREFERRED STOCK COMMON STOCK PAID-IN COMPREHENSIVE
NOTES SHARES AMOUNT SHARES AMOUNT CAPITAL LOSS
----- --------- -------- ---------- ------- ------------ -------------
Balance, January 1, 1997 19,036,723 $19,037 $ 70,593,840 $(102,699)
Issuance of Series B Convertible
Preferred Stock 4,7 2,526,316 $ 25,263 23,974,737
Exercise of 1992 warrants 7 179,182 179 (179)
Issuance of shares pursuant to stock option
and purchase plans 8 92,700 93 194,779
Stock-based compensation to consultants 1 70,302
Comprehensive loss:
Net loss
Other comprehensive income - 1
Unrealized gains on marketable
securities 2 55,127
Comprehensive loss
--------- -------- ---------- ------- ------------ ----------
Balance, December 31, 1997 2,526,316 25,263 19,308,605 19,309 94,833,479 (47,572)
Private placement of common stock 7,8 2,537,500 2,537 9,223,523
Issuance of shares pursuant to stock
option and purchase plans 8 92,649 93 231,310
Stock-based compensation to consultants 1 72,612
Accretion of preferred dividends
Comprehensive loss:
Net loss
Other comprehensive income - 1
Unrealized gains on marketable
securities 2 13,191
Comprehensive loss
--------- -------- ---------- ------- ------------ ----------
Balance, December 31, 1998 2,526,316 25,263 21,938,754 21,939 104,360,924 (34,381)
Issuance of Series B Convertible
Preferred Stock 4,7 478,120 4,781 5,742,219
Issuance of shares pursuant to stock
option and purchase plans 8 93,134 93 159,228
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- --------------
Balance, January 1, 1997 $(53,825,707) $ 16,684,471
Issuance of Series B Convertible
Preferred Stock 24,000,000
Exercise of 1992 warrants
Issuance of shares pursuant to stock option
and purchase plans 194,872
Stock-based compensation to consultants 70,302
Comprehensive loss:
Net loss (12,630,954) (12,630,954)
Other comprehensive income -
Unrealized gains on marketable
securities 55,127
------------
Comprehensive loss (12,575,827)
----------- ------------
Balance, December 31, 1997 (66,456,661) 28,373,818
Private placement of common stock 9,226,060
Issuance of shares pursuant to stock
option and purchase plans 231,403
Stock-based compensation to consultants 72,612
Accretion of preferred dividends (35,616) (35,616)
Comprehensive loss:
Net loss (26,148,180) (26,148,180)
Other comprehensive income -
Unrealized gains on marketable
securities 13,191
------------
Comprehensive loss (26,134,989)
------------ ------------
Balance, December 31, 1998 (92,640,457) 11,733,288
Issuance of Series B Convertible
Preferred Stock 5,747,000
Issuance of shares pursuant to stock
option and purchase plans 159,321
47
49
Stock-based compensation to consultants 1 86,179
Repurchase and accretion costs attributable to
Series C preferred stock 1,7
Redemption on sale of Genomics Center 4,7 3,004,436 (30,044) (8,419,932)
Comprehensive income (loss):
Net income
Other comprehensive income - 1
Unrealized gains on marketable
securities 2 34,381
Comprehensive income
--------- -------- ---------- ------- ------------ ----------
Balance, December 31, 1999 0 $ 0 22,031,888 $22,032 $101,928,618 $ 0
========= ======== ========== ======= ============ ==========
Stock-based compensation to consultants 86,179
Repurchase and accretion costs attributable to
Series C preferred stock (6,434,799) (6,434,799)
Redemption on sale of Genomics Center (8,449,976)
Comprehensive income (loss):
Net income 24,192,078 24,192,078
Other comprehensive income -
Unrealized gains on marketable
securities 34,381
------------
Comprehensive income 24,226,459
------------ ------------
Balance, December 31, 1999 $(74,883,178) $ 27,067,472
============ ============
See notes to consolidated financial statements.
48
50
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
ARIAD Pharmaceuticals, Inc. ("ARIAD" or the "Company") is a
biopharmaceutical company focused on the discovery, development and
commercialization of proprietary platform technologies and therapeutic products
based on gene regulation and signal transduction. Our core competencies in
functional genomics, protein engineering and structure-based drug design allow
us to capitalize on the wealth of genetic information being generated by
government, academic and commercial laboratories. We apply this expertise to the
development of proprietary technology platforms that allow manipulation of
signal transduction, gene transcription, and protein secretion events using
small-molecule drugs. We believe that our ability to control the activity of
genes and proteins allows us to broadly apply discoveries in genomics to the
development of innovative therapeutic products.
Principles of Consolidation
The consolidated financial statements include the accounts of ARIAD
Pharmaceuticals, Inc., its wholly owned subsidiary, ARIAD Corporation, and its
94%-owned subsidiary (78% on a fully diluted basis), ARIAD Gene Therapeutics,
Inc. ("AGTI") (Note 8). Intercompany accounts and transactions have been
eliminated.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, accounts payable and
accrued liabilities approximate fair value because of their short-term nature.
Marketable securities are recorded in the consolidated financial statements at
aggregate fair value (Note 2). The carrying amounts of the Company's debt
instruments approximate fair value due to the variable interest rate (Note 5).
Accounting Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosure of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts and disclosure of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents include short-term, highly liquid investments, which
consist principally of United States Treasury and Agency securities and
high-grade domestic corporate securities, purchased with remaining maturities of
90 days or less.
49
51
Marketable Securities
The Company has classified its marketable securities as
"available-for-sale" and, accordingly, carries such securities at aggregate fair
value. Fair value has been determined based on quoted market prices, in a dealer
market, at the closing bid for each individual security held.
Inventory
Inventories are carried at cost using the first-in, first-out method
and are charged to research and development expense when consumed. Inventory
consists of bulk pharmaceutical material to be used for multiple preclinical and
clinical drug development programs and amounted to $1,182,000 and $1,446,000 at
December 31, 1999 and 1998, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets (3
to 10 years). Assets acquired under capital lease obligations are stated at the
lower of the present value of the minimum lease payments or the fair market
value at the inception of the lease. Assets recorded under capital leases and
leasehold improvements are amortized over the shorter of their useful lives or
lease term using the straight-line method (4 to 10 years).
The Company accounts for the impairment of long-lived assets in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
Investment in Genomics Center
The Company accounted for its investment in the Genomics Center using
the equity method through December 31, 1999 (Note 4). Intercompany transactions
were eliminated to the extent of the Company's interest (50%) in the Genomics
Center (Note 4).
Intangible and Other Assets
Intangible and other assets consist primarily of purchased patents,
patent applications, and deposits. The balance at December 31, 1999 also
includes $6,925,000 of cash, subsequently expended on January 14, 2000 to
repurchase Series C Preferred Stock (Note 7).
The cost of purchased patents and patent applications and costs
incurred in filing for patents are capitalized. Capitalized costs related to
patent applications are expensed when it becomes determinable that such
applications will not be pursued. Capitalized costs related to issued patents
are amortized over a period not to exceed seventeen years or the remaining life
of the patent, whichever is shorter, using the straight-line method. Costs
incurred in connection with the 1995 HMR Osteoporosis Agreement (Note 3) have
been fully amortized over a three-year period ending November 1998. Accumulated
amortization of intangible and other assets at December 31, 1999 and 1998 was
$3,625,000 and $2,902,000, respectively.
50
52
Revenue Recognition
Research revenue under collaborative research and development
agreements is recognized as research is performed under the terms of the
respective applicable agreement. Amounts received in advance under the 1995 HMR
Osteoporosis Agreement (Note 3) were recorded as deferred revenue and were being
amortized over the minimum term of the agreement, using the straight-line
method. Revenue earned upon the attainment of research or product development
milestones is recognized when achieved. Research revenue is billed on a cost
reimbursement basis, which includes direct costs incurred in connection with
research activities and an allocation of certain other costs incurred by the
Company, under the terms of the Services Agreements with the Genomics Center
(Note 4) is recognized as services are provided. None of the Company's research
revenue recognized is refundable.
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company organizes itself as one segment
reporting to the chief operating decision maker. Products and services consist
primarily of research and development activities with collaborative and
strategic partners in the pharmaceutical industry.
Stock-Based Compensation
The company applies the intrinsic value method to account for employee
stock-based compensation and the fair value method to account for stock-based
compensation to consultants.
Earnings Per Share
Basic earnings per common share are computed using the weighted average
number of common shares outstanding during each year. Diluted earnings per
common share reflect the effect of the Company's outstanding options, warrants
and convertible securities, except where such items would be anti-dilutive. In
years in which a net loss is reported, basic and diluted per share amounts are
the same. In 1998 and 1997, options, warrants, and the effects of conversion of
convertible securities amounting to 3,504,188 and 4,202,996 shares of common
stock, respectively, were not included in the computation of dilutive earnings
per share because this effect would be antidilutive.
51
53
The following is a reconciliation of the shares used in the calculation
of basic and diluted net income per share for the year ended December 31, 1999.
Potentially dilutive shares were calculated using the treasury stock method:
Weighted average shares for basic shares outstanding 22,004,646
Incremental shares from assumed conversion of preferred stock 11,846,541
Incremental shares from assumed exercise of potentially dilutive stock options 596,828
------------------
Weighted average shares for dilutive shares outstanding 34,448,015
==================
Net income attributable to common stockholders $ 17,757,279
Effect of repurchase and accretion costs attributable to redeemable convertible
preferred stock 6,434,799
------------------
Net income attributable to common stockholders $ 24,192,078
==================
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 a
charge of $364,000 as a cumulative effect of change in accounting principle.
Recently Issued Financial Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. 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, as amended, on the
consolidated financial statements of the Company. The Company will adopt this
accounting standard on January 1, 2001, as required.
2. MARKETABLE SECURITIES
The Company has classified its marketable securities as
available-for-sale and, accordingly, carries such securities at aggregate fair
value. At December 31, 1999 the Company held no marketable securities. At
December 31, 1998, the Company's marketable securities consisted of the
following:
GROSS UNREALIZED
-------------------------------
AGGREGATE AMORTIZED
FAIR VALUE COST BASIS GAINS LOSSES
---------------- ---------------- ---------------- ----------------
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)
================ ================ ================ ================
52
54
Realized gains and losses on sales of marketable securities were not
material during the years ended December 31, 1999, 1998 and 1997. Changes in
market values resulted in a reduction of $34,381, $13,191 and $55,127 in net
unrealized losses for the years ended December 31, 1999, 1998 and 1997,
respectively.
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
In November 1995, the Company entered into an agreement with Hoechst
Marion Roussel ("HMR") (the "1995 HMR Osteoporosis Agreement") to collaborate on
the discovery and development of drugs to treat osteoporosis and related bone
diseases, one of the Company's signal transduction inhibitor programs. Under the
1995 HMR Osteoporosis Agreement, the Company granted to HMR exclusive rights to
develop and commercialize these drugs worldwide. Under the terms of this
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. This Agreement further provided for the payment of royalties to the
Company based on product sales. Revenue recognized under the 1995 HMR
Osteoporosis Agreement amounted to $6,000,000, $6,778,000 and $7,333,000 for
1999, 1998 and 1997, respectively, including $2,000,000 for the achievement of
the second research milestone in 1999.
In connection with the sale of the Company's 50% interest in the
Genomics Center (Note 4), all drug candidates and related technologies resulting
from this agreement were assigned to the Company, and any further obligations of
HMR to fund the Company's internal research were terminated.
The Company was the grantee organization of four grants from the
National Institutes of Health to conduct research related to signal
transduction. Costs incurred and the corresponding research revenue recognized
were $0, $114,000 and $543,000 for 1999, 1998 and 1997, respectively.
4. HOECHST-ARIAD GENOMICS CENTER, LLC
Formation of the Genomics Center
In March 1997, the Company entered into an agreement which established
a 50/50 joint venture with Aventis Pharmaceuticals, Inc. (formerly known as
Hoechst Marion Roussel, Inc.) ("Aventis") to pursue functional genomics (the
"1997 HMR Genomics Agreement") with the goal of identifying genes that encode
novel therapeutic proteins and small-molecule drug targets. The joint venture,
named the Hoechst-ARIAD Genomics Center, LLC (the "Genomics Center"), is located
at the Company's facility in Cambridge, Massachusetts. Under the terms of the
1997 HMR Genomics Agreement, the Company and Aventis agreed to commit
$85,000,000 to the establishment of the Genomics Center and its first five years
of operation. The Company and Aventis agreed to jointly fund $78,500,000 of
operating and related costs, and ARIAD agreed to invest up to $6,500,000 in
leasehold improvements and equipment for use by ARIAD in conducting research on
behalf of the Genomics Center. Through December 31, 1999, the Company had
invested $6,500,000 in leasehold improvements and equipment and funded
$14,997,000 in operating and related costs. Aventis committed to provide ARIAD
with capital adequate to fund ARIAD's share of such costs through the purchase
of up to $49,000,000 of ARIAD series B convertible preferred stock over the
five-year period, including an initial investment of $24,000,000, which was
completed in March 1997 and $5,747,000 which was completed in January 1999 (Note
7). Using a loan
53
55
facility made available by Aventis, ARIAD borrowed $1,801,000 during 1999 to
fund a portion of its investment obligations relating to the Genomics Center.
Services Agreements
The Company also entered into agreements with the Genomics Center to
provide research and administrative services (the "Services Agreements") to the
Genomics Center on a cost reimbursement basis. ARIAD's costs of providing the
research and administrative services to the Genomics Center are charged to
research and development expense and general and administrative expense in the
consolidated financial statements. Under the Services Agreements, ARIAD billed
the Genomics Center for 100% of its cost of providing the research and
administrative services; however, because ARIAD was providing 50% of the funding
of the Genomics Center, ARIAD recognized as revenue only 50% of the billings to
the Genomics Center. The remaining 50% was accounted for as a return of ARIAD's
investment in the Genomics Center. Under the Services Agreements, the Company
billed the Genomics Center in advance for the next quarter's projected services.
At December 31, 1999, the balance sheet advance amount of $25,707 represents the
excess amount from the fourth quarter estimated funding. Revenue recognized
pursuant to the Services Agreements amounted to $6,468,000, $4,951,000 and
$1,357,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Sale of the Company's 50% Interest in the Genomics Center
On December 31, 1999, the Company completed the sale of its 50%
interest in the Genomics Center to Aventis and received: (1) $40,000,000 in
cash, of which $5,000,000 had been advanced on October 12, 1999, (2) 3,004,436
shares of the Company's series B convertible preferred stock, (3) the
forgiveness of $1,857,000 of long-term debt including accrued interest owed by
the Company to Aventis, (4) drug candidates and related technologies resulting
from the 1995 HMR Osteoporosis Agreement (Note 3) and (5) the right to use
certain genomics and bioinformatics technologies developed by the Genomics
Center. In addition, the Company agreed to (1) sublease to Aventis approximately
35,000 square feet of laboratory and office space, for an amount equal to the
Company's cost, for a period of up to seven years, (2) assign equipment leases
with aggregate rental payments of $1,793,000 to Aventis (Note 6), and (3)
provide certain transitional laboratory support services. The Company recorded a
net gain on sale of $46,440,000 recognizing proceeds of (1) $40,000,000 in cash,
(2) $8,450,000 equivalent to the fair market value of the common stock
underlying the series B convertible preferred stock, (3) $1,857,000 of long-term
debt and interest forgiven; offset by (1) $2,304,000 of unamortized leasehold
improvements associated with laboratory space under sublease, and (2) $1,563,000
representing the Company's investment account and other costs of completing the
sale.
54
56
The major components of the Genomics Center's financial position and
results of operations are as follows:
AS OF DECEMBER 31,
---------------------------------
1999 1998
--------------- --------------
Advance to ARIAD $ 26,000 $ 3,162,000
Other assets 768,000 804,000
--------------- --------------
Total assets $ 794,000 $ 3,966,000
=============== ==============
Due to Aventis $ 311,000 $ --
Due to ARIAD -- 333,000
Other liabilities 289,000 67,000
Equity 194,000 3,566,000
--------------- --------------
Total liabilities and equity $ 794,000 $ 3,966,000
=============== ==============
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998
--------------- --------------
Revenues $ -- $ --
Operating expenses:
ARIAD 12,936,000 9,902,000
Other 2,958,000 1,307,000
-------------- --------------
Net loss $ (15,894,000) $ (11,209,000)
============== ==============
ARIAD's 50% share of net loss $ (7,947,000) $ (5,605,000)
Elimination of intercompany transactions 6,455,000 4,945,000
-------------- --------------
ARIAD's equity in the net loss of the Genomics Center $ (1,492,000) $ (660,000)
============== ==============
5. LONG-TERM DEBT
Long-term debt was comprised of the following:
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
Bank term note at prime plus 1% (9.75%, at December 31, 1999) payable in
monthly installments of $100,000 plus interest,
through July 1, 2002 $ 3,100,000 $ 4,300,000
Capital lease obligation, at 9.0%, payable in monthly installments
of $46,518 including interest -- 725,205
Government-sponsored seven-year term note, at prime plus 2.75%
(10.5%, at December 31, 1998), payable in monthly installments of
$11,905 plus interest, through November 1, 1999
-- 130,955
-------------- --------------
Total 3,100,000 5,156,160
Less current portion 1,200,000 1,861,021
-------------- --------------
Long-term debt $ 1,900,000 $ 3,295,139
============== ==============
55
57
The bank term note is collateralized by all assets of the Company. The
Company may, at its option, pledge marketable securities under the bank term
note, and, in such event, the interest rate would be adjusted to the equivalent
of 90-day LIBOR plus 1.25%.
The above agreement contains certain covenants that restrict additional
indebtedness, capital spending and stock redemption; prohibit dividend
distributions; and require the Company to pledge its marketable securities or
maintain minimum levels of tangible net worth of $11,000,000, working capital of
$7,000,000 and liquid assets of $15,000,000, all as defined.
The aggregate future principal payments are $1,200,000 in 2000,
$1,200,000 in 2001 and $700,000 in 2002. Interest payments during 1999, 1998 and
1997 were $376,000, $453,000 and $395,000, respectively.
6. LEASES, LICENSED TECHNOLOGY AND OTHER COMMITMENTS
Facility Lease
The Company conducts its operations in a 100,000 square foot office and
laboratory facility under a ten-year noncancelable operating lease. The lease
expires in July 2002 and has two five-year options to extend. The Company has
sublet approximately 40,000 square feet of space to Aventis (Note 4) and other
tenants. Rent expense, net of sublease revenue of $264,000, $113,000 and $53,000
for the years ended December 31, 1999, 1998 and 1997, amounted to $1,225,000,
$1,106,000 and $945,000, respectively. Future minimum annual rental payments,
net of sublease revenues are approximately $1,692,000 for each of the three
years 2000 through 2002.
Equipment Leases
The Company utilizes lease credit facilities from various equipment
leasing companies to acquire equipment, which is resold to a lessor at cost,
with no resulting gain or loss recognized. The lease agreements, which are
classified as operating leases for financial reporting purposes, have terms
ranging from three to five years, with various lease renewal or purchase options
at the end of the initial term. During the years ended December 31, 1999, 1998
and 1997, the Company entered into sales leaseback transactions amounting to
$309,000, $2,579,000 and $2,762,000, respectively. Equipment rental expense for
the years ended December 31, 1999, 1998 and 1997 amounted to $1,832,000,
$1,864,000 and $1,011,000, respectively. Some of the agreements contain
covenants requiring the Company to maintain certain minimum levels of net worth,
working capital and liquid assets. Minimum future rental payments under the
initial terms of the leases are approximately $944,000 for 2000, $859,000 for
2001, $741,000 for 2002, $196,000 for 2003 and $33,000 for 2004.
56
58
Collaborative Agreement
In connection with the establishment of the Genomics Center (Note 4),
the Company entered into a three-year collaborative agreement with Incyte
Pharmaceuticals, Inc. that provides the Company with access to various genomic
data through December 31, 2000. The agreement was amended in December 1998 to
provide increased data access and increased the annual fees from $3,000,000 to
$3,750,000 commencing in 1999, of which $500,000 was reimbursed annually by
Aventis. The amount charged to research expense in 1999, 1998 and 1997 was
$3,250,000, $2,702,000 and $833,000, respectively. The agreement provided for
additional payments for exclusive licenses, the achievement of certain
milestones in drug development and royalties on net sales. In connection with
the sale of the Company's interest in the Genomics Center, the agreement was
terminated without further obligation of the Company.
Licensed Technology
The Company and AGTI have entered into agreements with several
universities under the terms of which the Company and AGTI have received
exclusive licenses or options to technology and intellectual property. The
agreements, which are generally cancelable by the Company, provide for the
payment of license fees and/or minimum payments, which are generally creditable
against future royalties. Fees aggregated $105,000, $300,000 and $105,000 for
1999, 1998 and 1997, respectively, and are expected to amount to approximately
$127,000 annually for 2000 and 2001, $232,000 for 2002 and $162,000 annually for
2003 and 2004. In addition, the agreements provide for payments upon the
achievement of certain milestones in drug development, such as the filing of an
Investigational New Drug Application or the filing of a New Drug Application for
regulatory approval in the United States. The agreements also require the
Company to fund certain costs associated with the filing and prosecution of
patent applications.
Other Commitments
The Company has entered into various employment agreements with its
senior officers. The agreements provide for aggregate annual base salaries of
$995,000 and remaining terms of employment of up to two years.
7. STOCKHOLDERS' EQUITY
Series Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock which
the Board of Directors is empowered to designate and issue in different series.
At December 31, 1999, the Board of Directors had designated 500,000 shares as
series A preferred stock, 5,000,000 shares as series B preferred stock, 25,000
shares as series C preferred stock, and 4,475,000 shares remained undesignated.
Series B Convertible Preferred Stock ("Series B Preferred Stock")
In connection with the 1997 HMR Genomics Agreement, on March 18, 1997,
Aventis purchased 2,526,316 shares of the Company's Series B Preferred Stock for
$24,000,000 and on January 5, 1999, Aventis purchased an additional 478,120
shares of Series B Preferred Stock for $5,747,000. In connection with the sale
of the Company's interest in the Genomics Center, all shares of Series B
57
59
Preferred Stock were redeemed by the Company and retired. The Series B Preferred
Stock was convertible one-for-one into common stock upon the earliest to occur
of: (i) six months following termination of the Genomics Center, (ii) June 30,
2003, or (iii) upon a change of control of the Company; and, if still
outstanding, the Series B Preferred Stock would have been automatically
converted on December 31, 2006.
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 two institutional investors (the "Investors") and
received proceeds of approximately $5,000,000. Each share of Series C Preferred
Stock had a liquidation value of $1,000, plus an additional amount equal to a 5%
per annum accretion amount, accrued from the date of issue, and was convertible
into common stock of the Company, at a conversion price equal to the lower of a
variable conversion price (the "Variable Price") or $2.09 per share.
On December 31, 1999, the Company repurchased 2,000 shares of Series C
Preferred Stock from one of the investors for an aggregate cash payment of
$3,400,000. On January 14, 2000, the Company completed the repurchase of the
remaining 3,000 shares for an aggregate consideration of $6,925,000 plus
1,078,038 shares of common stock. Each transaction included the cancellation of
all rights to purchase additional shares by the investors and the rights held by
the Company to require purchase of additional shares of Series C Preferred
Stock.
The aggregate premium of $6,184,799 paid on both transactions has been
included in the consolidated statements of operations as repurchase and
accretion costs attributable to redeemable convertible preferred stock.
Redeemable convertible preferred stock is carried at redemption cost and
liquidation cost, respectively at December 31, 1999 and 1998.
Common Stock
On May 11, 1998, the Company completed a private placement of 2,537,500
shares of common stock to a group of institutional investors at a price of $4.00
per share and received net proceeds of approximately $9,226,000 after deducting
selling commissions and offering expenses. The shares were registered under the
Securities Act of 1933, as amended.
Warrants
In 1994, in connection with an initial public offering, the Company
issued 2,125,225 warrants with an exercise price of $8.40 per share, subject to
adjustment. These publicly traded warrants expire on December 30, 2000 and are
subject to earlier redemption.
Stockholder Rights Plan
On December 15, 1994, the Board of Directors adopted a stockholder
rights plan which provided for the distribution to each stockholder of one
Series A Preferred Stock purchase right for each outstanding share of common
stock. Under certain circumstances involving an acquisition by a person or group
of 20% or more of ARIAD common stock or involving a 15% stockholder entering
into certain transactions involving the Company, or into certain business
combinations, the rights permit the holders (other than such person or group) to
purchase ARIAD common stock at a 50% discount. The plan is
58
60
designed to protect ARIAD stockholders in the event that an attempt is made to
acquire the Company without an offer of fair value.
Minority Interest in Subsidiary
The 6% minority interest in AGTI includes shares owned by Stanford
University and Harvard University (3%) issued in 1995 in connection with a
license agreement and shares issued to option holders (3%) upon their exercise.
Additional stock options are outstanding and, if exercised, would increase the
minority interest to 21.7% (Note 8).
8. STOCK OPTION AND STOCK PURCHASE PLANS
ARIAD Stock Option Plans
The Company's 1991 and 1994 Stock Option Plans (the "Plans") provide
for the granting of nonqualified and incentive stock options to purchase up to a
maximum of 6,285,714 shares of common stock to officers, directors, employees
and consultants of the Company. Options become exercisable as specified in the
related option agreement, typically over a four-year period, and expire ten
years from the date of grant.
Transactions under the Plans for the years ended December 31, 1997,
1998 and 1999 are as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
PER SHARE
------------------ ---------------------
Options outstanding, January 1, 1997 3,079,361 $2.57
Granted 618,196 6.53
Forfeited (63,404) 4.88
Exercised (91,596) 2.07
---------------
Options outstanding, December 31, 1997 3,542,557 3.23
Granted 1,313,775 3.75
Forfeited (240,154) 4.32
Exercised (77,441) 2.08
---------------
Options outstanding, December 31, 1998 4,538,737 3.34
Granted 2,128,095 1.03
Forfeited (1,555,588) 3.09
Exercised (41,875) 1.59
---------------
Options outstanding, December 31, 1999 5,069,369 $2.48
===============
Options exercisable, December 31, 1997 2,197,320 $2.37
===============
December 31, 1998 2,618,294 $2.59
===============
December 31, 1999 3,536,268 $2.47
===============
59
61
The following table sets forth information regarding options
outstanding at December 31, 1999:
WEIGHTED AVERAGE
RANGE OF WEIGHTED WEIGHTED AVERAGE NUMBER OF OPTION EXERCISE PRICE FOR
EXERCISE NUMBER OF AVERAGE REMAINING LIFE SHARES CURRENTLY CURRENTLY
PRICES SHARES EXERCISE PRICE (YEARS) EXERCISABLE EXERCISABLE
--------------- ------------- -------------- ------------------- -------------------- --------------------
$ .75-1.25 1,060,895 $ .76 8.1 697,485 $ .75
1.34-2.31 2,477,913 1.82 4.8 1,858,888 1.94
2.68-4.87 989,882 4.08 6.3 596,509 4.05
4.88-7.63 540,679 5.91 5.9 383,386 5.76
--------------- ------------- -------------- ------------------- -------------------- --------------------
$ .75-7.63 5,069,369 $2.48 6.2 3,536,268 $2.47
=============== ============= ============== =================== ==================== ====================
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation,
the net income (loss) and net income (loss) per share would have been reported
as follows:
1999 1998 1997
----------- ------------- -------------
Basic:
Proforma net income (loss)
attributable to common
stockholders $16,311,325 $(27,816,845) $(13,663,496)
Proforma net income (loss) per
share $ .74 $ (1.33) $ (.71)
Diluted:
Proforma net income (loss)
attributable to common
stockholders plus repurchase
and accretion costs
attributable to redeemable
convertible preferred stock $22,746,124 $(27,816,845) $(13,663,496)
Proforma net income (loss) per
share $ .66 $ (1.33) $ (.71)
At December 31, 1999 the Company has 879,923 options available to be
issued at future dates under the Plans.
The above disclosure, required by SFAS No. 123, includes only the
effect of grants made subsequent to January 1, 1996. For purposes of calculating
the above disclosure, the fair value of options on their grant date was measured
using the Black-Scholes option pricing model. Key assumptions used to apply this
pricing model included a risk-free interest rate of 5.5% for 1999 and 1998 and
6.0% for 1997, expected lives of the option grants ranging from one to six years
and expected rates of volatility for the underlying stock of 100% for 1999, 82%
for 1998, and 78% for 1997. Using this model, the weighted average fair value
per option for all options granted to consultants and employees in 1999, 1998
and 1997 was $1.09, $2.75 and $3.10, respectively.
60
62
ARIAD Gene Therapeutics, Inc. Stock Option Plans
The Company's subsidiary, AGTI, adopted stock option plans in 1993
substantially similar to the Plans and reserved 1,785,714 shares of AGTI's
common stock for issuance pursuant to such plans. At December 31, 1999, options
with respect to 870,710 shares of AGTI's common stock (all granted in 1994) were
outstanding at an exercise price of $.42 per share, and all option shares were
exercisable. During 1999, 89,285 options were exercised, and 207,142 option
shares were forfeited. During 1998, options with respect to 62,499 shares were
exercised at an exercise price of $.42 per share, and 8,929 option shares were
forfeited. If all of the options outstanding at December 31, 1999 had been
exercised, the optionees would own 16.4% of the outstanding shares of AGTI.
Employee Stock Purchase Plan
In 1997, the Company adopted the 1997 Employee Stock Purchase Plan and
reserved 500,000 shares of common stock for issuance under this plan. Under this
plan, substantially all of its employees may, through payroll withholdings,
purchase shares of the Company's stock at a price of 85% of the lesser of the
fair market value at the beginning or end of each three-month withholding
period. During 1999, 51,259 shares of common stock were issued under the plan.
61
63
9. INCOME TAXES
At December 31, 1999, the Company had available for federal tax
reporting purposes, net operating loss carryforwards of approximately
$67,400,000, which expire commencing in 2006. The Company also had federal
research and development credit carryovers of approximately $5,200,000, which
expire commencing in 2006. Both the net operating loss carryforwards and credits
are subject to certain limitations under federal tax law.
The components of deferred income taxes were as follows:
1999 1998
---------------- ----------------
Deferred tax liabilities:
Intangible and other assets $ 1,588,000 $ 1,544,000
Organizational costs -- 2,000
---------------- ----------------
Total deferred tax liabilities 1,588,000 1,546,000
---------------- ----------------
Deferred tax assets:
Net operating loss carryforwards 25,226,000 35,446,000
Tax credit carryovers 8,905,000 7,585,000
Depreciation 2,089,000 1,499,000
Deferred revenue -- 133,000
Other 126,000 58,000
---------------- ----------------
Total deferred tax assets 36,346,000 44,721,000
---------------- ----------------
Deferred tax assets, net 34,758,000 43,175,000
Valuation allowance (34,758,000) (43,175,000)
---------------- ----------------
Total deferred taxes $ -0- $ -0-
================ ================
Although the Company earned taxable income in 1999 due to the gain on
sale of the Genomics Center, it was able to utilize net operating loss
carryforwards to eliminate substantially all taxes due. Since the Company has
not yet achieved sustained profitable operations, management believes the tax
benefits as of December 1999 and 1998 do not satisfy the realization criteria
set forth in SFAS No. 109 and has recorded a valuation allowance for the entire
net deferred tax asset. The decrease in the valuation allowance in 1999 was due
to utilization of net operating loss carryforwards whereas the increase in the
valuation allowance in 1998 and 1997 resulted primarily from net operating loss
carryforwards and tax credit carryovers.
62
64
10. LITIGATION
The Company was named as a defendant in a purported class action
lawsuit commenced in June 1995 in the U.S. District Court for the Southern
District of New York. The action named as defendants the Company; the
underwriter of the Company's initial public offering and a market maker in the
Company's stock, D. Blech & Co.; the managing director and sole shareholder of
D. Blech & Co. and former director of the Company, David Blech; certain
directors of the Company and the qualified independent underwriter for the
initial public offering, Shoenberg Hieber, Inc.
Plaintiff alleged, among other things, that the Company's registration
statement for its initial public offering was false and misleading; that Blech &
Co. and David Blech participated in purported sham sales of the Company's
securities after the offering in an alleged attempt to artificially inflate the
sales prices of the Company's common stock; and that all of the defendants knew,
or should have known, of this alleged scheme and are liable for failing to
disclose the alleged scheme to the investing public. There were no allegations
asserting specific acts of participation or wrongdoing by the Company. Plaintiff
alleged that the foregoing constituted violations of Sections 11 and 12(2) of
the Securities Act of 1933, Section 10(b) and Rule 10b-5 under the Securities
Exchange Act of 1934 and common law fraud, and sought unspecified damages, costs
and attorneys' fees.
The Company filed a motion to dismiss, which was denied in June 1996.
In late 1998, the parties stipulated to, and the Court approved, the
certification of a class of persons who purchased the securities of the Company
from the time of its initial public offering on May 20, 1994 through and
including September 21, 1994.
In December 1999, the plaintiff and the Company reached an agreement in
principle to settle the matter. The parties have yet to enter into a formal
settlement agreement, which if, and when, executed will have to be submitted to
the Court for approval. There can be no assurance that the settlement agreement
will be signed and, if signed, if, and when, the Court will approve the
settlement. The Company believes, however, based on discussions leading to the
agreement in principle, that such settlement will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
63
65
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, officers and key employees of the Company are as
follows:
NAME AGE POSITION
- ---- --- --------
Harvey J. Berger, M.D...................... 49 Chairman of the Board of Directors, President
and Chief Executive Officer
Sandford D. Smith.......................... 52 Vice Chairman of the Board of Directors
Jay R. LaMarche............................ 53 Executive Vice President, Chief Financial Officer, Treasurer and
Director
John D. Iuliucci, Ph.D..................... 57 Senior Vice President, Drug Development
Manfred Weigele, Ph.D...................... 67 Senior Vice President, Chief Scientific Officer
David L. Berstein, Esq..................... 47 Vice President, Chief Patent Counsel
David C. Dalgarno, D.Phil.................. 42 Vice President, Physical and Chemical Sciences
Tomi K. Sawyer, Ph.D....................... 45 Vice President, Drug Discovery
Timothy P. Clackson, Ph.D.................. 34 Director, Gene Therapy
Joseph Bratica............................. 36 Director, Finance and Controller
Vaughn D. Bryson........................... 61 Director
John M. Deutch, Ph.D....................... 61 Director
Philip Felig, M.D.......................... 63 Director
Ralph Snyderman, M.D....................... 59 Director
Raymond S. Troubh.......................... 73 Director
Harvey J. Berger, M.D. is our principal founder and has served as our
Chairman of the Board, President and Chief Executive Officer since April 1991.
From 1986 to 1991, Dr. Berger held a series of senior management positions at
Centocor, Inc., a biotechnology company, most recently as Executive Vice
President and President, Research and Development Division. He also has held
senior academic and administrative appointments at Emory University, Yale
University and the University of Pennsylvania and was an Established
Investigator of the American Heart Association. Dr. Berger received his A.B.
degree in Biology from Colgate University and his M.D. degree from Yale
University School of Medicine and did further medical and research training at
the Massachusetts General Hospital and Yale-New Haven Hospital.
Sandford D. Smith, one of our Directors since October 1991 and our Vice
Chairman since January 1999, is President, Therapeutics International, Genzyme
Corporation. From May 1996 to September 1996, he was Vice President and General
Manager, Specialty Therapeutics and International Group, Genzyme Corporation, a
biotechnology company. Mr. Smith was President and Chief Executive Officer and a
Director of Repligen Corporation, a biotechnology company, from 1986 to March
1996. Mr. Smith previously held a number of positions with Bristol-Myers Squibb
and Company from 1977 to 1986, including, most recently, Vice President of
Corporate Development and Planning for the United States Pharmaceutical and
Nutritional Group. Mr. Smith earned his B.A. degree from the University of
Denver. Mr. Smith is also a Director of CSPI, a software company.
64
66
Jay R. LaMarche has served as our Chief Financial Officer, Treasurer
and as one of our Directors since January 1992. He has also served as our
Executive Vice President since March 1997. Mr. LaMarche was our Senior Vice
President, Finance from January 1992 to February 1997. Prior to joining us, he
was Chief Financial Officer and a Director of ChemDesign Corporation, a fine
chemicals manufacturer. Prior to his employment at ChemDesign, Mr. LaMarche was
a partner with Deloitte Haskins & Sells, a public accounting firm. Mr. LaMarche
received his B.B.A. degree in Public Accountancy from the University of Notre
Dame and served as an officer in the United States Navy.
John D. Iuliucci, Ph.D. has served as our Senior Vice President, Drug
Development since January 1999. Dr. Iuliucci also served as our Vice President,
Drug Development from October 1996 to December 1998 and our Vice President,
Preclinical Development from June 1992 to September 1996. Prior to joining us,
Dr. Iuliucci was Director of Preclinical Pharmacology and Toxicology at
Centocor, Inc., a biotechnology company, from 1984 to 1992. From 1975 to 1984,
Dr. Iuliucci headed the Drug Safety Evaluation Department at Adria Laboratories,
a pharmaceutical company. He was a Senior Toxicologist at the Warner-Lambert
Pharmaceutical Research Institute from 1972 to 1975. Dr. Iuliucci received a
B.S. degree in Pharmacy and M.S. and Ph.D. degrees in Pharmacology from Temple
University.
Manfred Weigele, Ph.D. has served as our Senior Vice President and
Chief Scientific Officer since March 1999. Dr. Weigele also served as our Senior
Vice President, Physical and Chemical Sciences from October 1996 to February
1999 and as our Senior Vice President, Research - Chemistry from October 1991 to
September 1996. Prior to joining us, from 1985 to 1991, Dr. Weigele was a Vice
President and Group Director of Chemistry Research for Hoffmann-LaRoche Inc., a
pharmaceutical company, where he directed chemistry research. He joined
Hoffmann-LaRoche, a worldwide pharmaceuticals company, in 1965. Dr. Weigele
received his undergraduate training at Technische Universitat in Braunschweig,
Germany and his Ph.D. degree from the University of Wisconsin.
David L. Berstein has served as our Vice President, Chief Patent
Counsel since September 1993. Prior to joining us, from 1990 through 1993, Mr.
Berstein was Patent Counsel at BASF Bioresearch Corporation, a biotechnology
company, where he was responsible for intellectual property matters, including
patents and licensing. From 1985 to 1990, Mr. Berstein was a patent attorney at
Genetics Institute, Inc., a biotechnology company, where he was involved in
various aspects of the patent process from patent procurement through
litigation. Mr. Berstein joined Genetics Institute from the law firm of Cooper &
Dunham of New York, New York. Mr. Berstein received his B.S. degree from the
University of Michigan and his J.D. degree from Fordham University School of
Law.
David C. Dalgarno, D.Phil. has served as our Vice President, Physical
and Chemical Sciences since November 1999. Previously, he served as our
Director, Physical and Chemical Sciences from September 1998 to November 1999
and as our Director, Spectroscopy from October 1996 to August 1998. Dr. Dalgarno
joined us in March 1992. Prior to joining us, Dr. Dalgarno was a scientist at
Schering-Plough Corp. focusing on protein structure determination by nuclear
magnetic resonance. Dr. Dalgarno received his B.A. and D.Phil. degrees in
Chemistry from the University of Oxford. He received his postdoctoral training
in Molecular Biophysics and Biochemistry at Yale University.
Tomi K. Sawyer, Ph.D. has served as our Vice President, Drug Discovery
since January 1999 and as our Director, Drug Discovery-Signal Transduction from
October 1997 to December 1998. From July 1993 to September 1997, he was Head and
Associate Research Fellow, Structure-Based Design and Chemistry at Parke-Davis
Pharmaceutical Research, a Division of Warner-Lambert Company, a pharmaceutical
company, and Section Director, Peptide and Peptidomimetic Chemistry at
Parke-Davis from July 1991 to July 1993. Dr. Sawyer received his Ph.D. in
Organic Chemistry from the University
65
67
of Arizona and his B.S. in Chemistry from Moorhead State University.
Timothy P. Clackson, Ph.D. has served as our Director, Gene Therapy
since August 1999. Previously, he served as our Department Head, Gene Therapy
Biology from March 1999 to August 1999. Dr. Clackson joined us in December 1994.
Prior to joining us, Dr. Clackson was a postdoctoral fellow at Genentech, Inc.,
a biotechnology company, from 1991 to 1994, where he studied the molecular basis
for human growth hormone function. Dr. Clackson received his Ph.D. in Biology
from the University of Cambridge, for research conducted at the MRC Laboratory
of Molecular Biology into antibody engineering and the development of phage
display technology. Dr. Clackson received his B.A. in Biochemistry from the
University of Oxford.
Joseph Bratica has served as our Director of Finance, Controller since
January 1999. Mr. Bratica has also served as our Assistant Controller from
January 1997 to December 1998 and as our Accounting Manager from August 1994 to
December 1996. Prior to joining us, he was Accounting Manager at Creative
BioMolecules, Inc., a biotechnology company, from 1992 to 1994. Mr. Bratica
received his B.A. in Accounting from Suffolk University.
Vaughn D. Bryson, one of our Directors since February 1995, is
President of Life Science Advisors, Inc., a healthcare consulting company. Mr.
Bryson was a thirty-two year employee of Eli Lilly & Co. from 1961 to 1993 and
served as President and Chief Executive Officer of Eli Lilly from 1991 to 1993.
He served as Executive Vice President of Eli Lilly from 1986 until 1991. He also
served as member of Eli Lilly's Board of Directors from 1984 until his
retirement in 1993. Mr. Bryson was Vice Chairman of Vector Securities
International Inc., an investment banking firm, from April 1994 to December
1996. He also is a Director of Chiron Corporation, a biotechnology company,
Fusion Medical Technologies, Inc., a biotechnology company, Athergenics, Inc. ,
a biotechnology company, Amylin Pharmaceutical, Inc., a biotechnology company
and Quintiles Transnational Corporation, a pharmaceutical services company. He
received a B.S. degree in Pharmacy from the University of North Carolina and
completed the Sloan Program at the Stanford University Graduate School of
Business.
John M. Deutch, Ph.D., one of our Directors since March 1997, is an
Institute Professor at the Massachusetts Institute of Technology. From 1992 to
1997, he previously served as Director of Central Intelligence, Deputy Secretary
of Defense, and Undersecretary of Defense (Acquisition and Technology). Prior to
this, he was Provost of the Massachusetts Institute of Technology, Dean of the
School of Science, Chairman of the Department of Chemistry and the Karl Taylor
Compton Professor of Chemistry. Mr. Deutch received his B.A. degree from Amherst
College and his D.Sc. degree from the Massachusetts Institute of Technology and
was a postdoctoral fellow at the National Institutes of Health. Mr. Deutch is a
Director of Citicorp, a financial services company, CMS Energy Corporation, an
energy company, Cummins Engine Company, Inc., a manufacturer of engines and
engine components, Raytheon, Inc., a defense and commercial electronics company,
and Schlumberger Ltd., an oil and gas equipment services company.
Philip Felig, M.D., one of our Directors since October 1991, has been
in medical practice specializing in endocrinology and diabetes as an Attending
Physician on the Senior Medical Staff at Lenox Hill Hospital since 1987. Prior
to this, from 1986 to 1987, he was Chief Executive Officer of Sandoz
Pharmaceuticals Corporation, a pharmaceutical company, and from 1984 to 1987,
President of the Sandoz Research Institute. Prior to this, Dr. Felig held a
series of academic positions at the Yale University School of Medicine,
including Professor and Vice-Chairman of the Department of Medicine
66
68
and Chief of Endocrinology. Dr. Felig received his B.A. degree from Princeton
University and his M.D. degree from the Yale University School of Medicine and
did further medical training at the Yale-New Haven Hospital, the Joslin
Laboratory at Harvard Medical School and the Peter Bent Brigham Hospital. Dr.
Felig also holds an Honorary Doctor of Medicine from the Karolinska Institute.
Ralph Snyderman, M.D., one of our Directors since June 1998, has been
Chancellor for Health Affairs, Dean, School of Medicine at Duke University, and
President and Chief Executive Officer of Duke University Health System since
March 1989. He was formerly Senior Vice President of Medical Research and
Development at Genentech, Inc., a biotechnology company from January 1987 to May
1989. Dr. Snyderman is a Director of Proctor and Gamble, Inc., a consumer
products and healthcare company. Dr. Snyderman received his M.D. degree from the
State University of New York and his B.S. degree from Washington College,
Chestertown, Maryland.
Raymond S. Troubh, one of our Directors since October 1991, has been a
financial consultant for more than five years. Prior to this, he was a general
partner of Lazard Freres & Co., an investment banking firm, and a governor of
the American Stock Exchange. Mr. Troubh is a Director of Diamond Offshore
Drilling, Inc., a contract drilling company, Foundation Health Systems, Inc., a
managed healthcare company, General American Investors Company, Inc., an
investment trust company, Gentiva Health Services, Inc., a healthcare provider,
Olsten Corporation, a staffing services company, Petrie Stores Corporation, a
liquidating trust, Starwood Hotels & Resorts, Inc., a hotel operating company,
Triarc Companies, Inc., a food and beverage company and WHX Corporation, a steel
products company. He received his A.B. degree from Bowdoin College and his LL.B.
degree from Yale Law School.
SECTION 16 FILINGS
Section 16(a) of the Exchange Act requires our directors, executive
officers and beneficial owners of more than 10% of our Common Stock to file
reports of ownership and changes of ownership with the Commission on Forms 3, 4
and 5. We believe that during the fiscal year ended December 31, 1999 our
directors, executive officers and beneficial owners of more than 10% of our
Common Stock complied with all applicable filing requirements. In making these
disclosures, we have relied solely on information filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in our Proxy Statement for its 2000 Annual
Meeting of Stockholders under the caption "Executive Compensation" is
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in our Proxy Statement for its 2000 Annual
Meeting of Stockholders under the caption "Security Ownership of Certain
Beneficial Owners and Management" is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
67
69
The information appearing in our Proxy Statement for its 2000 Annual
Meeting of Stockholders under the caption "Certain Relationships and Related
Transactions" is incorporated herein by this reference.
68
70
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Consolidated Financial Statements, Notes thereto
and Independent Auditors' Report are incorporated herein by reference to Item 8:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) We are not required to file any financial statement
schedules
The Exhibits listed in the Exhibit Index are filed herewith in the manner set
forth therein.
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K on November 12,
1999 to announce: (i) the entry into a letter of
intent with Hoechst Marion Roussel, Inc. pursuant to
which HMR confirmed its intention to acquire our 50%
interest in the Hoechst-ARIAD Genomics Center, LLC;
(ii) the entry into a stock repurchase agreement with
Brown Simpson Strategic Growth Fund, Ltd. and Brown
Simpson Strategic Growth Fund, L.P.; and (iii) the
commencement of a civil action against HFTP
Investments, LLC, an affiliate of Promethean
Investment Group, LLC.
We filed a Current Report on Form 8-K on December 8,
1999 to announce a one-year extension of the
expiration date of our common stock purchase warrants
from December 30, 1999 to December 30, 2000.
69
71
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON AND
COMMONWEALTH OF MASSACHUSETTS ON THE 28TH OF MARCH, 2000.
ARIAD PHARMACEUTICALS, INC.
BY: /s/ Harvey J. Berger, M.D.
--------------------------
NAME: HARVEY J. BERGER, M.D.
TITLE: CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Harvey J. Berger CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND MARCH 28, 2000
--------------------- CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)
HARVEY J. BERGER, M.D.
/s/ Sandford D. Smith VICE CHAIRMAN OF THE BOARD OF DIRECTORS MARCH 28, 2000
----------------------
SANDFORD D. SMITH
/s/ Jay R. Lamarche EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, MARCH 28, 2000
-------------------- TREASURER AND DIRECTOR
JAY R. LAMARCHE (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
/s/ Vaughn D. Bryson DIRECTOR MARCH 28, 2000
---------------------
VAUGHN D. BRYSON
/s/ John M. Deutch DIRECTOR MARCH 28, 2000
------------------
JOHN M. DEUTCH, PH.D.
/s/ Philip Felig DIRECTOR MARCH 28, 2000
----------------
PHILIP FELIG, M.D.
/s/ Ralph Snyderman DIRECTOR MARCH 28, 2000
--------------------
RALPH SNYDERMAN, M.D.
/s/ Raymond S. Troubh DIRECTOR MARCH 28, 2000
---------------------
RAYMOND S. TROUBH
70
72
EXHIBIT INDEX
EXHIBIT NO. TITLE
3.1 CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED (1)
3.2 BY-LAWS OF THE COMPANY, AS AMENDED (5)
3.3 AMENDMENT OF CERTIFICATE OF INCORPORATION OF THE COMPANY, DATED APRIL
8, 1994 (2)
3.4 AMENDMENT OF CERTIFICATE OF INCORPORATION OF THE COMPANY, DATED OCTOBER
4, 1994 (5)
3.5 CERTIFICATE OF DESIGNATIONS IN RESPECT OF SERIES B PREFERRED STOCK OF
THE COMPANY (8)
4.1 FORM OF ARIAD PHARMACEUTICALS, INC. COMMON STOCK PURCHASE WARRANT (1)
4.2 PRINCIPAL STOCKHOLDERS' AGREEMENT, DATED AS OF JANUARY 5, 1992, AMONG
ARIAD PHARMACEUTICALS, INC., DAVID BLECH, DAVID BLECH AS TRUSTEE OF THE
BLECH FAMILY TRUST, MARK S. GERMAIN, HARVEY J. BERGER, HARVEY J. BERGER
AND WENDY S. BERGER AS TRUSTEES OF THE BERGER FAMILY TRUST, AVALON
VENTURES AND AVALON VENTURES IV. (1)
4.3 FORM OF WARRANT AGREEMENT (WITH FORM OF WARRANT). (3)
4.4 RIGHTS AGREEMENT, DATED AS OF DECEMBER 15, 1994, BETWEEN THE COMPANY
AND STATE STREET BANK AND TRUST COMPANY, WHICH INCLUDES THE CERTIFICATE
OF DESIGNATIONS IN RESPECT OF THE SERIES A PREFERRED STOCK, AS EXHIBIT
A, THE FORM OF RIGHT CERTIFICATE AS EXHIBIT B AND THE SUMMARY OF RIGHTS
TO PURCHASE SERIES A PREFERRED STOCK AS EXHIBIT C. PURSUANT TO THE
RIGHTS AGREEMENT, RIGHT CERTIFICATES WILL NOT BE MAILED UNTIL AFTER THE
SEPARATION DATE (AS DEFINED THEREIN). (4)
4.5 AMENDMENT, DATED AS OF APRIL 24, 1995, TO RIGHTS AGREEMENT, DATED AS OF
DECEMBER 15, 1994, BETWEEN ARIAD PHARMACEUTICALS, INC. AND STATE STREET
BANK AND TRUST COMPANY. (6)
4.6 STOCK PURCHASE AGREEMENT, DATED AS OF APRIL 24, 1995, BETWEEN ARIAD
PHARMACEUTICALS, INC. AND BIOTECH TARGET S.A. (7)
4.7 CERTIFICATE OF DESIGNATIONS FOR SERIES C. CONVERTIBLE PREFERRED STOCK
(10)
4.8 SECURITIES PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT DATED
NOVEMBER 9, 1998, BY AND BETWEEN THE COMPANY AND THE BUYERS NAMED
THEREIN. (10)
4.9 AMENDMENT TO WARRANT AGREEMENT, DATED AS OF MAY 17, 1999. (11)
4.10 AMENDMENT TO WARRANT AGREEMENT, DATED AS OF DECEMBER 1, 1999. (12)
10.1 LEASE AGREEMENT, DATED JANUARY 8, 1992, BETWEEN ARIAD PHARMACEUTICALS,
INC. AND FOREST CITY CAMBRIDGE, INC. (1)
10.2+ EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 1, 1992, BETWEEN
ARIAD PHARMACEUTICALS, INC. AND HARVEY J. BERGER, M.D. (1)
10.3+ EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 3, 1992, BETWEEN
ARIAD PHARMACEUTICALS, INC. AND JOAN S. BRUGGE, PH.D. (1)
10.4+ EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 1, 1992, BETWEEN
ARIAD PHARMACEUTICALS, INC. AND JAY R. LAMARCHE. (1)
10.5+ EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 14, 1991, BETWEEN
ARIAD PHARMACEUTICALS, INC. AND MANFRED WEIGELE, PH.D. (1)
10.6 LOAN AND SECURITY AGREEMENT, DATED SEPTEMBER 23, 1992, BY AND BETWEEN
ARIAD PHARMACEUTICALS, INC., ARIAD CORPORATION AND BAYBANK BOSTON, N.A.
AND RELATED INSTRUMENTS AND DOCUMENTS. (1)
10.7 LOAN AGREEMENT, DATED OCTOBER 28, 1992, AMONG ARIAD CORPORATION, ARIAD
PHARMACEUTICALS, INC. AND THE MASSACHUSETTS BUSINESS DEVELOPMENT
CORPORATION AND RELATED INSTRUMENTS AND DOCUMENTS. (1)
71
73
10.8 EQUIPMENT LEASE AGREEMENT, DATED DECEMBER 10, 1992, BY AND BETWEEN
ARIAD CORPORATION AND GENERAL ELECTRIC CAPITAL CORPORATION. (1)
10.9 MASTER LEASE AGREEMENT, DATED DECEMBER 21, 1992, BY AND BETWEEN ARIAD
CORPORATION AND COMDISCO, INC. (1)
10.10+ ARIAD PHARMACEUTICALS, INC. 1991 STOCK OPTION PLAN FOR EMPLOYEES, AS
AMENDED. (5)
10.11+ ARIAD PHARMACEUTICALS, INC. 1991 STOCK OPTION PLAN FOR DIRECTORS. (1)
10.12+ ARIAD RETIREMENT SAVINGS PLAN. (1)
10.13 AMENDED AND RESTATED AGREEMENT DATED AS OF DECEMBER 12, 1997 BETWEEN
THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY AND
ARIAD GENE THERAPEUTICS, INC. (9)
10.14+ AMENDMENT, DATED APRIL 19, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND HARVEY J. BERGER, M.D. (3)
10.15+ AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND JOAN S. BRUGGE, PH.D. (3)
10.16+ AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND JAY R. LAMARCHE. (3)
10.17+ AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND MANFRED WEIGELE, PH.D. (3)
10.18 UNIT PURCHASE AND TECHNOLOGY RIGHT OF FIRST NEGOTIATION AGREEMENT,
DATED MAY 5, 1994, AMONG GENENTECH, INC., ARIAD PHARMACEUTICALS, INC.
AND ARIAD GENE THERAPEUTICS, INC. (3)
10.19+ AMENDMENT NO. 2, DATED JUNE 30, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND HARVEY J. BERGER, M.D. (5)
10.20+ ARIAD PHARMACEUTICALS, INC. 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS. (5)
10.21 COLLABORATIVE RESEARCH AND LICENSE AGREEMENT, DATED NOVEMBER 5, 1995,
BETWEEN ROUSSEL UCLAF AND ARIAD PHARMACEUTICALS, INC. (7)
10.22 LICENSE AGREEMENT DATED AS OF SEPTEMBER 12, 1996 BETWEEN MOCHIDA
PHARMACEUTICALS CO., LTD. AND ARIAD PHARMACEUTICALS, INC. (8)
10.23 JOINT VENTURE AGREEMENT DATED AS OF FEBRUARY 14, 1997 BETWEEN GENOVO,
INC. AND ARIAD GENE THERAPEUTICS, INC. (8)
10.24 JOINT VENTURE MASTER AGREEMENT DATED AS OF MARCH 4, 1997 BETWEEN
HOECHST MARION ROUSSEL, INC. AND ARIAD PHARMACEUTICALS, INC. (8)
10.25 STOCK PURCHASE, STANDSTILL AND REGISTRATION RIGHTS AGREEMENT DATED AS
OF MARCH 4, 1997 BETWEEN HOECHST MARION ROUSSEL, INC. AND ARIAD
PHARMACEUTICALS, INC. (8)
10.26 COLLABORATIVE AGREEMENT DATED AS OF MARCH 4, 1997 BETWEEN INCYTE
PHARMACEUTICALS, INC. AND ARIAD PHARMACEUTICALS, INC. (8)
10.27+ AMENDMENT, DATED JANUARY 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND HARVEY J. BERGER, M.D. (8)
10.28+ AMENDMENT, DATED JANUARY, 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND JAY R. LAMARCHE (8)
10.29+ AMENDMENT, DATED JANUARY 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ARIAD PHARMACEUTICALS, INC. AND MANFRED WEIGELE, PH.D. (8)
10.30+ CONSULTING AGREEMENT, DATED JULY 1, 1997, BETWEEN ARIAD
PHARMACEUTICALS, INC. AND JOAN S. BRUGGE, PH.D. (8)
10.31+ ARIAD PHARMACEUTICALS, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN (8)
10.32+ AMENDMENT TO THE 1991 STOCK OPTION PLAN FOR EMPLOYEES AND CONSULTANTS
(8)
10.33+ AMENDMENT TO THE 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (8)
72
74
10.34 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT DATED JUNE 27, 1997
WITH BANKBOSTON, N.A. AS SUCCESSOR IN INTEREST TO BAYBANK, N.A. (8)
10.35 LICENSE AGREEMENT, DATED JULY 17, 1997, BETWEEN ARIAD PHARMACEUTICALS,
INC. AND MITOTIX INC. (8)
10.36 TECHNOLOGY PURCHASE AND SALE AGREEMENT AND RELATED AGREEMENTS, DATED
JULY 17, 1997, BETWEEN ARIAD PHARMACEUTICALS, INC. AND MITOTIX, INC.
(8)
10.37 ARIAD PHARMACEUTICALS, INC. 1997 EXECUTIVE COMPENSATION PLAN (9)
21.1 SUBSIDIARIES OF THE COMPANY. (3)
23.1 CONSENT OF DELOITTE & TOUCHE LLP (13)
27.1 FINANCIAL DATA SCHEDULE (13)
- ----------------
(+) MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
(1) INCORPORATED BY REFERENCE TO REGISTRATION STATEMENT ON FORM 10 OF THE
COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25,
1993.
(2) INCORPORATED BY REFERENCE TO FORM 10-K OF THE COMPANY FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1993 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON APRIL 15, 1994.
(3) INCORPORATED BY REFERENCE TO REGISTRATION STATEMENT ON FORM S-1 OF THE
COMPANY (NO. 33-76414) FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 11, 1994.
(4) INCORPORATED BY REFERENCE TO FORM 8-K OF THE COMPANY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1994.
(5) INCORPORATED BY REFERENCE TO FORM 10-K OF THE COMPANY FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1994 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 30, 1995.
(6) INCORPORATED BY REFERENCE TO FORM 8-K OF THE COMPANY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1995.
(7) INCORPORATED BY REFERENCE TO FORM 10-K OF THE COMPANY FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1995 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 15, 1996.
(8) INCORPORATED BY REFERENCE TO FORMS 10-Q OF THE COMPANY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997, AUGUST 12, 1997 AND
NOVEMBER 12, 1997.
(9) INCORPORATED BY REFERENCE TO FORM 10-K OF THE COMPANY FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 5, 1998.
(10) INCORPORATED BY REFERENCE TO FORM 8-K OF THE COMPANY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998.
(11) INCORPORATED BY REFERENCE TO FORM 8-K OF THE COMPANY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1999.
(12) INCORPORATED BY REFERENCE TO FORM 8-K OF THE COMPANY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1999.
(13) FILED HEREWITH.
73