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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-21696
ARIAD PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3106987
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26 LANDSDOWNE STREET, CAMBRIDGE, MASSACHUSETTS 02139-4234
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(617) 494-0400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of the registrant's Common Stock and number of Rights
outstanding as of March 18, 1997: 19,260,412. The number of Common Stock
Purchase Warrants outstanding as of March 18, 1997: 2,125,225.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $119 million as of March 18, 1997, 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 1997 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
THE COMPANY
ARIAD Pharmaceuticals, Inc. ("ARIAD" or the "Company") is engaged in the
discovery and development of novel pharmaceuticals based on signal transduction
pathways and the genes that regulate them. The Company is currently focusing its
efforts in three areas: (i) the development of orally administered drugs to
block intracellular signal transduction pathways that are critical to major
diseases such as osteoporosis, allergy/asthma and immune-related disorders; (ii)
the development of a system to regulate gene therapy using orally administered
drugs; and (iii) the identification of new drug targets and therapeutic proteins
through functional genomics. ARIAD has assembled a broad portfolio of advanced
technologies for the identification, validation and optimization of novel drugs.
These technologies have been integrated into a drug discovery platform that, in
conjunction with the Company's expertise in signal transduction, forms the basis
for multiple business opportunities, each with a diversity of potential
products. In each of its three areas of drug discovery, the Company has entered
into a significant strategic alliance with a collaborator to complement its drug
discovery technologies or to support its commercialization efforts.
Signal Transduction Inhibitors. ARIAD is designing drugs that inhibit
signal transduction pathways in cells responsible for osteoporosis,
allergy/asthma and immune-related diseases such as transplant rejection and
rheumatoid arthritis. In each of these programs, the Company has identified
intracellular signaling proteins that it believes are critical to the disease
process. ARIAD scientists are employing the Company's advanced drug discovery
platform to design and develop small molecules that bind to these proteins and
block their ability to transmit signals within the cell. In the case of
osteoporosis, ARIAD is developing small molecules designed to bind to Src, an
intracellular signaling protein that the Company believes is critical to the
function of osteoclasts, the cells that resorb bone. By inhibiting the function
of Src, it may be possible to correct the imbalance between bone resorption and
bone formation that causes osteoporosis. In November 1995, ARIAD entered into an
agreement with Hoechst Marion Roussel ("HMR") (the "1995 HMR Osteoporosis
Agreement") to develop Src inhibitors for osteoporosis and related bone
diseases. HMR agreed to invest up to $40 million, of which $10 million was paid
upon closing and $30 million will fund research over a five-year period,
including $10 million to be paid upon the achievement of certain research
milestones. HMR will also fund all preclinical and clinical research activities
of the program. ARIAD achieved the first $2 million research milestone under the
agreement with HMR in December 1996.
Regulated Gene Therapy. ARIAD's regulated gene therapy program is designed
to address critical challenges facing the practical application of gene therapy:
(i) efficiently and safely delivering genetic material directly to a patient's
cells, (ii) causing those cells to produce adequate and sustainable levels of
therapeutic protein, (iii) controlling protein production levels in a manner
consistent with conventional pharmaceutical dosing and (iv) providing the
ability to cease treatment should it become unwanted or unnecessary. ARIAD is
developing a system that employs proprietary orally administered drugs to
control the level of therapeutic proteins produced by cells engineered for gene
therapy and to selectively eliminate those cells if the gene therapy should need
to be discontinued for any reason. In February 1997, ARIAD entered into a joint
venture with Genovo, Inc. (the "ARIAD-Genovo Joint Venture") to develop and
commercialize gene therapy products for the therapeutic protein market. The
joint venture combines ARIAD's regulated gene expression technology with
Genovo's gene transfer technology for the intramuscular and subcutaneous
delivery of gene therapy-based therapeutic protein products.
Functional Genomics. In March 1997, ARIAD established a joint venture with
HMR to pursue functional genomics. The objective of the joint venture, called
the Hoechst-ARIAD Genomics Center, LLC (the "Genomics Center"), is to identify
genes that encode novel therapeutic proteins and targets for small-molecule drug
discovery through the development and integrated application of state-of-the-art
technologies in molecular and cellular genetics and bioinformatics. ARIAD's
regulated gene expression technology represents an important tool in the
Genomics Center's efforts to identify promising genes for drug discovery and
development. Operating costs of the Genomics Center and the rights to candidate
therapeutic proteins
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and drug targets will be divided equally between ARIAD and HMR. ARIAD and HMR
have agreed to commit approximately $85 million to fund the operating expenses,
capital expenditures and other costs of the Genomics Center over the next five
years. To support ARIAD's financial commitment to the joint venture, HMR will
provide ARIAD with capital adequate to fund its share of such costs through the
purchase of up to $49 million of ARIAD series B preferred stock. On March 18,
1997, HMR purchased 2,526,316 shares of series B preferred stock for $24
million.
The Company's business strategy is to create multiple business
opportunities based on its expertise in signal transduction technology. The key
elements of this strategy include: (i) continuing to develop comprehensive and
highly integrated capabilities in multiple aspects of drug discovery and
development; (ii) seeking collaborations that will provide access to
complementary technologies and research capabilities or commercialization
expertise; (iii) pursuing drug discovery programs with the potential to create
multiple product candidates; and (iv) when possible, retaining defined clinical
development and commercialization rights and the flexibility to pursue product
opportunities independently.
All of ARIAD's compounds are currently in research or preclinical
development, and none has entered human clinical trials or has been submitted to
the U.S. Food and Drug Administration (the "FDA") or any other regulatory agency
for marketing approval.
ARIAD'S BUSINESS STRATEGY
ARIAD's strategy is to apply its knowledge of signal transduction pathways
and the genes that regulate them to discover, develop and commercialize novel
pharmaceutical products. To fulfill this objective, ARIAD has assembled, through
internal efforts and strategic collaborations, a broad portfolio of advanced
technologies for pharmaceutical discovery and development. The integrated
application of these technologies has allowed the Company to pursue multiple
business opportunities, each with a diversity of potential products. Figure 1
graphically depicts the Company's business strategy, the key elements of which
are described below.
FIGURE 1. -- ARIAD'S BUSINESS STRATEGY
Maintain a Broad and Integrated Portfolio of Advanced Drug Discovery
Capabilities. ARIAD has established comprehensive and highly integrated
capabilities in multiple aspects of drug discovery, including target
identification and validation (functional genomics); structure-based drug design
and molecular modeling; combinatorial chemistry; bioinformatics; novel assay and
high-throughput screening; medicinal chemistry; and pharmacology. Rather than
focusing on a narrow aspect of modern drug discovery such as combinatorial
chemistry or assay development, ARIAD's integrated approach enables the Company
to pursue the drug discovery and development process from the identification of
a target to the optimization of a compound ready for clinical testing. This
comprehensive approach to drug discovery provides ARIAD with opportunities to
retain a larger portion of the commercial value of its potential products and
can be applied to a broad spectrum of small-molecule drug targets in addition to
those involved in signal transduction pathways.
Establish Strategic Collaborations to Access Complementary Technologies and
Accelerate Drug Development. ARIAD actively pursues collaborations with
pharmaceutical and biotechnology companies to accelerate the development,
testing and regulatory approval of its products. Certain of its collaborations
are designed principally to access complementary technologies and research
capabilities. For example, the ARIAD-Genovo
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Joint Venture was formed to combine complementary technologies in the gene
therapy area. Other collaborations such as the 1995 HMR Osteoporosis Agreement
are established primarily to gain access to clinical research and
commercialization capabilities. In addition to partially offsetting the risk and
expense associated with drug development, this partnering strategy creates the
opportunity to leverage the knowledge gained through each collaboration into
additional drug discovery opportunities in other areas.
Pursue Drug Discovery Programs with Multiple Product Opportunities. The
Company's broad drug discovery platform, coupled with its expertise in each of
its three programs, is designed to create multiple product opportunities. For
example, while the Company's signal transduction inhibitor program currently
focuses on osteoporosis and immune and inflammatory diseases, the specific
knowledge acquired in these programs may be directly applied to the development
of novel small-molecule drugs for other illnesses such as cancer and infectious
diseases. Similarly, the initial products in ARIAD's regulated gene therapy
program are being designed to replace existing injectable protein therapeutics,
such as growth hormone and erythropoeitin, but the technology may also be
directly applied to the controlled delivery of a broad range of newly identified
therapeutic proteins. The functional genomics program is designed to identify
multiple small-molecule drug targets and novel therapeutic proteins. These drug
targets and therapeutic proteins may be developed by ARIAD independently or
through additional collaborations. Certain drug targets and therapeutic proteins
may provide additional product opportunities for ARIAD's signal transduction
inhibitor and regulated gene therapy programs.
Retain Defined Commercialization Rights. ARIAD has structured its
strategic alliances and joint ventures to preserve, whenever possible, the
flexibility to develop certain product opportunities independently or with third
parties. For example, in the osteoporosis collaboration with HMR, ARIAD has the
option to participate in the clinical development and commercialization of
certain products for nonosteoporosis indications in North America. Additionally,
ARIAD has retained the commercialization rights to its other signal transduction
inhibitor programs that are based on its understanding of specific intracellular
proteins. While the ARIAD-Genovo Joint Venture provides for the joint
development and commercialization of products within the joint venture's defined
field, ARIAD retains the right to pursue independently all other applications of
its regulated gene therapy technology. ARIAD's share of the small-molecule drug
discovery targets or novel proteins, if any, that arise out of the Genomics
Center may be developed independently or with partners.
SIGNAL TRANSDUCTION INHIBITOR PROGRAM
Scientific Background
Cellular responses are controlled by external signals that stimulate or
inhibit intracellular events. The process by which an external signal is
transmitted into and within a cell to elicit a response is referred to as signal
transduction. Signal transduction is generally initiated by the interaction of
extracellular factors (e.g., ligands such as hormones, adhesion molecules or
neurotransmitters) with receptors on the cell surface. These extracellular
signals are transduced to the inner face of the cell membrane, causing the
intracellular portion of the receptor to interact with specific contact sites
(domains) on intracellular signaling proteins. The initial intracellular
receptor-target interactions stimulate a series of additional protein
interactions which disseminate the signal throughout the cell along an
intracellular pathway, thereby producing a specific cellular response (Figure
2).
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FIGURE 2 -- NORMAL SIGNAL TRANSDUCTION
ARIAD believes that the intracellular protein interactions that make up
signal transduction pathways are excellent targets for pharmacologic
intervention. In each of ARIAD's signal transduction inhibitor projects, the
Company seeks to: (i) discover an intracellular signaling pathway that is
critical to the process of a major disease or disorder; (ii) identify an
intracellular signaling protein that is essential to that pathway; (iii)
determine the specific binding domain of the protein responsible for
transduction of the signal; and (iv) design a small-molecule drug that binds to
the targeted domain, thereby inhibiting the transmission of the signal and
halting the disease process (Figure 3). ARIAD's primary signal transduction
inhibitor projects are focused on intracellular pathways that the Company
believes are critically involved in osteoporosis, immune-related diseases and
allergy/asthma. For each of these diseases and disorders, the Company has
identified signaling proteins that it believes are essential for the disease
process, and the Company is currently optimizing small-molecule compounds that
bind to specific domains on these proteins.
FIGURE 3. -- SIGNAL PATHWAY INHIBITED
Drug Discovery Process
The essential elements of ARIAD's signal transduction inhibitor drug
discovery process are summarized below and in Figure 4:
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FIGURE 4. -- DRUG DISCOVERY PROCESS
Identification of intracellular targets -- ARIAD employs molecular cell
biology, molecular and cellular genetics and bioinformatics to identify specific
intracellular signaling proteins that represent validated targets for
pharmacologic intervention. When selecting these targets, ARIAD considers the
following criteria:
- The targeted signaling pathway is well-characterized and implicated in an
important human disease.
- The targeted protein is critical to the disease pathway.
- The domains involved in the interaction of the targeted protein with
other proteins in the signaling pathway are amenable to structural
analysis using the tools of structure-based drug design such as nuclear
magnetic resonance ("NMR") spectroscopy or x-ray crystallography.
- The shape of the contact site within a domain is relatively simple and
thus able to be blocked with a small-molecule compound.
Based on these criteria, ARIAD scientists are targeting a class of
intracellular protein binding domains that include SH2 and SH3 domains. These
domains are found on multiple signaling proteins that are critical to specific
diseases. While SH2 domains as a group share common structural attributes that
may confer efficiency to the drug design process, specific SH2 domains
associated with specific signaling proteins display unique binding
characteristics which should provide the opportunity to achieve a high degree of
selectivity in compounds designed to block these targeted signaling proteins.
Structure Determination -- ARIAD chemists determine the detailed
three-dimensional molecular structure of the targeted protein domain through the
use of advanced biophysical imaging techniques, such as NMR spectroscopy and
x-ray crystallography.
Lead compound identification -- Once the structural information for a given
target is determined, ARIAD scientists use two integrated approaches to identify
small molecules that may block that target. In the first approach, ARIAD
chemists use the structural information as a blueprint for the design and
synthesis of individual small molecules which will bind to the domain and block
the target protein's interaction with other proteins in the signal transduction
pathway. In the second approach, ARIAD scientists use combinatorial chemistry to
efficiently produce large "libraries" of small molecules with diverse chemical
characteristics. ARIAD's integrated approach to combinatorial chemistry uses the
molecular structure of the target protein to bias the compounds produced in the
Company's libraries in ways which should increase the probability of producing a
compound that binds to the targeted domain. By determining the molecular
structure of combinatorial compounds that bind well or poorly to the domains,
ARIAD chemists can further bias succeeding generations of combinatorial compound
libraries in an iterative effort to identify selective and powerful signal
transduction inhibitor drugs.
Assay systems -- The ability of ARIAD's compounds to bind to the target
protein's domain is determined in proprietary assay systems. The Company has
developed novel in vitro binding assays based on fluorescence polarization
technology. These assays are highly sensitive and adaptable to high-throughput
screening systems. ARIAD has also designed cell-based assays to validate leads
identified in screening. These assays are helpful in determining that compounds
can pass through cell membranes, bind selectively to the
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target, and block the disease process. Compounds that perform effectively in
ARIAD's assay systems are evaluated further in the Company's validated animal
models of specific diseases.
Clinical candidate selection -- The goal of ARIAD's signal transduction
inhibitor discovery and optimization process is a proprietary, small-molecule
compound that is stable, cell-membrane permeable, suitable for oral, topical or
inhaled administration and safe and effective based on in vitro assays and in
vivo studies. Such a compound then is a candidate for initial clinical trials.
Primary Signal Transduction Inhibitor Drug Discovery Projects
ARIAD's initial disease targets were chosen based on the Company's belief
that they represent large market opportunities and because the intracellular
protein targets involved are relatively well understood. However, the Company's
drug discovery platform may be applicable to many other diseases. Knowledge
gained in the development of drugs that inhibit intracellular signaling proteins
involved in allergy or osteoporosis, for example, may be readily applied to
developing similar drugs for cancer and infectious disease. The Company believes
that these technological synergies can be leveraged to create efficiencies in
the drug discovery process. To exploit these synergies, ARIAD intends to apply
its integrated drug discovery technology to new signal transduction targets.
FIGURE 5. -- ARIAD'S SIGNAL TRANSDUCTION INHIBITOR PROJECTS
Osteoporosis -- Osteoporosis is characterized by progressive loss of bone
architecture and mineralization leading to the loss of bone strength and an
increased fracture rate. The skeleton is constantly being remodeled by a balance
between cells that lay down new bone (osteoblasts) and those cells that break
down or resorb bone (osteoclasts). A prolonged imbalance of resorption over
formation can occur in post-menopausal women, as well as in men and women with
certain disorders such as renal osteodystrophy, hypercalcemia and Paget's
disease. This imbalance leads to weaker bone structure and a higher risk of
fractures. These fractures often heal poorly and result in substantial costs to
the healthcare system.
Osteoporosis afflicts an estimated 25 million people in the United States
and more than 200 million people worldwide. The estimated cost of treatment and
care for osteoporosis and related fractures exceeds $10 billion per year in the
United States alone. Osteoporosis is often left untreated until it becomes
severe, because bone loss occurs gradually over time and without symptoms.
According to the National Osteoporosis Foundation, 80% of those afflicted with
osteoporosis are women. Many osteoporosis patients who sustain the bone
fractures caused by this disease suffer a distinct loss of mobility, and nearly
one quarter of those who fracture their hips die within 6 months.
Current therapies for osteoporosis include calcitonin, estrogen replacement
therapy and bisphosphonates. Both calcitonin and estrogen replacement attempt to
maintain bone mass by decreasing the rate at which bone is naturally resorbed by
the body. While these therapies can help mitigate the effects of osteoporosis,
they are not cures. Recent studies have suggested that estrogen replacement may
increase the risk of breast cancer in post-menopausal women. Bisphosphonates are
a more recent form of therapy for osteoporosis. While these compounds appear to
perform better than calcitonin and estrogen replacement in some patients, they
have not been studied over a prolonged period, and they have been associated
with some undesirable side effects.
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ARIAD's approach for treating osteoporosis is to develop small-molecule
drugs that bind to the SH2 or SH3 domains of Src, an intracellular signaling
protein that is implicated in the bone resorption activity of osteoclasts. The
Company believes that Src is a key mediator in osteoclast-induced bone
resorption based on experiments in mice that have had Src genetically removed.
These animals experience a condition known as osteopetrosis, or "stone bone,"
which is characterized by thickening of the bone. Additional research has shown
that osteoclasts from mice that lack Src are incapable of resorbing bone.
Although Src appears essential for bone resorption by osteoclasts, it does not
appear to be critical to the function of other cells. Therefore, the Company
believes that Src inhibitors can be safe and effective treatments for
osteoporosis.
In November 1995, ARIAD entered into a collaboration with HMR to develop
small-molecule inhibitors of Src for the treatment of osteoporosis and related
hyperresorptive bone diseases. Under the terms of this collaboration, HMR made
an initial cash payment to ARIAD of $10 million and agreed to provide up to $20
million of research support payments over a five-year period as well as $10
million upon the attainment of certain research milestones. In addition, HMR
agreed to fund all preclinical and clinical development costs for products that
emerge from the collaboration. HMR will pay royalties to ARIAD on net sales of
any products successfully commercialized out of this collaboration.
During 1996, in collaboration with HMR, ARIAD successfully designed
small-molecule compounds that inhibit Src function by blocking the SH2 domain
and retard bone resorption in in vitro and ex vivo assays. This accomplishment
resulted in a $2 million milestone payment. The Company and HMR are employing
structure-based combinatorial chemistry to optimize Src inhibitor lead compounds
with the goal of identifying a clinical candidate during 1998.
Transplant Rejection/Autoimmune Disease -- Organ transplant rejection and
autoimmune disorders such as rheumatoid arthritis, multiple sclerosis and
inflammatory bowel disease are caused by the activation of T cells within the
human immune system. Transplant rejection occurs when the immune system
recognizes transplanted tissue as foreign and mounts an undesired attack against
it. Autoimmune disorders are the result of the body's immune system failing to
distinguish "self" from "nonself" and attacking normal tissue. Currently, no
universally effective treatment exists for most autoimmune disorders, and the
incidence of such diseases is increasing. Controlling and inhibiting T cell
activation may also prove to be a valuable platform for ARIAD to address the
treatment of a wide variety of immune-related diseases.
The process of T cell activation is initiated when specific antigens bind
to the extracellular portion of the T cell receptor. Binding of the T cell
receptor to its antigen target activates a signaling pathway within the T cell
leading to a full scale immune response. The goal of ARIAD's immune-related
disease program is to block the progression of autoimmune disorders and to
prevent transplant rejection through the use of a small-molecule drug that
specifically inhibits the intracellular protein interactions critical to T cell
activation.
ARIAD is using structure-based drug design and structure-based
combinatorial chemistry to develop inhibitors of an intracellular signaling
protein called ZAP. ZAP is expressed exclusively within T cells and has been
shown to be essential for antigen-induced T cell activation. Molecular, genetic
and biochemical studies have confirmed that ZAP binds to the intracellular
portion of the T cell receptor and that blocking this interaction can prevent T
cell activation. In addition, studies have shown that humans that have a genetic
defect in ZAP are profoundly immunodeficient. This research indicates that a
small-molecule drug that selectively blocks ZAP may represent an effective
immunosuppressive agent that does not exhibit the side effects associated with
existing immunosuppressive drugs, such as cyclosporine or tacrolimus.
ARIAD scientists have determined the molecular structure of the tandem SH2
domains of ZAP and the nature of their interaction with the T cell receptor.
This structural information is being used in the creation of biased
combinatorial libraries of small-molecule compounds that are designed to bind to
ZAP with high affinity and specificity. These libraries are currently being
refined in an effort to identify and select a specific ZAP inhibitor suitable
for clinical development. Once identified, this compound will undergo animal
studies in models of immune-related disease that have been established at ARIAD.
Allergy and Asthma -- Allergic diseases are among the most common chronic
disorders in the industrialized world, and asthma is one of the most severe
forms of allergic disease. The incidence, severity
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and death rate from allergy and asthma have been increasing for a decade with a
significant overall healthcare cost.
Allergic reactions are caused when an allergen, such as pollen, enters the
body and is bound by IgE antibodies on the surface of mast cells. Mast cells are
found throughout the body, but are most heavily concentrated in the membranes
lining the nose, lungs and gastrointestinal tract where they encounter most
common allergens. When the mast cell encounters an allergen, an intracellular
signaling pathway is initiated which causes the mast cell to respond by
secreting proinflammatory mediators such as histamine, leukotrienes,
prostaglandins, tryptase and cytokines. These mediators are released into the
bloodstream and in turn cause the itching, coughing, sneezing and breathing
difficulties that characterize allergies.
Currently available therapies for allergy and asthma are designed to block
the effects of specific proinflammatory mediators, but these drugs have limited
effectiveness since any single mediator can cause the symptoms of allergy.
Rather than blocking a specific mediator after its release from the activated
mast cell, ARIAD is developing small-molecule compounds designed to inhibit the
intracellular signaling pathways within the mast cell that are responsible for
the production and release of multiple allergic mediators. This drug design
strategy has the potential to block a broad array of allergic mediators prior to
their release into the bloodstream.
ARIAD is targeting a signaling protein called Syk in the mast cell
activation pathway which it believes is responsible for the activation of
signaling pathways in mast cells that lead to the release of allergic mediators.
ARIAD is developing small molecules designed to bind to the SH2 domains of Syk,
thereby blocking its interaction with the mast cell receptor. By blocking this
initial interaction in the signal transduction pathway, it may be possible to
down-regulate the production and release of multiple allergic mediators with a
single drug.
ARIAD scientists have determined the three-dimensional structure of the Syk
protein SH2 domains using NMR spectroscopy. Using this structural information
and knowledge gained from the Company's other signal transduction inhibitor
programs, ARIAD chemists have designed small-molecule compounds that bind to Syk
in in vitro binding assays. Using the Company's structure-based combinatorial
chemistry technology, ARIAD chemists and biologists are further optimizing these
lead compounds.
REGULATED GENE THERAPY PROGRAM
Gene therapy is the genetic modification of cells to produce specific
therapeutic proteins needed to eliminate or modulate disease. Cells can be
removed from a patient, genetically modified and transplanted back into the
patient (ex vivo gene therapy), or cells can be modified in the body through the
administration of a vector that delivers the gene into certain cells (in vivo
gene therapy). Gene therapy can therefore be thought of as an in vivo protein
production and delivery system with substantial commercial opportunities. The
Company believes that most diseases currently treated by the administration of
recombinant proteins, such as anemia, hepatitis, multiple sclerosis and muscle
wasting, are candidates for gene therapy. However, current gene therapy
strategies have been limited by difficulties in achieving adequate levels of
protein production, the lack of a means to control effectively the dose of the
protein produced by genetically modified cells and the inability to discontinue
therapy should it become unwanted or unnecessary.
ARIAD's regulated gene therapy system is designed to address the key issues
facing the practical clinical application of gene therapy: (i) efficiently and
safely delivering genetic material directly to the patient's cells; (ii) causing
those cells to produce efficacious and sustainable levels of therapeutic
proteins; (iii) controlling protein production levels in a manner consistent
with conventional pharmaceutical dosing; and (iv) providing the ability to
terminate treatment if the therapeutic need ceases or if adverse effects occur.
ARIAD is applying its knowledge of signal transduction pathways and its
expertise in molecular cell biology, structure-based drug design and medicinal
chemistry to develop a system designed to provide the physician with precise
control over gene therapy. While ARIAD's signal transduction inhibitor program
is based on identifying small-molecule drugs that block intracellular protein
interactions within signal transduction pathways, the regulated gene therapy
program is based on the use of small-molecule drugs to promote and
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regulate intracellular protein interactions. By selecting protein interactions
that produce a desired cellular response and engineering those proteins to
interact only in the presence of a novel, small-molecule drug, the Company
believes that it is possible to bring complex biological responses under direct
pharmacologic control.
ARIAD's primary product development efforts in the regulated gene therapy
area are to create systems for: (i) the small-molecule control of therapeutic
proteins delivered by gene therapy; and (ii) the selective elimination of
genetically engineered cells using small-molecule drugs.
Gene Therapy -- Based Protein Therapeutics
ARIAD's technology for precisely controlling the dose of therapeutic
proteins delivered by gene therapy is based on transcription factors,
intracellular signaling molecules that activate protein production. ARIAD has
engineered a specific, two-part transcription factor that activates protein
production only when its two halves are brought together by a small-molecule
dimerizer drug. By equipping cells with a therapeutic gene and the genes
required to produce ARIAD's two-part transcription factor, it is possible to
activate and control the level of therapeutic protein production in vivo using
an orally administered drug (Figure 6).
FIGURE 6. -- ARIAD'S REGULATED GENE THERAPY SYSTEM
The Company demonstrated the feasibility of this approach in a study
published in the journal Nature Medicine (September 1996). In this study, a team
of ARIAD scientists reported for the first time achieving control of a
therapeutic gene in vivo by varying the dose of an orally administered drug.
Mice were implanted with engineered cells containing both the gene for the
production of human growth hormone (hGH) and genes which produce two fragments
of a transcription factor. These transcription factor fragments were engineered
to have high affinity for rapamycin (an orally administered drug). Consequently,
when the mice were given rapamycin, the transcription factor fragments were
brought together, the target gene was activated, and the desired therapeutic
protein (in this case hGH) was produced. Administration of rapamycin elicited
dose-responsive production of hGH -- the higher the dose of rapamycin, the
higher the level of hGH. The study also demonstrated that clinically relevant
levels of hGH could be detected in the mice more than 24 hours after
administration of a single dose of rapamycin. This result is in sharp contrast
to conventionally delivered recombinant hGH, which has a half-life in mice of
only a few minutes. Mice that received engineered cells but no rapamycin did not
produce hGH. Since rapamycin is a drug that has immunosuppressive effects in
humans, ARIAD is developing nonimmunosuppressive rapamycin analogs as well as
fully synthetic drugs to bind its engineered transcription factor fragments.
To accelerate the development and commercialization of gene therapy-based
protein products, ARIAD has entered into the ARIAD-Genovo Joint Venture. Genovo
is a leader in the discovery and development of gene transfer technologies,
particularly viral and nonviral vectors. In a paper published in the journal
Nature Medicine (March 1997), scientists reported that gene transfer with
Genovo's adeno-associated virus ("AAV") vectors overcame persistent problems in
gene delivery. The study, which was conducted in mice, indicated that a high
level of genes were transferred successfully and stably using the intramuscular
injection of an AAV vector and that no detectable immune response occurred.
The goal of the ARIAD-Genovo Joint Venture is to convert current
recombinant protein therapy, which requires frequent injections, into therapy
based on orally administered drugs. The joint venture's products may
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offer potential improvements in the efficacy of protein therapy as well. The
products being developed by the ARIAD-Genovo Joint Venture involve the injection
of vectors containing genetic material directly into a patient's muscle or skin.
This genetic material will equip the patient's cells to produce a therapeutic
protein of choice in response to a specific small-molecule dimerizer drug.
Following administration of the genetic material, the patient would take the
orally administered drug to achieve stable, long-term production of the protein
at optimum therapeutic levels (Figure 7).
FIGURE 7. -- SMALL-MOLECULE CONTROL OF THERAPEUTIC PROTEIN PRODUCTION
The ARIAD-Genovo joint venture will initially seek to develop and
commercialize gene therapy-based products as alternatives for currently marketed
injectable therapeutic proteins, such as growth hormone (for muscle wasting
associated with AIDS and cancer), erythropoeitin or EPO (for anemia) and
cytokines such as alpha interferon (for cancer and hepatitis). The current
worldwide market for injected therapeutic proteins is estimated at over $11
billion annually. In addition to developing products itself, the joint venture
will seek partnerships with companies that have a strong strategic interest in
protein therapeutics and the markets they address. The joint venture will also
seek to establish a platform for the delivery and small-molecule control of
newly identified therapeutic proteins. As the number of new therapeutic proteins
increases and as the indications for such products expand, this market is
expected to experience significant growth. The Company expects that the first
product candidate from the ARIAD-Genovo Joint Venture will be ready to enter
clinical trials in 1998.
Inducible Apoptosis (Cell Death)
A second application of ARIAD's regulated gene therapy technology is
designed to provide a method for eliminating engineered cells in vivo, should
they become unnecessary or cause undesirable side effects. In this application,
cells are equipped with a gene encoding a portion of the Fas receptor joined to
a drug binding domain. Fas receptors, when brought together, initiate a series
of intracellular protein interactions that result in programmed cell death, or
apoptosis. In the absence of a separate, dedicated dimerizing drug, the
engineered Fas receptors are inactive. However, when the dimerizer drug is
introduced, the Fas receptors are crosslinked, and the process of cellular
self-elimination is activated.
ARIAD's inducible apoptosis technology may provide an important safety
feature to current gene therapy strategies, which are generally irreversible.
Gene therapies that cannot be withdrawn should side effects occur may be the
subject of some concern among physicians and regulatory authorities. Thus, the
Company believes that the ability to selectively eliminate engineered cells in
vivo upon the oral administration of a specific dimerizing agent represents an
important advance in gene therapy.
An example of a potential role of inducible apoptosis in gene therapy is in
the field of adoptive immunotherapy. Adoptive immunotherapy is a promising
approach to the treatment of cancer and infectious diseases. The application of
this therapeutic strategy in cancer involves withdrawing a sample of a patient's
blood and expanding the population of blood cells contained in the sample using
cell culture techniques. This expanded blood cell population is screened, and
specific cancer-fighting cells called cytotoxic T cells are selected. Large
numbers of these cytotoxic T cells are then infused back into the patient where
they mount an attack on diseased cells or tumors. Optimal adoptive immunotherapy
will require a sufficient number of T cells
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to achieve efficacy, but not so many that the T cells attack healthy tissue,
resulting in graft-versus-host disease. Thus, a key to successful immunotherapy
is the ability to manage the population of cytotoxic T cells after infusion into
the patient. ARIAD's technology for inducible apoptosis offers a means for
selectively modulating the number of modified cells in a patient or for
eliminating them entirely through the oral administration of a dedicated
small-molecule, dimerizing drug.
ARIAD expects that initial clinical applications of the inducible apoptosis
system will be in association with the adoptive immunotherapy of blood-borne
malignancies such as leukemia. Subsequent applications are expected to be in the
treatment, through adoptive immunotherapy, of solid tumor cancers such as lung,
breast or colon cancer. The system may also have application in adoptive
immunotherapy strategies for infectious diseases such as AIDS, cytomegalovirus
and hepatitis.
ARIAD scientists have developed all the components of an inducible
apoptosis system and successfully conducted proof-of-concept experiments in
animals. The Company is preparing to conduct preclinical testing of its
apoptosis dimerizer drug and plans to file an IND with the FDA by early 1998.
ARIAD's Regulated Gene Therapy: Additional Applications
In addition to human therapeutic uses, the Company believes that its
proprietary technology for gene regulation has applications in biomedical
research, genomics and manufacturing. It may offer new ways to control the
activity of genes, proteins and metabolic pathways in cells and experimental
animals. For example, by employing the ARIAD gene regulation technology, it may
be possible to control the activation or inactivation of genes in cell culture
and experimental animals in order to determine their function and to create
novel animal disease models. The gene regulation technology may also be used to
evaluate the function and efficacy of potential protein therapeutics in vivo and
to improve the manufacture of recombinant proteins and viral vectors in
mammalian cell culture. Additional business opportunities for the gene therapy
program include research reagents and protein manufacturing.
FUNCTIONAL GENOMICS PROGRAM
Genomics is the study of gene structure and function. Over the past five
years, the convergence of molecular biology, genetics, robotics and advanced
information technologies has given genomics researchers the discovery tools
necessary to begin to understand human disease at the genetic level. Researchers
are currently engaged in the mapping and sequencing of the estimated 100,000
genes encoded by the human genome. However, knowing a gene's sequence is only
the first step, and often provides little information about how the gene
functions. Functional genomics is the process by which the role of genes in
normal and diseased cellular processes are uncovered. Such an understanding of
gene function may provide researchers with the information required to design
novel and specific therapeutics for disease intervention. Discovering new genes
and determining their function is taking place at an accelerating pace, creating
the potential to generate new drug discovery targets, drug therapies, and
diagnostics on an unprecedented scale.
Genes provide the detailed information required for cells to produce
proteins, the basic building blocks of the human body. Malfunctions in genes and
proteins are frequently the cause of human disease. "Monogenic" disorders such
as cystic fibrosis, which are caused by a mutation in a single gene, have been
relatively easy to characterize with traditional molecular biology techniques.
However, "polygenic" disorders such as cancer, osteoporosis, obesity, diabetes,
asthma, and neurological diseases have traditionally been much more difficult to
understand due to the complex interaction of multiple genes and environmental
influences.
The objective of the Genomics Center is to identify genes and networks of
genes that play an important role in a disease process. This objective will be
accomplished through the development and integrated application of
state-of-the-art technologies in molecular and cellular genetics and
bioinformatics. The proteins encoded by these identified genes may then be used
as novel therapeutic products themselves or as targets for small-molecule drug
discovery. The diagram below (Figure 8) outlines the strategies that will be
used to identify and validate candidate genes and the types of products that
could be developed from these genes.
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Genes of potential therapeutic value will be identified in two steps.
First, candidate genes will be identified by: (i) searching public and private
databases (such as the LifeSeq(R) database provided by Incyte) for genes with a
unique expression pattern or homology to a known gene of interest; (ii) cloning
genes whose expression are increased (or decreased) in the diseased tissue using
high-throughput transcript analysis technologies (such as the MPSS technology
provided by Lynx); (iii) genetic screening techniques; or (iv) positional
cloning of genes from mice and humans with genetic diseases. Second, candidate
genes will be analyzed to establish their functional role in disease
pathogenesis by: (i) expressing antisense or dominant negative gene variants in
cells; (ii) identifying protein binding partners or substrates; (iii) creating
conditional gene knockouts in mice; (iv) expressing gene products in mice; or
(v) identifying hormone receptors.
ARIAD believes that several different classes of therapeutic products could
be developed from these investigations. Certain genes may encode the production
of secreted proteins that directly modulate disease pathogenesis. These secreted
proteins may be developed as recombinant protein drugs or for use in regulated
gene therapy applications such as those under development in the ARIAD-Genovo
Joint Venture. Protein drugs may also be modified to optimize their therapeutic
efficacy. Other identified genes may encode the production of cellular proteins
that could be considered as targets for the development of a variety of small-
molecule pharmaceutical products. Such drug targets include intracellular
signaling proteins, cellular receptors and enzymes (e.g., kinases and
proteases). In addition, genes identified by the Genomics Center may form the
basis for diagnostic products.
FIGURE 8. -- HOECHST-ARIAD GENOMICS CENTER: RESEARCH STRATEGY
Given the large number of human genes and the extensive effort involved in
analysis of these genes to identify therapeutic targets, the Genomics Center
will focus its initial efforts on a limited number of therapeutic areas (e.g.,
osteoporosis, atherosclerosis, inflammation or central nervous system diseases).
In osteoporosis, the goal is to identify genes that regulate the activity of
osteoblasts, those cells responsible for forming new bone. In atherosclerosis,
the Genomics Center will focus on identifying genes that regulate smooth muscle
proliferation, a key step in coronary artery restenosis. In immune and
inflammatory disease, the target will be genes that regulate joint inflammation
such as in rheumatoid arthritis and osteoarthritis. In central nervous system
disorders, the Genomics Center will focus on genes that are involved in
neurological disorders such as Alzheimer's disease, schizophrenia and stroke.
Construction of dedicated laboratory and office space for the Genomics
Center has begun at ARIAD, and initial recruiting and hiring efforts are under
way. The Company expects that the Genomics Center will be operational in the
third quarter of 1997. In the meantime, representatives from ARIAD and HMR are
actively engaged in the organization and planning of the Genomics Center's
research strategy and plans. Experimentation is already under way at HMR and
will continue at HMR as part of the Genomics Center's activities.
DRUG DISCOVERY COLLABORATIONS
To maximize the value of its signal transduction technology and its broad
drug discovery platform, ARIAD has formed and intends to form, when appropriate,
joint ventures and strategic partnerships with pharmaceutical and biotechnology
companies.
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HMR Osteoporosis Collaboration -- On November 5, 1995, ARIAD entered into
an agreement with Hoechst Marion Roussel to collaborate on the discovery and
development of small-molecule signal transduction inhibitor drugs to treat
osteoporosis and other hyperresorptive bone diseases. HMR agreed to invest up to
$40 million to support ARIAD's osteoporosis research activities. In addition,
HMR has established a dedicated research group to collaborate with ARIAD on the
discovery of inhibitors of the Company's Src target for osteoporosis and agreed
to fund all of the preclinical and clinical development activities of the
collaboration.
Under the terms of this agreement, ARIAD is employing its expertise in
combinatorial chemistry and structure-based drug design in a joint effort with
HMR to design and develop Src inhibitor drugs. HMR has exclusive rights to
commercialize these drugs worldwide for the treatment of osteoporosis and
related bone diseases. ARIAD has the right, under certain circumstances, to
participate in the clinical development and commercialization of these products
for nonosteoporosis indications in North America. In addition to an upfront cash
payment of $10 million received in 1995, HMR will fund up to $30 million of
research at ARIAD over five years, $10 million of which is tied to the
achievement of certain research milestones. The first of these milestones was
achieved in December 1996, and ARIAD received a $2 million cash payment in
January 1997. The agreement also calls for payment of a royalty to ARIAD based
on product sales.
Genovo, Inc. Joint Venture -- On February 14, 1997, ARIAD, through its
subsidiary, ARIAD Gene Therapeutics, Inc., ("AGTI") and Genovo formed a joint
venture to develop and commercialize gene therapy products for the therapeutic
protein market. The joint venture combines ARIAD's regulated gene expression and
apoptosis technology with Genovo's gene transfer technology for the
intramuscular and subcutaneous delivery of gene therapy products.
Under the terms of the joint venture agreement, ARIAD and Genovo will seek
to develop gene therapy-based protein products. Each partner will pay its
respective costs of product development, and any payments received by either
party will be divided equally between ARIAD and Genovo, after reimbursement of
certain costs. In addition to developing gene therapy-based protein products
itself, the joint venture will seek partnerships with companies that have a
strong strategic interest in protein therapeutics and the markets they address.
The focus of ARIAD's and Genovo's joint efforts will be on the vector-based
delivery of secreted proteins in the muscle and skin. Each Company is free to
develop and partner its respective technology in all other applications.
Genovo, a privately held company, is a leader in the development and
manufacture of gene transfer technologies, including both viral- and
nonviral-based vectors. These vectors are used in gene therapy to equip
patient's cells with the genes necessary to produce a therapeutic protein of
choice. They may also be used to equip cells to produce ARIAD's two-part
transcription factor. Genovo's leadership position in gene therapy stems from
its exclusive license of patents and access to the pioneering work of James
Wilson, M.D., Ph.D., and his laboratory at the University of Pennsylvania School
of Medicine. Dr. Wilson is director of the Institute for Human Gene Therapy at
the University of Pennsylvania School of Medicine and scientific founder of
Genovo.
The Hoechst-ARIAD Genomics Center, LLC -- On March 4, 1997, ARIAD and HMR
entered into a 50/50 joint venture to pursue functional genomics. The Genomics
Center will employ state-of-the-art technologies in molecular and cellular
genetics and bioinformatics to analyze human genes and identify those genes that
encode for novel therapeutic proteins or promising targets for small-molecule
drug discovery. ARIAD has the rights to half of any therapeutic proteins or
small-molecule drug targets identified by the joint venture. ARIAD also has the
right, subject to a right of first negotiation held by HMR, to form strategic
alliances with other pharmaceutical or biotechnology companies for the
development of products based on ARIAD's share of the discoveries made by the
joint venture.
The Company and HMR agreed to commit approximately $85 million to the
establishment of the joint venture and its first five years of operations. ARIAD
may fund its share of this commitment through the purchase by HMR of ARIAD
series B preferred stock. The Genomics Center will be located in dedicated
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facilities currently under construction at ARIAD's headquarters and will be
staffed by ARIAD scientists under a contract with the joint venture. The
operating costs of the Genomics Center are divided equally between ARIAD and
HMR, and both companies have access to any new technologies developed within the
Genomics Center. The Company believes that the combined resources of ARIAD and
HMR being made available to the joint venture and the committed funding make it
one of the largest dedicated efforts in the functional genomics area in the
pharmaceutical industry.
Concurrent with the signing of the joint venture agreement, ARIAD and HMR
entered into a stock purchase agreement. In accordance with the terms of this
agreement, HMR purchased 2.5 million shares of ARIAD series B convertible
preferred stock for $24 million at closing, which, on March 18, 1997 represented
11.7% of ARIAD's outstanding shares of Common Stock on an as converted basis. At
ARIAD's option, HMR will make additional purchases of series B preferred stock
during each of the years 1999, 2000, 2001 and 2002. These equity purchases,
aggregating up to $25 million, will be made in accordance with a predefined
formula but in no case will represent more than a total of 1.8 million
additional shares of ARIAD series B preferred stock. Should the joint venture
require monies in excess of the committed funding outlined in the agreement,
ARIAD may fund its share of the excess through a loan facility made available by
HMR. The stock purchase agreement also contains provisions restricting the
further purchase or sale by HMR of ARIAD stock for a period extending beyond the
term of the joint venture.
Incyte Pharmaceuticals -- On March 4, 1997, ARIAD became the second
biotechnology company to become a subscriber to the Incyte LifeSeq(R) gene
sequence and expression database. ARIAD will pay Incyte access fees and will owe
Incyte milestone payments and royalties on the sale of products, if any, that
are derived from the database. ARIAD will employ the Incyte database in its
functional genomics program. This database offers one of the largest sources of
genomic data, containing gene sequence and expression information from normal as
well as diseased cells and tissues from most of the major tissues of the human
body. ARIAD, through the Genomics Center, will use this database in its efforts
to identify and characterize genes that encode for promising therapeutic
proteins and novel small-molecule drug targets.
HUMAN RESOURCES
As of March 18, 1997, ARIAD had 89 full-time employees, 53 of whom hold
post-graduate degrees, including 36 Ph.D.s and M.D.s. Most of the Company's
employees are engaged directly in research and development. The Company has
entered into confidentiality and noncompetition agreements with all of its
employees. None of ARIAD's employees is covered by a collective bargaining
agreement, and management considers relations with its employees to be good.
BOARD OF SCIENTIFIC AND MEDICAL ADVISORS
ARIAD has assembled a Board of Scientific and Medical Advisors (the
"Advisory Board") that currently consists of leaders in the fields of molecular
cell biology, molecular pharmacology and biochemistry, immunology, bioorganic
and synthetic chemistry and physical and computational chemistry.
On an individual basis, members of the Advisory Board advise the Company's
management and employees on scientific matters relating to the Company's
research programs, including, for example, the selection of molecular targets,
drug discovery strategies, clinical applications of proposed products and new
technological developments. In addition, the Company's Advisory Board meets
regularly to review and discuss ARIAD's overall scientific progress.
Each advisor is engaged under a consulting agreement that requires the
advisor, to the extent possible, to provide exclusive consulting services to the
Company in the Company's field of interest. These agreements, which are similar
in their terms, provide for ongoing consulting fees and reimbursement of certain
expenses and provide for the grant of stock options and, in certain cases, the
issuance of common stock. Each advisor has agreed, pursuant to such agreements,
not to disclose any confidential information of the Company.
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The members of the Advisory Board and their principal occupations and
positions as of March 18, 1997 are as follows:
NAME POSITION
- - --------------------------------- ----------------------------------------------------------
David Baltimore, Ph.D............ Ivan R. Cottrell Professor of Molecular Biology and
Immunology and Institute Professor, Massachusetts
Institute of Technology
Roland Baron, Ph.D............... Professor of Orthopedics and Cell Biology, Yale University
School of Medicine
R. Michael Blaese, M.D........... Chief, Clinical Gene Therapy Branch, National Center for
Human Genome Research
Joan S. Brugge, Ph.D............. Professor of Cell Biology, Harvard Medical School
(Advisory Board Co-chair) (See "Management")
Jon Clardy, Ph.D................. Horace White Professor of Chemistry, Cornell University
Barry S. Coller, M.D............. Murray M. Rosenberg Professor of Medicine and Chairman,
Department of Medicine, Mount Sinai Medical Center, New
York
Gerald R. Crabtree, M.D.......... Professor of Developmental Biology and Pathology, Stanford
University and Investigator, Howard Hughes Medical
Institute
Samuel J. Danishefsky, Ph.D...... Kettering Chair and Head of Bioorganic Chemistry, Memorial
Sloan-Kettering Cancer Center
John M. Deutch, Ph.D............. Institute Professor, Massachusetts Institute of Technology
(See "Management")
Philip Felig, M.D................ Clinical Professor of Medicine, New York Medical College
(See "Management")
Stephen J. Galli, M.D............ Professor of Pathology, Harvard Medical School and
Director, Division of Experimental Pathology, Beth Israel
Hospital
Edgar Haber, M.D................. Director, Division of Biological Sciences and Elkan R.
Blout Professor of Biological Sciences, Harvard School of
Public Health, and Professor of Medicine, Harvard Medical
School (See "Management")
William Jorgensen, Ph.D.......... C.P. Whitehead Professor of Chemistry, Yale University
Robert J. Lefkowitz, M.D......... James B. Duke Professor of Medicine and Professor of
Biochemistry, Duke University Medical Center and
Investigator, Howard Hughes Medical Institute
Anthony J. Pawson, Ph.D.......... Professor of Molecular and Medical Genetics, University of
Toronto and Apotex Chair of Molecular Oncology, Samuel
Lunenfeld Research Institute, Mount Sinai Hospital
James E. Rothman, Ph.D........... Vice Chairman, Sloan-Kettering Institute, Paul A. Marks
Chair and Chairman of the Program in Cellular Biochemistry
and Biophysics, Memorial Sloan-Kettering Cancer Center
Stuart L. Schreiber, Ph.D........ Professor of Chemistry and Chemical Biology & Molecular
and Cellular Biology, Harvard University and Investigator,
Howard Hughes Medical Institute (Advisory Board Co-chair)
Ralph Snyderman, M.D............. Chancellor for Health Affairs, Dean of the School of
Medicine, and James B. Duke Professor of Medicine, Duke
University Medical Center
Burton E. Sobel, M.D............. E.L. Amidon Professor and Chair, Department of Medicine,
University of Vermont College of Medicine
Gregory Verdine, Ph.D............ Professor of Chemistry, Harvard University
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LICENSES AND SPONSORED RESEARCH
The Company has entered into license arrangements with various research
institutions and universities pursuant to which the Company is the licensee of
certain technologies upon which some of the Company's current and future product
candidates may be based. A partial summary of certain of the Company's licenses
and sponsored research programs is presented below. In many cases, the principal
scientist associated with these programs serves on the Advisory Board. The
options for exclusive licenses mentioned below are subject to negotiation (upon
exercise of the relevant options) of satisfactory royalty and other terms with
the relevant institution. Failure of the Company and the relevant institution to
agree on such terms could result in a loss by the Company of rights underlying
such options.
Stanford University and Harvard University (Regulated Gene Therapy). The
Company has obtained an exclusive license to a series of patent applications and
related technology from Stanford University and Harvard University based upon
the work of Drs. Gerald Crabtree and Stuart Schreiber and their colleagues. The
Company believes that this technology, which includes materials and methods for
regulating the transcription of specific genes in vivo, will be important in
developing regulated gene therapy for a wide range of disease targets. In
connection with this license, Stanford and Harvard were issued an aggregate of
128,571 shares of Common Stock of AGTI (representing approximately 3% of the
currently outstanding capital stock of AGTI).
Mochida (Fas Gene). The Company has obtained a nonexclusive license to a
series of patents from Mochida Pharmaceuticals, Ltd. The technology covered by
these patents relates to the use of the Fas gene for triggering apoptosis, or
controlled cell death. The Company believes that this technology will be
important to its regulated gene therapy program.
Mount Sinai Hospital, University of Toronto (SH2 Domains). The Company has
obtained an exclusive license from Mount Sinai Hospital, an affiliate of the
University of Toronto, to an issued United States patent and related pending
applications based upon the discoveries of Dr. Anthony Pawson. This technology
relates to a specific class of protein domains which are involved in mediating
signal transduction. Furthermore, the Company has a first option to acquire
related technologies and improvements from Dr. Pawson's laboratory for the
duration of the license, which is equivalent to the life of the covered patents
(unless terminated sooner). The Company believes that this technology may be
important in identifying inhibitors of signal transduction pathways which may be
useful as lead compounds for the treatment of several diseases.
Yale University. The Company is sponsoring research in the laboratory of
Dr. Roland Baron at Yale University. Dr. Baron also is a consultant to HMR. The
scope of this research includes the functional evaluation of potential lead
molecules for the treatment of osteoporosis.
Massachusetts Institute of Technology, the Whitehead Institute and Harvard
University. The Company has obtained an exclusive license from the
Massachusetts Institute of Technology, the Whitehead Institute and Harvard
University to a series of United States patent applications and their foreign
counterparts, including an issued European patent, based upon the work of Dr.
David Baltimore and his colleagues. This patent application relates to
transcription factors which are involved in the regulation of cytokines and
lymphokines and control of gene expression.
Stanford University. The Company has obtained an exclusive license from
Stanford University to a series of patent applications based upon the work of
Dr. Gerald Crabtree and his colleagues. This technology deals with the
identification of specific transcription factors which control the regulation of
cytokines in certain cell types.
Harvard University. The Company has an option to obtain an exclusive
license from Harvard University to a patent application which deals with
selection of DNA binding molecules, based upon discoveries made by Dr. Gregory
Verdine.
Cornell University. The Company has obtained an exclusive license from the
Cornell Research Foundation, Inc. to discoveries by Dr. Jon Clardy relating to
the three-dimensional structure of an important
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mediator of T cell activation and cell-cycle. The three-dimensional structure of
the mediator may be useful in the Company's drug discovery efforts.
Massachusetts Institute of Technology. The Company has obtained an
exclusive license from the Massachusetts Institute of Technology to a patent
application based on work by Drs. Philip Sharp, Carl Pabo and Joel Pomerantz.
The licensed technology involves engineered DNA-binding proteins, DNA molecules
encoding them, DNA sequences to which the engineered proteins bind and
compositions and methods for using them. The Company believes this technology
will be useful in regulating the expression of desired genes in various gene
therapy applications.
The Company has also obtained certain patent rights in connection with its
various collaborations. In particular, the Company's collaboration agreement
with Incyte gives the Company a nonexclusive license to Incyte's gene sequence
and expression database and an option for an exclusive license for any promising
sequences identified by the Company in such database. The Company's
collaboration agreement with Genovo provides the Company with access to Genovo
intellectual property for use in the collaboration and provides that the Company
and Genovo may grant licenses to certain of their respective patents to third
parties in connection with the commercialization of any products developed in
such collaboration. The Company's collaboration with HMR also provides for the
cross license of certain technologies.
The Company has agreed to pay royalties to its licensors on sales of
certain products based on the licensed technologies, as well as, in some
instances, milestone payments and patent filing and prosecution costs. The
licenses also impose various milestone, commercialization, sublicensing, royalty
and other payment, insurance and other obligations. Failure by the Company to
comply with these requirements could result in the termination of the applicable
agreement which could have a material adverse effect on the business, financial
condition and results of operations of the Company.
PATENTS AND PROPRIETARY RIGHTS
To date, the Company has filed 34 patent applications in the United States
relating to the Company's technologies and compounds and has filed counterparts
of certain of these applications in foreign countries. The majority of these
applications are directed to inventions and discoveries arising from the
Company's ongoing research and development programs, including materials and
methods used in drug discovery research, as well as compounds that affect
intracellular communication pathways discovered thus far in the course of such
research by the Company. Others of these applications focus on materials and
methods relating to regulated gene therapy.
In addition, the Company has obtained exclusive licenses to one issued
United States patent and 20 patent applications pending in the United States.
The Company has further obtained exclusive options on two United States patent
applications. The Company has also secured four nonexclusive technology licenses
with certain institutions in support of its research programs. The Company
anticipates that it will continue to obtain licenses from universities and
others where applicable technology complements its research programs, but no
assurance can be given as to the Company's ability to secure such licenses on
reasonable business terms.
The Company also relies on unpatented trade secrets and proprietary
know-how. However, trade secrets are difficult to protect. The Company also
enters into confidentiality agreements with its employees, consultants and
collaborators. In addition, the Company believes that certain technologies
utilized in its research and development programs are in the public domain.
Accordingly, the Company does not believe that patent or other protection is
available for these technologies. If a third party were to obtain patent or
other proprietary protection for any of these technologies, the Company may be
required to challenge such protections, obtain a license for such technologies
or terminate or modify its programs that rely on such technologies.
MANUFACTURING, MARKETING AND SALES
The Company has no history of manufacturing, marketing or product sales and
has not invested in manufacturing, marketing or product sales resources. The
Company expects to independently manufacture,
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package, label and distribute its product candidates or to establish
arrangements with third parties to perform some or all of these functions. If
the Company is unable to manufacture or contract for a sufficient supply of its
potential therapeutic products on acceptable terms, the Company's preclinical
studies and clinical trials may be delayed, resulting in the delay of submission
of products for regulatory approval, which may have a material adverse effect on
the Company. If the Company chooses to contract for manufacturing services and
encounters delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute its finished pharmaceutical
products, if any, market introduction and subsequent sales of such products
would be adversely affected. Further, if it develops pharmaceutical products
that it determines to commercialize itself, the Company will need to hire
additional personnel skilled in clinical trials and regulatory compliance
process and in marketing and product sales. Contract manufacturers that the
Company may use must adhere to the Good Manufacturing Practices ("GMP")
regulations prescribed by the FDA. To the extent that the Company arranges with
third parties to manufacture or market its products, if any, the success of such
products may depend on the efforts of such third parties. The Company's
potential dependence upon third parties for the manufacture of its products may
adversely affect the Company's profit margins and its ability to develop and
deliver such products on a timely and competitive basis. Should the Company
decide to manufacture its own products, the Company will be subject to the risks
and delays or difficulties inherent in the manufacturing process and would
require substantial additional capital.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products, if any, and its
ongoing research and development activities are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Any drug developed by the Company must undergo rigorous preclinical studies and
clinical testing and an extensive regulatory approval process implemented by the
FDA under the federal Food, Drug and Cosmetic Act prior to marketing in the
United States. Satisfaction of such regulatory requirements, which includes
demonstrating that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. Preclinical
studies must be conducted in conformance with the FDA's good laboratory practice
regulations. Before commencing clinical trials, the Company must submit to and
receive clearance from the FDA of an Investigational New Drug application
("IND"). There can be no assurance that submission of an IND would result in FDA
clearance to commence clinical trials. Clinical testing must meet requirements
for institutional review board oversight, informed consent and good clinical
practice and is subject to continuing FDA oversight. The Company has a limited
history of conducting preclinical studies and no history of conducting and
managing the clinical trials necessary to obtain regulatory approval.
Furthermore, the Company or the FDA may suspend clinical trials at any time if
they believe that the subjects participating in such trials are being exposed to
unacceptable risks or if the FDA finds deficiencies in the conduct of the
trials.
Before receiving FDA approval to market a product, the Company will have to
demonstrate that the product is safe and effective in the patient population
that will be treated. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations which could delay, limit or prevent
regulatory clearances. In addition, delays or rejections may be encountered
based upon additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Similar delays also may
be encountered in foreign countries. There can be no assurance that even after
such time and expenditures, regulatory approval will be obtained for any
products developed by the Company. If regulatory approval of a product is
granted, such approval will be limited to those disease states and conditions
for which the product is useful, as demonstrated by clinical trials.
Furthermore, approval may entail ongoing requirements for postmarketing studies.
Even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections by the FDA. Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including costly recalls or even withdrawal of the
product from the market. There can be no assurance that any compound developed
by the Company alone or in conjunction with others will prove to be safe and
efficacious in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing approval.
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Outside the United States, the Company's ability to market a product will
be contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community certain registration
procedures are available to companies wishing to market a product in more than
one member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process includes
all of the risks associated with FDA clearance set forth above.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements. Such factors include, among
others, the following:
Early Stage of Product Development; Absence of Products. To date,
substantially all of the Company's resources have been dedicated to the research
and development of its technologies and related compounds. There can be no
assurance that the Company's research will lead to the identification of any
product candidates suitable for commercialization.
Uncertainty Related to Novel Technologies. The Company's drug development
programs are based on technologies that are relatively new and unproven and
there can be no assurance that these technologies will lead to the discovery of
product candidates or products. The failure of the Company to validate its
technologies would have a material adverse effect on the business, financial
condition and results of operations of the Company.
Uncertainty Related to Genomics Center; Dependence on Hoechst Marion
Roussel, Inc. The research and development activities that will be undertaken
by the Company at the Genomics Center will be activities for which the Company
and HMR have little or no experience. There can be no assurance that the Company
will be able to recruit, hire, integrate and retain the highly skilled personnel
necessary to successfully operate the Genomics Center or that the Genomics
Center will be successful. The Company is relying in large part on HMR's
obligation to purchase series B preferred stock to finance the Company's share
of expenses and other costs related to the Genomics Center. The 1997 HMR
Genomics Agreement does not provide for funding beyond March 2002. In the event
that additional funding is not provided for subsequent to March 2002 or in the
event that HMR breaches its obligation to provide such funding, the Company's
business, financial condition and results of operations would be adversely
affected.
History of Losses; Uncertainty of Future Profitability. The Company has
incurred significant operating losses since its inception. The Company currently
has no product revenue, and there can be no assurance that it will ever be able
to earn such revenue or that its operations will become profitable, even if it
is able to commercialize any products.
Future Capital Needs; Uncertainty of Additional Funding; Fixed
Commitments. The operations of the Company to date have consumed substantial
amounts of cash, and substantial additional funding will be necessary in order
to continue the Company's research and product development programs, preclinical
and clinical testing of its product candidates, for the pursuit of regulatory
approvals, for establishing manufacturing, marketing and sales capabilities, for
working capital and general corporate purposes and for operating expenses. The
Company intends to seek additional funding through public or private financings
or other arrangements with collaborative partners or from other sources. There
can be no assurance, however, that additional funding will be available when
needed from any of these sources or will be available on terms acceptable to the
Company. Insufficient funds may require the Company to delay, scale back or
eliminate one
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or more of its research and development programs or to license third parties to
commercialize products or technologies that the Company would otherwise seek to
develop itself without relinquishing rights thereto.
Dependence on Others; Collaborations. A key element of the Company's
strategy is to enhance certain of its drug discovery and development programs
and to fund its capital requirements, in part, by entering into collaborative
arrangements with major pharmaceutical or biotechnology companies, as well as
various arrangements with academic collaborators, licensors, licensees and
others. There can be no assurance that the Company's existing collaborations
will be successful or that the Company will be successful in entering into any
such future collaborations, nor that these future collaborations, if entered
into, will be on terms favorable to the Company or will be successful.
Dependence on Licenses. The Company has entered into license arrangements
with various research institutions and universities pursuant to which the
Company is the licensee of certain technologies upon which the Company's current
and future product candidates are based, including certain patents associated
therewith. The loss or termination of any of the Company's licenses could have a
material adverse effect on the Company's research programs which in turn could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Substantial Competition and Risk of Technological Obsolesence. The Company
is engaged in the biopharmaceutical field, which is characterized by extensive
research efforts, rapid technological change and intense competition which is
likely to increase. Many of the Company's competitors and potential competitors
have substantially greater capital, research and development and human resources
and experience than the Company and represent significant long-term competition
for the Company. The Company's competitors may succeed in developing
technologies or products that are more effective or less costly than any that
may be developed by the Company and may also prove to be more successful than
the Company in manufacturing, marketing and sales. New developments are expected
to continue, and there can be no assurance that discoveries by others will not
render the Company's programs or product candidates obsolete or noncompetitive.
Uncertainty of Protection of Patents and Proprietary Rights. There can be
no assurance that the Company's or its licensor's patent applications will ever
issue patents or that the claims of any issued patents will afford meaningful
protection for the Company's technologies or products. In addition, there can be
no assurance that any patents issued to the Company or its licensors will not be
challenged, and subsequently invalidated or circumvented. Furthermore, if
patents that cover the Company's activities are issued to other parties, there
can be no assurance that the Company would be able to obtain licenses to the
rights contained under these patents at a reasonable cost or be able to develop
or obtain alternative technologies.
Government Regulation and Product Approval. In the event that the Company
were to develop any product candidates, such product candidates would be subject
to extensive governmental regulatory requirements and a lengthy approval process
in the United States and in other countries. The Company has a limited history
of conducting preclinical studies and has no history of conducting and managing
the clinical trials necessary to obtain regulatory approval and expects to
utilize contract research organizations and collaborative partners to conduct a
portion of its preclinical studies and clinical trials. There can be no
assurance that the Company will be able to identify collaborative partners
willing and able to conduct such trials on a basis acceptable to the Company, or
at all. Before receiving FDA approval to market a product, the Company will have
to demonstrate that the product is safe and effective in the patient population
that will be treated. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approvals. There can be no assurance that any product candidate
developed by the Company alone or in conjunction with others will prove to be
safe and efficacious in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing approval.
No History of Manufacturing, Marketing or Sales. The Company has no
history of manufacturing, marketing or product sales and has not invested in
manufacturing, marketing or product sales resources. If the Company were to
successfully develop any products, the failure to commercialize such products
independently or the failure to enter into satisfactory collaborations for such
commercialization would have a material adverse effect on the Company's
business, financial condition and results of operations.
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Need to Attract and Retain Key Officers, Employees and
Consultants. Because of the specialized scientific nature of the Company's
business, the Company is highly dependent on key members of its scientific and
management staff. While the Company has entered into employment agreements with
certain of its key employees, there can be no assurance that such employees will
remain with the Company. In connection with the Genomics Center, the Company is
obligated to recruit and retain a substantial number of highly qualified
scientists over the next five years. There is intense competition for qualified
personnel in the areas of the Company's activities, and there can be no
assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its business.
Uncertain Availability of Health Care Reimbursement. The Company may be
materially adversely affected by the continuing efforts of government and
third-party payers to contain or reduce the cost of health care through various
means.
Volatility of Stock Price. The market price of the Company's common stock
has in recent years fluctuated significantly, and it is likely that the price of
its common stock will continue to fluctuate in the future. Factors such as the
results of preclinical studies and clinical trials by the Company or its
competitors, other evidence of the safety or efficacy of pharmaceutical products
by the Company or its competitors, announcements of technological innovations or
new therapeutic products by the Company or its competitors, governmental
regulation, developments in patent or other proprietary rights of the Company or
its competitors, litigation, fluctuations in the Company's operating results and
market conditions for life science stocks in general could have a significant
impact on the market price of the common stock.
ITEM 2. PROPERTIES
The Company has leased approximately 84,000 square feet of laboratory and
office space at 26 Landsdowne Street, located in University Park at M.I.T., in
Cambridge, Massachusetts of which 34,000 square feet is currently undergoing
renovation. The lease is for a ten-year term ending in the first quarter of the
year 2002, with two consecutive five-year renewal options. The lease also grants
to the Company a right of first refusal on any additional space that may become
available in the 100,000 square-foot building under substantially the same terms
and conditions as the initial space. ARIAD believes that its currently leased
facilities will, in large part, be adequate for the Genomics Center for the next
five years and its other research and development activities at least through
the end of 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company was named as a defendant in a purported class action lawsuit
commenced in the United States District Court for the Southern District of New
York on October 21, 1994 (the "Blech Securities Litigation"). The Company filed
a motion to dismiss the Blech Securities Litigation, and on June 6, 1996, the
Court granted that motion as to the Company. Although the Court gave plaintiffs
an opportunity to replead their allegations, the Company was not named as a
defendant in the amended complaint that plaintiffs subsequently filed.
The Company is a named defendant in a purported class action lawsuit (the
"Degulis Action") commenced on June 8, 1995 in the United States District Court
for the Southern District of New York. The Degulis Action names as defendants
the Company, David Blech (managing director and sole shareholder of D. Blech &
Company Incorporated ("D. Blech & Co.") and a former director of the Company),
D. Blech & Co., (which acted as underwriter for the Company's initial public
offering ("IPO") and a market maker for the Company's securities), as well as
certain members of the Company's Board of Directors and Shoenberg Hieber, Inc.
(which acted as qualified independent underwriter for the IPO).
In the Degulis Action, plaintiff purports to sue individually and on behalf
of a purported class of persons who purchased securities issued by the Company
during the period May 20, 1994 through September 21, 1994. Plaintiff alleges,
among other things, that the Registration Statement filed in connection with the
IPO was false and misleading. The complaint also alleges among other things,
that David Blech and D. Blech & Co. participated in purported "sham" sales
transactions of the Company's securities in an alleged attempt to artificially
inflate the prices at which the Company's securities were sold in the public
markets. All defendants
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are alleged to have participated in this alleged scheme and thus to have
violated Section 10(b) of the Exchange Act, and SEC Rule 10b-5, and to have
engaged in common-law fraud. Plaintiff also alleges that all defendants knew, or
should have known, of this alleged scheme and that they are liable for their
failure to disclose the alleged scheme to the investing public. There are no
allegations that assert specific acts of participation or wrongdoing by the
Company in the alleged schemes. Plaintiffs seek an unspecified amount of
damages, costs and attorneys' fees.
The Company filed a motion to dismiss the Degulis Action, and on June 6,
1996, the Court denied the motion. The Company intends to continue to defend
vigorously the Degulis Action.
Other than the Degulis Action, the Company is not party to any material
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock has been traded on the Nasdaq National Market
under the symbol "ARIA" since September 19, 1994. The following table sets forth
the high and low sales prices of the common stock as quoted on the Nasdaq
National Market for the periods indicated.
HIGH LOW
---- ---
1995:
First Quarter.................................................. $2 5/8 $ 1 1/2
Second Quarter................................................. 3 1/4 2 1/4
Third Quarter.................................................. 5 1/8 2 1/2
Fourth Quarter................................................. 5 1/2 3 1/8
1996:
First Quarter.................................................. 6 3/8 3 9/16
Second Quarter................................................. 4 7/8 3 9/16
Third Quarter.................................................. 4 1/4 2 7/16
Fourth Quarter................................................. 5 3/4 3 11/16
HOLDERS
The approximate number of holders of record of the common stock as of March
18, 1997 was 400.
DIVIDENDS
The Company has not declared or paid dividends in the past and does not
intend to declare or pay dividends in the foreseeable future. The Company's
current long-term debt agreements prohibit the payment of cash dividends. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 5 of "Notes to
Consolidated Financial Statements.")
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1996, 1995,
1994, 1993 and 1992 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,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------
STATEMENT OF OPERATIONS DATA:
Revenue:
Research revenue............ $ 10,304,332 $ 2,102,222 $ 460,084 $ 592,754 $ 166,546
Interest income............. 1,271,895 1,360,225 1,091,820 1,257,980 1,051,601
------------ ------------ ------------ ------------ -----------
Total revenue........ 11,576,227 3,462,447 1,551,904 1,850,734 1,218,147
------------ ------------ ------------ ------------ -----------
Operating expenses:
Research and development.... 15,253,874 13,675,025 14,566,444 11,968,619 5,315,544
General and
administrative............ 2,229,273 2,281,247 2,089,380 2,042,121 1,737,779
Interest expense............ 269,131 323,124 359,581 409,819 82,781
------------ ------------ ------------ ------------ -----------
Total operating
expenses........... 17,752,278 16,279,396 17,015,405 14,420,559 7,136,104
------------ ------------ ------------ ------------ -----------
Loss before cumulative effect
of change in accounting
principle................... (6,176,051) (12,816,949) (15,463,501) (12,569,825) (5,917,957)
Cumulative effect of change in
accounting principle........ 90,909
------------ ------------ ------------ ------------ -----------
Net loss...................... $ (6,176,051) $(12,816,949) $(15,372,592) $(12,569,825) $(5,917,957)
============ ============ ============ ============ ===========
Per share:
Loss before cumulative
effect of change in
accounting principle...... $ (.33) $ (.71) $ (1.03) $ (.94) $ (.53)
Cumulative effect of change
in accounting principle... .01
------------ ------------ ------------ ------------ -----------
Net loss...................... $ (.33) $ (.71) $ (1.02) $ (.94) $ (.53)
============ ============ ============ ============ ===========
Weighted average number of
shares of common stock
outstanding................. 18,999,573 17,972,763 15,067,403 13,426,360 11,240,285
DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities....... $ 15,702,300 $ 27,056,234 $ 24,188,848 $ 26,960,669 $34,635,015
Working capital............... 11,901,775 20,995,251 22,117,200 24,370,210 31,331,877
Total assets.................. 27,604,993 37,201,730 33,481,980 36,515,356 44,750,719
Long-term debt................ 1,472,812 1,540,727 2,459,515 3,802,375 5,145,235
Accumulated deficit........... (53,825,707) (47,649,656) (34,832,707) (19,460,115) (6,890,290)
Stockholders' equity.......... 16,684,471 22,684,447 28,021,482 29,426,677 35,699,890
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company was formed in 1991 to engage in the discovery and development
of novel pharmaceuticals based on intracellular signal transduction technology.
ARIAD is developing small-molecule drugs to block signal transduction pathways
in cells responsible for osteoporosis, immune and inflammatory diseases and
cancer. In addition, the Company is developing a system using small-molecule
drugs that controls signal transduction pathways to provide a means of
regulating therapeutic protein production in gene therapy. ARIAD's signal
transduction inhibitor and regulated gene therapy programs are supported by a
broad drug discovery platform that includes highly integrated capabilities in
functional genomics, molecular cell biology, structure-based drug design,
combinatorial chemistry and pharmacology.
Since its inception in 1991, the Company has devoted substantially all of
its resources to its research and development programs. The Company receives no
revenue from the sale of pharmaceutical products and substantially all revenue
to date has been received in connection with the Company's research
collaborations. The Company has not been profitable since inception and expects
to incur substantial and increasing losses for the foreseeable future, primarily
due to the expansion of its research and development programs, including the
establishment of the Genomics Center. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial.
As of December 31, 1996, the Company had an accumulated deficit of $53,826,000.
RECENT DEVELOPMENT
In March 1997, the Company entered into a 50/50 joint venture with HMR to
pursue functional genomics with the goal of identifying novel therapeutic
proteins and drug targets. The Genomics Center will be located at the Company's
facilities in Cambridge, Massachusetts. The Company and HMR agreed to commit up
to $85,000,000, including $78,500,000 to fund operating and related costs
associated with the Genomics Center over an initial five-year period and up to
$6,500,000 in leasehold improvements and equipment to be funded by ARIAD. HMR
has committed to provide ARIAD with capital adequate to fund ARIAD's share of
such costs through the purchase of up to $49,000,000 of series B preferred stock
through the five-year period, including an initial purchase of 2,526,316 shares
of series B preferred stock for $24,000,000 on March 18, 1997. See "-- Liquidity
and Capital Resources."
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 will be charged to
research and development expense and general and administrative expense in its
consolidated financial statements. Under the Services Agreements, ARIAD will
bill the Genomics Center for 100% of its costs of providing the research and
administrative services; however, because ARIAD is providing 50% of the funding
of the Genomics Center, ARIAD will recognize as revenue only 50% of the amounts
billed. Accordingly, the Company's operating losses will increase substantially
as a result of the 1997 HMR Genomics Agreement. ARIAD will account for its
investment in the Genomics Center using the equity method.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue
The Company's research revenue under collaborative arrangements and
government-sponsored research grants was $10,304,000, $2,102,000 and $460,000
for the years ended December 31, 1996, 1995 and 1994, respectively. The
increases of $8,202,000 in 1996 compared to 1995 and $1,642,000 in 1995 compared
to 1994 were primarily due to research revenue recognized under the Company's
1995 HMR Osteoporosis Agreement, which commenced in November 1995, which
amounted to $9,333,000 in 1996 and $1,222,000 in 1995. Research revenue for 1996
recognized under the 1995 HMR Osteoporosis Agreement includes $3,333,000
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from the amortization of deferred revenue and $2,000,000 relating to the
achievement of the first research milestone. Although research revenue
recognized under the 1995 HMR Osteoporosis Agreement is expected to remain
substantially equivalent in 1997, research revenue resulting from the Services
Agreements with the Genomics Center is expected to increase over the next three
years. See "-- Liquidity and Capital Resources."
Interest income was $1,272,000, $1,360,000 and $1,092,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. Interest income decreased
by $88,000 in 1996 compared to 1995 primarily as a result of lower levels of
funds invested and increased by $268,000 in 1995 compared to 1994 as a result of
higher yields on a lower level of average funds invested.
Operating Expenses
Research and development expenses were $15,254,000, $13,675,000 and
$14,566,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Research and development expenses increased by $1,579,000 or 11.5% in 1996
compared to 1995 due primarily to increased research activity as a result of the
1995 HMR Osteoporosis Agreement and decreased by $892,000 or 6.1% in 1995
compared to 1994 due to a narrowing of the Company's drug discovery focus to its
signal transduction programs. The Company expects its research and development
expenses to increase substantially over the next three years as a result of
research services to be provided to the Genomics Center pursuant to the Services
Agreements. See "-- Liquidity and Capital Resources."
General and administrative expenses were $2,229,000, $2,281,000 and
$2,089,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
General and administrative expenses decreased by $52,000 or 2.3% in 1996
compared to 1995 primarily due to savings in insurance and legal expenses and
increased by $192,000 or 9.2% in 1995 compared to 1994 primarily due to higher
legal expenses.
The Company incurred interest expense of $269,000 in 1996 compared to
$323,000 in 1995 and $360,000 in 1994. The decreases resulted from lower levels
of long-term debt offset somewhat in 1995 by higher interest rates.
Operating Results
The Company incurred losses before the cumulative effect of change in
accounting principle of $6,176,000 in 1996, $12,817,000 in 1995 and $15,464,000
in 1994, or $.33, $.71 and $1.03 per share, respectively. Effective January 1,
1994, the Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As a result,
the Company recorded a cumulative effect which decreased the net loss in 1994 by
$91,000 ($.01 per share). After the cumulative effect, the Company incurred a
net loss in 1994 of $15,373,000, or $1.02 per share.
The Company expects that substantial operating losses will continue for
several more years and will increase as its activities expand as a result of
services provided to the Genomics Center and to the extent that the Company's
product candidates in research and development undergo preclinical studies and
clinical trials. Operating losses are likely to fluctuate as a result of
differences in the timing and composition of revenue earned and expenses
incurred.
At December 31, 1996, the Company had available for federal tax reporting
purposes net operating loss carryforwards of approximately $47,500,000 that
expire commencing in 2006. The Company also had federal research and development
tax credit carryovers of approximately $2,100,000 that expire commencing in
2006. Both the net operating loss carryforwards and tax credits are subject to
certain limitations under federal tax laws.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and investments in property and
equipment primarily through the private placement and public offering of its
securities, supplemented by the issuance of long-term debt, sale/leaseback and
capital lease transactions, interest income, government-sponsored research
grants and, commencing in November 1995, research revenue under the 1995 HMR
Osteoporosis Agreement.
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At December 31, 1996, the Company had cash, cash equivalents and marketable
securities totaling $15,703,000 and working capital of $11,902,000, compared to
cash, cash equivalents and marketable securities totaling $27,056,000 and
working capital of $20,995,000 at December 31, 1995.
The primary uses of cash during the year ended December 31, 1996 were
$9,498,000 to finance the Company's operations and working capital requirements,
$1,265,000 to purchase equipment, $452,000 to acquire licensed technology and
patent rights and $1,558,000 to repay long-term debt. During 1996, the Company
received net proceeds of $1,392,000 from the sale/leaseback of laboratory
equipment.
In March 1997, the Company entered into a 50/50 joint venture with HMR to
pursue functional genomics with the goal of identifying novel therapeutic
proteins and small-molecule drug targets. The Company and HMR agreed to commit
up to $85,000,000, including $78,500,000 to fund the operating and related costs
associated with the Genomics Center over an initial five-year period and up to
$6,500,000 in leasehold improvements and equipment to be funded by ARIAD. HMR
has committed to provide ARIAD with capital adequate to fund ARIAD's share of
such costs through the purchase of up to $49,000,000 of series B preferred stock
through the five-year period, including an initial investment of $24,000,000 as
discussed below. The Company also entered into the Services Agreements with the
Genomics Center to provide research and administrative services to the Genomics
Center on a cost reimbursement basis.
Pursuant to the 1997 HMR Genomics Agreement, on March 18, 1997, HMR
purchased 2,526,316 shares of the Company's series B preferred stock for
$24,000,000. During the period from 1999 to 2002, at the Company's option, HMR
has agreed to make subsequent purchases of up to $25,000,000 of series B
preferred stock at purchase prices based on a premium to the market price of the
common stock at the time of each subsequent purchase (unless the market price of
the common stock exceeds a predetermined ceiling, in which case the purchase
price will be equal to the market price). Should ARIAD and HMR determine that
the Genomics Center requires funds in excess of those committed, ARIAD may fund
its share of the excess through a loan facility made available by HMR. Funds
borrowed by ARIAD pursuant to such loan facility, if any, will bear interest at
a rate of LIBOR plus 0.25% and are repayable by 2003 in cash or series B
preferred stock, at the Company's option.
In November 1995, the Company entered into an agreement with HMR to
collaborate on the discovery and development of drugs to treat osteoporosis and
related bone diseases, one of the Company's signal transduction drug discovery
programs. Under the terms of the 1995 HMR Osteoporosis Agreement, HMR made an
initial cash payment to the Company of $10,000,000, agreed to provide research
funding in equal quarterly amounts of $1,000,000 up to an aggregate of
$20,000,000 over a five-year period and agreed to provide an aggregate of up to
$10,000,000 upon the attainment of certain research milestones. In addition, HMR
has established a dedicated research group to collaborate with the Company on
the discovery of osteoporosis drugs and has agreed to fund all of the
preclinical and clinical development costs for products that emerge from the
collaboration. The 1995 HMR Osteoporosis Agreement further provides for the
payment of royalties to the Company based on product sales. HMR may elect to
terminate the 1995 HMR Osteoporosis Agreement and further payment obligations
after three years if certain scientific milestones have not been achieved,
whereupon all rights would revert back to the Company. To date, revenue
recognized under the 1995 HMR Osteoporosis Agreement has amounted to
$10,555,000, including $2,000,000 in 1996 relating to the achievement of the
first research milestone which was included in accounts receivable at December
31, 1996.
The Company has substantial fixed commitments under various research and
licensing agreements, consulting and employment agreements, lease agreements and
long-term debt instruments. Such fixed commitments, excluding the Company's
funding obligations related to the Genomics Center, currently aggregate in
excess of $5,000,000 per year and are likely to increase. The Company will
require substantial additional funding for its research and product development
programs, for operating expenses, for the pursuit of regulatory clearances and
for establishing manufacturing, marketing and sales capabilities. Adequate funds
for these purposes, whether obtained through financial markets or collaborative
or other arrangements with collaborative partners, or from other sources, may
not be available when needed or on terms acceptable to the Company.
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The Company believes that its existing capital resources, funding from the
1997 HMR Genomics Agreement plus interest income and other sources will be
adequate to satisfy its capital and operational requirements for the Genomics
Center for the next five years and will be adequate to satisfy its other capital
and operating requirements for at least the next two years. However, there can
be no assurance that changes in the Company's research and development plans or
other events affecting the Company's operating expenses will not result in the
earlier depletion of the Company's funds.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
ARIAD Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of ARIAD
Pharmaceuticals, Inc. and its subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ARIAD Pharmaceuticals, Inc. and
its subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 29, 1997
(March 18, 1997 as to Note 12)
28
30
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents(1).................................... $ 2,906,851 $ 3,750,082
Marketable securities(1)(2)..................................... 12,795,449 23,306,152
Accounts receivable and other(3)................................ 2,569,404 504,460
----------- -----------
Total current assets......................................... 18,271,704 27,560,694
----------- -----------
Property and equipment:(1)(5)(6)
Leasehold improvements.......................................... 7,000,873 6,978,006
Equipment and furniture......................................... 4,256,805 3,100,507
----------- -----------
Total........................................................ 11,257,678 10,078,513
Less accumulated depreciation and amortization.................. 4,748,275 3,365,904
----------- -----------
Property and equipment, net.................................. 6,509,403 6,712,609
----------- -----------
Licensed technology and patent application costs(1)(4)............ 1,357,470 1,080,823
----------- -----------
Other assets(1)................................................... 1,466,416 1,847,604
----------- -----------
Total................................................... $27,604,993 $37,201,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt(5)............................ $ 1,275,956 $ 1,460,695
Accounts payable................................................ 788,282 677,918
Accrued liabilities............................................. 639,026 760,165
Deferred revenue(3)............................................. 3,666,665 3,666,665
----------- -----------
Total current liabilities.................................... 6,369,929 6,565,443
----------- -----------
Long-term debt(5)................................................. 1,472,812 1,540,727
----------- -----------
Deferred revenue(3)(7)............................................ 3,077,781 6,411,113
----------- -----------
Commitments and contingencies(6)(9)(11)(12).......................
Stockholders' equity:(7)(8)(12)
Preferred stock, $.01 par value; authorized,
10,000,000 shares; none issued and outstanding(12)...........
Common stock, $.001 par value; authorized,
60,000,000 shares; issued and outstanding,
19,036,723 shares in 1996 and 18,965,728 shares in 1995...... 19,037 18,966
Additional paid-in capital...................................... 70,593,840 70,428,410
Net unrealized loss on marketable securities(2)................. (102,699) (113,273)
Accumulated deficit............................................. (53,825,707) (47,649,656)
----------- -----------
Stockholders' equity......................................... 16,684,471 22,684,447
----------- -----------
Total................................................... $27,604,993 $37,201,730
=========== ===========
See notes to consolidated financial statements.
29
31
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ------------ ------------
Revenue:
Research revenue(1)(3).............................. $10,304,332 $ 2,102,222 $ 460,084
Interest income(2).................................. 1,271,895 1,360,225 1,091,820
----------- ------------ ------------
Total revenue.................................... 11,576,227 3,462,447 1,551,904
----------- ------------ ------------
Operating expenses:
Research and development............................ 15,253,874 13,675,025 14,566,444
General and administrative.......................... 2,229,273 2,281,247 2,089,380
Interest expense(5)................................. 269,131 323,124 359,581
----------- ------------ ------------
Total operating expenses......................... 17,752,278 16,279,396 17,015,405
----------- ------------ ------------
Loss before cumulative effect of change in accounting
principle........................................... (6,176,051) (12,816,949) (15,463,501)
Cumulative effect of change in accounting
principle(1)........................................ 90,909
----------- ------------ ------------
Net loss.............................................. $(6,176,051) $(12,816,949) $(15,372,592)
=========== ============ ============
Per share:
Loss before cumulative effect of change in
accounting principle............................. $ (.33) $ (.71) $ (1.03)
Cumulative effect of change in accounting
principle(1)..................................... .01
----------- ------------ ------------
Net loss............................................ $ (.33) $ (.71) $ (1.02)
=========== ============ ============
Weighted average number of shares of common stock
outstanding(1)...................................... 18,999,573 17,972,763 15,067,403
See notes to consolidated financial statements.
30
32
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
----------- ------------ ------------
Cash flows from operating activities:
Net loss........................................ $(6,176,051) $(12,816,949) $(15,372,592)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 2,293,446 1,477,433 1,955,406
Cumulative effect of change in accounting
principle.................................. (90,909)
Stock-based compensation to consultants...... 27,225
Increase (decrease) from:
Deferred revenue........................... (3,333,332) 9,777,778 300,000
Accounts receivable and other.............. (2,064,944) 124,875 66,510
Other assets............................... (233,021) (1,464,809) (205,303)
Accounts payable........................... 110,364 (148,083) (131,893)
Accrued liabilities........................ (121,139) 228,043 (453,428)
------------ ------------ ------------
Net cash used in operating activities... (9,497,452) (2,821,712) (13,932,209)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of marketable securities........... (17,352,936) (28,131,068) (16,335,551)
Proceeds from sale and maturities of marketable
securities................................... 27,752,510 21,414,544 19,085,244
Investment in property and equipment, net....... (1,265,253) (461,418) (1,167,365)
Acquisitions of licensed technology and
patents...................................... (451,811) (406,817) (544,467)
------------ ------------ ------------
Net cash provided by (used in) investing
activities............................ 8,682,510 (7,584,759) 1,037,861
------------ ------------ ------------
Cash flows from financing activities:
Repayment of borrowings......................... (1,558,233) (1,342,860) (1,342,860)
Proceeds from sale/leaseback of equipment,
net.......................................... 1,391,668 366,952 401,907
Proceeds from issuance of common stock, net of
issuance costs............................... 7,000,000 14,499,950
Proceeds from exercise of stock options......... 138,276 108,141 2,493
Purchase of warrants............................ (50,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities............................ (28,289) 6,082,233 13,561,490
------------ ------------ ------------
Net increase (decrease) in cash and equivalents... (843,231) (4,324,238) 667,142
Cash and equivalents, beginning of year........... 3,750,082 8,074,320 7,407,178
------------ ------------ ------------
Cash and equivalents, end of year................. $ 2,906,851 $ 3,750,082 $ 8,074,320
============ ============ ============
See notes to consolidated financial statements.
31
33
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
UNREALIZED
COMMON STOCK ADDITIONAL LOSS ON
-------------------- PAID-IN MARKETABLE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SECURITIES DEFICIT EQUITY
---------- ------- ----------- ---------- ------------ ------------
Balance, January 1, 1994......... 13,804,195 $13,804 $48,872,988 $(19,460,115) $ 29,426,677
Purchase and retirement of
fractional shares upon
reverse split(7)............. (350)
Initial public offering of
units, comprised of common
stock and warrants(7)........ 2,125,225 2,125 14,497,875 14,500,000
Repurchase and retirement of
common stock................. (17,857) (18) (32) (50)
Exercise of stock options...... 445 1 2,492 2,493
Cumulative effect of change in
accounting principle(8)...... $ (90,909) (90,909)
Change in net unrealized
loss(2)...................... (444,137) (444,137)
Net loss....................... (15,372,592) (15,372,592)
---------- ------- ----------- --------- ------------ ------------
Balance, December 31, 1994....... 15,911,658 15,912 63,373,323 (535,046) (34,832,707) 28,021,482
Private placement of common
stock(7)..................... 3,000,000 3,000 6,997,000 7,000,000
Exercise of stock options(8)... 54,070 54 108,087 108,141
Repurchase and retirement of
warrants(7).................. (50,000) (50,000)
Change in net unrealized
loss(2)...................... 421,773 421,773
Net loss....................... (12,816,949) (12,816,949)
---------- ------- ----------- --------- ------------ ------------
Balance, December 31, 1995....... 18,965,728 18,966 70,428,410 (113,273) (47,649,656) 22,684,447
Exercise of stock options(8)... 70,995 71 138,205 138,276
Stock-based compensation to
consultants(1)............... 27,225 27,225
Change in net unrealized
loss(2)...................... 10,574 10,574
Net loss....................... (6,176,051) (6,176,051)
---------- ------- ----------- --------- ------------ ------------
Balance, December 31, 1996....... 19,036,723 $19,037 $70,593,840 $(102,699) $(53,825,707) $ 16,684,471
========== ======= =========== ========= ============ ============
See notes to consolidated financial statements.
32
34
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. (the "Company" or "ARIAD") was formed in 1991
to engage in the discovery and development of novel pharmaceuticals based on
intracellular signal transduction technology. ARIAD is developing small-molecule
drugs to block signal transduction pathways in cells responsible for
osteoporosis, immune and inflammatory diseases and cancer. In addition, the
Company is developing a system using small-molecule drugs that controls signal
transduction pathways to provide a means of regulating therapeutic protein
production in gene therapy. ARIAD's signal transduction inhibitor and regulated
gene therapy programs are supported by a broad drug discovery platform that
includes highly integrated capabilities in functional genomics, molecular cell
biology, structure-based drug design, combinatorial chemistry and pharmacology.
ARIAD's regulated gene therapy program is being conducted through ARIAD
Gene Therapeutics, Inc. ("AGTI"), a subsidiary of the Company organized in
November 1993.
Principles of Consolidation
The consolidated financial statements include the accounts of ARIAD
Pharmaceuticals, Inc., its wholly owned subsidiary, ARIAD Corporation, and its
97%-owned subsidiary, AGTI. Intercompany accounts and transactions have been
eliminated (Note 7 -- Minority Interest in Subsidiary).
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of the fair
value of certain financial instruments. The carrying amounts of cash, cash
equivalents, accounts payable and accrued liabilities approximate fair value
because of their short-term nature. Marketable securities are recorded in the
consolidated financial statements at aggregate fair value (Note 2). The carrying
amounts of the Company's debt instruments approximate fair value (Note 5).
Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that their carrying amounts may not be recoverable. The
adoption of the statement had no material effect on the Company's consolidated
financial position or results of operations.
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.
33
35
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
Cash equivalents include short-term, highly liquid investments, which
consist principally of United States Treasury and Agency securities and
high-grade domestic corporate securities, purchased with remaining maturities of
90 days or less.
Marketable Securities
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Pursuant to the
statement, the Company has classified its marketable securities as "available
for sale" and, accordingly, carries such securities at aggregate fair value.
Fair value has been determined based on quoted market prices, in a dealer
market, at the closing bid for each individual security held.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of the assets (3 to 10
years). Assets acquired under capital lease obligations are stated at the lower
of the present value of the minimum lease payments or the fair market value at
the inception of the lease. Assets recorded under capital leases and leasehold
improvements are amortized over the shorter of their useful lives or lease term
using the straight-line method (4 to 10 years).
Licensed Technology and Patent Application Costs
Costs incurred in obtaining licenses to technology are capitalized and
amortized over the shorter of the license term or seven years using the
straight-line method.
Costs incurred in filing for patents are capitalized. Capitalized costs
related to unsuccessful patent applications are expensed when it becomes
determinable that such applications will not be successful. Capitalized costs
related to successful patent applications 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. Accumulated amortization of licensed
technology and patent application costs at December 31, 1996 and 1995 was
$412,582 and $336,910, respectively.
Other Assets
Other assets consist primarily of costs aggregating $1,670,000 incurred in
connection with the 1995 HMR Osteoporosis Agreement (Note 3) and include
financial advisory fees and legal and consulting expenses. Such costs are being
amortized over a three-year period beginning November 1995. Other assets also
include deferred financing and organization costs, which are being amortized
over periods of three to seven years using the straight-line method. Accumulated
amortization at December 31, 1996 and 1995 was $1,013,128 and $398,921,
respectively.
Revenue Recognition
Research revenue is generally recognized as research is performed under the
terms of the respective applicable agreements. Amounts received in advance under
collaborative research and development agreements (Note 3) are recorded as
deferred revenue and are being amortized over the minimum term of the agreement,
using the straight-line method. Revenue earned upon the attainment of research
milestones is recognized when achieved.
34
36
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company elected to continue to apply the intrinsic value method to account
for employee stock-based compensation. Effective January 1, 1996, as required by
SFAS No. 123, the Company adopted the fair value method to account for
stock-based compensation to consultants. The effect of this adoption was to
increase compensation expense by $27,225 in 1996.
Net Loss Per Share
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded as their effect is not dilutive.
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, 1996 and 1995, the Company's marketable securities consisted of the
following:
AGGREGATE AMORTIZED GROSS UNREALIZED
FAIR VALUE COST BASIS GAINS LOSSES
----------- ----------- ------- ---------
1996
U.S. Government obligations.................... $ 4,444,217 $ 4,507,983 $ 580 $ (64,346)
Corporate debt securities...................... 8,101,761 8,140,694 3,120 (42,053)
Certificate of deposit......................... 249,471 249,471
----------- ----------- ------- ----------
Total.................................. $12,795,449 $12,898,148 $ 3,700 $(106,399)
=========== =========== ======= ==========
1995
U.S. Government obligations.................... $14,871,417 $14,981,763 $ 2,623 $(112,969)
Corporate debt securities...................... 8,185,264 8,188,191 19,376 (22,303)
Certificate of deposit......................... 249,471 249,471
----------- ----------- ------- ----------
Total.................................. $23,306,152 $23,419,425 $21,999 $(135,272)
=========== =========== ======= ==========
At December 31, 1996 and 1995, approximately $11,845,000 and $22,300,000,
respectively, of investments in marketable securities had contractual maturities
of three years or less; approximately $8,545,000 and $18,800,000, respectively,
of such investments matured in one year or less. Realized gains and losses on
sales of marketable securities were not material during the years ended December
31, 1996 and 1995.
Changes in market values resulted in a reduction of $10,574 and $421,773 in
net unrealized losses for the years ended December 31, 1996 and 1995,
respectively.
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
In November 1995, the Company entered into an agreement with Roussel Uclaf,
an affiliate of Hoechst Marion Roussel Inc. ("HMR") (the "1995 HMR Osteoporosis
Agreement"), to collaborate on the discovery and development of drugs to treat
osteoporosis and related bone diseases, one of the Company's signal transduction
drug discovery programs. Under the 1995 HMR Osteoporosis Agreement, the Company
granted to HMR exclusive rights to develop and commercialize these drugs
worldwide. The Company has the right, under certain circumstances, to
participate in the development and commercialization of these products for
certain indications in North America. Under the terms of the 1995 HMR
Osteoporosis Agreement, HMR made an initial cash payment to the Company of
$10,000,000, agreed to provide research funding in equal
35
37
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarterly amounts of $1,000,000 up to an aggregate of $20,000,000 over a
five-year period and agreed to provide an aggregate of up to $10,000,000 upon
the attainment of certain research milestones. In addition, HMR established a
dedicated research group to collaborate with the Company on the discovery of
osteoporosis drugs and agreed to fund all of the preclinical and clinical
development costs for products that emerge from the collaboration. The 1995 HMR
Osteoporosis Agreement further provides for the payment of royalties to the
Company based on product sales. HMR may elect to terminate the 1995 HMR
Osteoporosis Agreement and further payment obligations after three years if
certain scientific milestones have not been achieved, whereupon all rights would
revert back to the Company. Revenue recognized under the 1995 HMR Osteoporosis
Agreement amounted to $9,333,000 for 1996, including $2,000,000 for the
achievement of the first research milestone which is included in accounts
receivable at December 31, 1996, and $1,222,000 for the two-month period ended
December 31, 1995.
The Company was the grantee organization of four grants from the National
Institutes of Health to conduct research related to signal transduction. Costs
incurred and the corresponding research revenue recognized were approximately
$971,000, $880,000 and $460,000 for 1996, 1995 and 1994, respectively.
4. LICENSED TECHNOLOGY AND PATENT APPLICATION COSTS
The Company and AGTI have entered into agreements with several universities
under the terms of which the Company has received exclusive licenses or options
to technology in certain patent applications. The agreements, which are
generally cancelable by the Company, provide for the payment of license fees
and/or minimum payments which are generally creditable against future royalties
and aggregated $125,000, $105,500 and $242,000 for 1996, 1995 and 1994,
respectively, and are expected to amount to approximately $95,000 and $165,000
for 1997 and 1998, respectively, and $120,000 during each of the three years in
the period ending December 31, 2001. In addition, the agreements provide for
payments upon the achievement of certain milestones in drug development, such as
the filing of an Investigational New Drug application or the filing of a New
Drug Application for regulatory approval in the United States. The agreements
also require the Company to fund certain costs associated with the filing of
patent applications.
5. LONG-TERM DEBT
Long-term debt was comprised of the following:
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
Bank term note at prime plus 1% (9.25%), payable in monthly
installments of $100,000 plus interest, through July 1, 1997...... $ 700,000 $1,900,000
Capital lease obligation, at 9%, payable in monthly installments of
$46,518 including interest, through December 31, 2000............. 1,632,113 541,907
Government-sponsored seven-year term note, at prime plus 2.75%
(11.00%), payable in monthly installments of $11,905 plus
interest, through November 1, 1999................................ 416,655 559,515
---------- ----------
Total..................................................... 2,748,768 3,001,422
Less current portion................................................ 1,275,956 1,460,695
---------- ----------
Long-term debt...................................................... $1,472,812 $1,540,727
========== ==========
The notes and capital lease obligation are collateralized by all assets of
the Company, and the government-sponsored note is partially guaranteed by the
Small Business Administration. The Company may, at its option, pledge marketable
securities under the bank term note, and, in such event, the interest rate would
be adjusted to the equivalent of 90-day LIBOR plus 1.25%.
36
38
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above agreements contain certain covenants that restrict additional
indebtedness, capital spending and stock redemption; prohibit dividend
distributions; and require the Company to maintain minimum levels of tangible
net worth of $11,000,000, working capital of $7,000,000 and liquid assets of
$15,000,000, all as defined.
The aggregate future principal payments are $1,276,000 in 1997, $617,500 in
1998, $650,100 in 1999 and $195,400 in 2000. Interest payments during 1996, 1995
and 1994 were $231,130, $264,124 and $285,706, respectively.
6. LEASED FACILITY AND EQUIPMENT
The Company leases its facility and certain equipment under various
operating leases.
In 1992, the Company entered into a ten-year noncancelable operating lease
for approximately 50,000 square feet of office and laboratory space. The lease
grants to the Company a right of first refusal on any additional space that may
become available in the 100,000 square-foot building under substantially the
same terms and conditions as the initial space. Pursuant to this right, the
Company leased an additional 34,000 square feet of unimproved space, which is
currently undergoing renovation. Rent expense for the years ended December 31,
1996, 1995 and 1994 amounted to $802,990, $813,990 and $744,200, respectively.
Future minimum annual rental payments under the lease are approximately
$885,000, $939,000, $975,000, $987,000 and $987,000, respectively, for each of
the five years 1997 through 2001.
The Company has utilized lease credit facilities from various equipment
leasing companies since 1992. The lease agreements, which are classified as
operating leases for financial reporting purposes, have terms ranging from three
to four years, with various lease renewal or purchase options at the end of the
initial term. Equipment rental expense for the years ended December 31, 1996,
1995 and 1994 amounted to $1,461,951, $1,846,564 and $1,688,759, respectively.
The agreements contain covenants requiring the Company to maintain certain
minimum levels of net worth, working capital and liquid assets. Minimum future
rental payments under the initial terms of the leases are approximately
$1,009,000 for 1997, $595,000 for 1998, $433,000 for 1999 and $275,000 for 2000.
7. STOCKHOLDERS' EQUITY
Reverse Split of Common Stock
On April 8, 1994, the stockholders approved a 1.0-for-2.8 reverse split of
the Company's common stock and a decrease in the number of authorized shares of
common stock from 80,000,000 to 60,000,000. The accompanying consolidated
financial statements reflect the 1.0-for-2.8 reverse stock split and the
decrease in authorized shares.
Private Placement
In April 1995, the Company completed a private placement of 3,000,000
shares of common stock to an institutional investor at a price of $2.35 per
share and received aggregate net proceeds of $7,000,000, after deducting
expenses.
Initial Public Offering
On May 27, 1994, the Company completed an initial public offering ("IPO")
and issued 2,125,225 units, each unit consisting of one share of ARIAD common
stock and one warrant to purchase one share of ARIAD common stock, and received
net proceeds of $14,500,000 after deducting selling commissions and offering
expenses. On September 19, 1994, the publicly traded units issued in the IPO
were separated into 2,125,225 shares of common stock and an equal number of
warrants.
37
39
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the units issued, 1,900,000 were sold to the public at $8.00 per unit
and the remaining 225,225 units were sold to Genentech, Inc. at a price of $8.88
per unit. In connection with the sale of units to Genentech, Genentech received
a right of first negotiation with respect to certain applications of AGTI's
regulated gene therapy technology. Accordingly, $300,000 has been attributed to
this right and classified as deferred revenue in the consolidated financial
statements.
Warrants
In connection with a 1992 private placement of common stock, the Company
issued to the placement agents five-year warrants to purchase 733,258 shares of
common stock at an exercise price of $5.60 per share. The warrants expire in
March 1997 or within 90 days of a change of control, if earlier (Note 12).
As part of the units issued in connection with the IPO, the Company issued
2,125,225 warrants with an exercise price of $8.40 per share, subject to
adjustment. Such warrants commenced trading separately on September 19, 1994.
These publicly traded warrants expire on May 20, 1999, and are subject to
earlier redemption. Also in connection with the IPO, the Company issued to its
underwriter 325,000 warrants with an exercise price of $13.20 per share. These
warrants were repurchased by the Company and retired in March 1995.
Preferred Stock
On September 16, 1994, the stockholders approved an amendment to the
certificate of incorporation authorizing the issuance by the Company of up to
10,000,000 shares of preferred stock. The Board of Directors is empowered to
designate and issue different series of preferred stock. On December 15, 1994,
the Board of Directors established a series A preferred stock, par value $.01
per share, of the Company in connection with the adoption of the stockholder
rights plan described below, and authorized the issuance of 500,000 shares of
such series (Note 12).
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 preferred
stock purchase right for each outstanding share of common stock. Under certain
circumstances involving an acquisition by a person or group of 20% or more of
ARIAD common stock or involving a 15% stockholder entering into certain
transactions involving the Company, or into certain business combinations, the
rights permit the holders (other than such person or group) to purchase ARIAD
common stock at a 50% discount. The plan is designed to protect ARIAD
stockholders in the event that an attempt is made to acquire the Company without
an offer of fair value.
Minority Interest in Subsidiary
In 1995, pursuant to the terms of a 1994 license agreement, the Company
distributed shares representing an aggregate of 3% of AGTI common stock
outstanding to Stanford University and Harvard University. In addition, AGTI has
granted stock options to employees and consultants for the purchase of its
common stock (Note 8).
8. STOCK OPTIONS
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 3,785,714 shares of common stock to officers, directors, employees
and consultants of the Company. Options become exercisable as specified in the
related option agreement and expire ten years from the date of grant.
38
40
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions under the Plans for the years ended December 31, 1994, 1995
and 1996 are as follows:
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
Options outstanding, January 1, 1994............................. 1,428,185 $ 5.65
Granted........................................................ 784,076 4.07
Forfeited...................................................... (46,999) 5.81
Exercised...................................................... (445) 5.60
---------
Options outstanding, December 31, 1994........................... 2,164,817 4.82
Granted........................................................ 468,115 2.41
Forfeited...................................................... (131,507) 2.14
Exercised...................................................... (54,070) 2.00
---------
Options outstanding, December 31, 1995........................... 2,447,355 2.25
Granted........................................................ 773,585 4.23
Forfeited...................................................... (70,584) 2.70
Exercised...................................................... (70,995) 1.91
---------
Options outstanding, December 31, 1996........................... 3,079,361 $ 2.57
=========
Options exercisable, December 31, 1994........................... 991,217 $ 2.05
=========
December 31, 1995........................... 1,463,501 $ 2.11
=========
December 31, 1996........................... 1,878,668 $ 2.57
=========
The following table sets forth information regarding options outstanding at
December 31, 1996:
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED NUMBER OF EXERCISE
RANGE OF AVERAGE AVERAGE OPTIONS PRICE FOR
NUMBER OF EXERCISE EXERCISE REMAINING CURRENTLY CURRENTLY
GRANT PERIOD SHARES PRICES PRICE LIFE (YEARS) EXERCISABLE EXERCISABLE
- - ------------------------------- --------- ------------ -------- ------------ ----------- -----------
4/91 to 6/95................... 2,214,511 $1.59 - 2.31 $ 1.94 6.4 1,700,043 $1.96
9/95 to 12/96.................. 864,850 3.62 - 4.88 4.19 9.3 178,625 4.30
--------- ------------ ----- --- --------- -----
3,079,361 $1.59 - 4.88 $ 2.57 7.2 1,878,668 $2.18
========= ============ ===== === ========= =====
In November 1994 and March 1995, the Company repriced options previously
granted to purchase 291,757 and 1,391,732 shares, respectively (with original
exercise prices ranging from $5.00 to $8.25 per share) to $2.00 per share, the
then fair market value.
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation,
the reported net loss and net loss per share would have been reported as
follows:
1996 1995
----------- ------------
Net loss................................. $(6,494,246) $(13,374,446)
Net loss per share....................... $ (.34) $ (.74)
The above disclosure, required by SFAS No. 123, includes only the effect of
grants made subsequent to January 1, 1995. For purposes of calculating the above
disclosure, the fair value of options on their grant date was measured using a
Black/Scholes option pricing model. Key assumptions used to apply this pricing
model included a risk-free interest rate of 6%, expected lives of the option
grants ranging from two to six years and
39
41
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected rates of volatility for the underlying stock of 78% and 86% for 1996
and 1995, respectively. Using this model, the weighted average fair value per
option for all options granted to consultants and employees in 1996 and 1995 was
$2.45 and $1.51, respectively.
The Company's subsidiary, AGTI, adopted stock option plans in 1993
substantially similar to the Plans and reserved 1,785,714 shares of AGTI's
common stock for issuance pursuant to such plans. At December 31, 1996, options
with respect to 1,238,565 shares of AGTI's common stock were outstanding at an
exercise price of $.42 per share, and 619,292 shares were exercisable. In 1996,
AGTI granted options to purchase 10,000 shares of AGTI common stock at an
exercise price of $.42 per share. This grant was excluded from the SFAS No. 123
disclosure because the Company does not believe that the fair value of the
options is material. If all of the options exercisable at December 31, 1996 had
been exercised, the holders would own 12.6% of the outstanding shares of AGTI
(22.4% if all outstanding options had been exercised).
9. RELATED-PARTY TRANSACTIONS
Vector Securities International, Inc. ("Vector Securities") has provided
consulting and investment banking services to the Company in seeking strategic
alliances with established pharmaceutical and biotechnology companies. In
connection with the 1995 HMR Osteoporosis Agreement (Note 3), the Company
incurred fees to Vector Securities aggregating $75,000 in 1996 and $1,200,000 in
1995. A member of the Board of Directors of the Company served as Vice Chairman
of Vector Securities during 1995.
The Company has entered into various employment agreements with its senior
executive officers. The agreements provide for aggregate annual base salaries of
$1,375,000 and remaining terms of employment ranging up to three years.
10. INCOME TAXES
At December 31, 1996, the Company has available for federal tax reporting
purposes, net operating loss carryforwards of approximately $47,500,000 which
expire commencing in 2006. The Company also has federal research and development
credit carryovers of approximately $2,100,000 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:
1996 1995
------------ ------------
Deferred tax liabilities:
Licensed technology and patents............................... $ 481,000 $ 377,000
Organizational costs.......................................... 1,000
------------ ------------
Total deferred tax liabilities........................ 482,000 377,000
------------ ------------
Deferred tax assets:
Net operating loss carryforwards.............................. 18,842,000 16,388,000
Tax credit carryovers......................................... 4,288,000 3,699,000
Depreciation.................................................. 458,000 350,000
Deferred revenue.............................................. 2,698,000 3,911,000
Other......................................................... 30,000 99,000
------------ ------------
Total deferred tax assets............................. 26,316,000 24,447,000
------------ ------------
Deferred tax assets, net........................................ 25,834,000 24,070,000
Valuation allowance............................................. (25,834,000) (24,070,000)
------------ ------------
Total deferred taxes.................................. $ -0- $ -0-
============ ============
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42
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of December 31, 1996 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire net deferred tax asset. The valuation allowance
increased during 1996 primarily due to an increase in the Company's net
operating loss carryforwards and tax credit carryovers.
11. LITIGATION
The Company was named as a defendant in a purported class action lawsuit
commenced in the United States District Court for the Southern District of New
York on October 21, 1994 (the "Blech Securities Litigation"). The Company filed
a motion to dismiss the Blech Securities Litigation, and on June 6, 1996, the
Court granted that motion as to the Company. Although the Court gave plaintiffs
an opportunity to replead their allegations, the Company was not named as a
defendant in the amended complaint that plaintiffs subsequently filed.
The Company is a named defendant in a purported class action law suit (the
"Degulis Action") commenced on June 8, 1995 in the United States District Court
for the Southern District of New York. The Degulis Action names as defendants
the Company, David Blech (managing director and sole shareholder of D. Blech &
Company Incorporated ("D. Blech & Co.") and a former director of the Company),
D. Blech & Co., (which acted as underwriter for the Company's initial public
offering ("IPO") and a market maker for the Company's securities), as well as
certain members of the Company's Board of Directors and Shoenberg Hieber, Inc.
(which acted as qualified independent underwriter for the IPO).
In the Degulis Action, plaintiff purports to sue individually and on behalf
of a purported class of persons who purchased securities issued by the Company
during the period May 20, 1994 through September 21, 1994. Plaintiff alleges,
among other things, that the Registration Statement filed in connection with the
IPO was false and misleading. The complaint also alleges among other things,
that David Blech and D. Blech & Co. participated in purported "sham" sales
transactions of the Company's securities in an alleged attempt to artificially
inflate the prices at which the Company's securities were sold in the public
markets. All defendants are alleged to have participated in this alleged scheme
and thus to have violated Section 10(b) of the Exchange Act, and SEC Rule 10b-5,
and to have engaged in common-law fraud. Plaintiff also alleges that all
defendants knew, or should have known, of this alleged scheme and that they are
liable for their failure to disclose the alleged scheme to the investing public.
There are no allegations that assert specific acts of participation or
wrongdoing by the Company in the alleged schemes. Plaintiffs seek an unspecified
amount of damages, costs and attorneys' fees.
The Company filed a motion to dismiss the Degulis Action, and on June 6,
1996, the Court denied the motion. The Company intends to continue to defend
vigorously the Degulis Action.
The ultimate outcome of the litigation cannot be presently determined.
Accordingly, no provision for any loss that may result upon resolution of this
matter has been made in the accompanying consolidated financial statements.
12. SUBSEQUENT EVENTS
Hoechst-ARIAD Genomics Center, LLC
In March 1997, the Company entered into a 50/50 joint venture with HMR to
pursue functional genomics with the goal of identifying novel therapeutic
proteins and small-molecule drug targets. The joint venture, named the
Hoechst -- ARIAD Genomics Center, LLC (the "Genomics Center"), will be located
at the Company's research facilities. The Company and HMR agreed to commit up to
$85,000,000 including $78,500,000 to fund operating and related costs associated
with the Genomics Center over an initial five-year period and up to $6,500,000
in leasehold improvements and equipment to be funded by ARIAD. HMR committed to
provide ARIAD with capital adequate to fund ARIAD's share of such costs through
the
41
43
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase of up to $49,000,000 of series B preferred stock through the five year
period, including an initial investment of $24,000,000, as discussed below.
On March 18, 1997, HMR purchased 2,526,316 shares of the Company's series B
preferred stock for $24,000,000. During the period from 1999 to 2002, at the
Company's option, HMR has agreed to make subsequent purchases of up to
$25,000,000 of series B preferred stock at purchase prices based on a premium to
the market price of the common stock at the time of each subsequent purchase
(unless the market price of the common stock exceeds a predetermined ceiling, in
which case the purchase price will be equal to the market price). The series B
preferred stock is convertible one-for-one into common stock upon the earliest
to occur of: (1) six months following termination of the Genomics Center, (2)
June 30, 2003, or (3) upon a change of control of the Company; and, if still
outstanding, the series B preferred stock shall be automatically converted on
December 31, 2006. Subject to certain restrictions relative to a merger or
acquisition of the Company, the series B stockholders shall have voting rights
equivalent to common stockholders. Should ARIAD and HMR determine that the
Genomics Center requires funds in excess of those committed, ARIAD may fund its
share of the excess through a loan facility made available by HMR. Funds
borrowed by ARIAD pursuant to such loan facility, if any, will bear interest at
a rate of LIBOR plus 0.25% and are repayable by 2003 in cash or series B
preferred stock, at the Company's option.
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 will be charged to
research and development expense and general and administrative expense in its
consolidated financial statements. Under the Services Agreements, ARIAD will
bill the Genomics Center for 100% of its costs of providing the research and
administrative services; however, because ARIAD is providing 50% of the funding
of the Genomics Center, ARIAD will recognize as revenue only 50% of the amounts
billed. ARIAD will account for its investment in the Genomics Center using the
equity method.
1992 Warrants
In February and March 1997, warrants to purchase 733,258 shares of common
stock, with an exercise price of $5.60 per share, issued in connection with a
1992 private placement, were exercised on a conversion right basis (cashless
exercise), resulting in the issuance of 176,813 shares of common stock, or
expired.
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44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and officers of the Company are as follows:
NAME AGE POSITION
- - -------------------------------------- --- ------------------------------------------------------
Harvey J. Berger, M.D.(1)............. 46 Chairman of the Board of Directors, President and
Chief Executive Officer
Edgar Haber, M.D.(1).................. 65 Vice Chairman of the Board of Directors
Charles C. Cabot III.................. 40 Executive Vice President and Chief Operating Officer
Michael Gilman, Ph.D.................. 42 Executive Vice President and Chief Scientific Officer
and Scientific Director, ARIAD Gene Therapeutics, Inc.
Jay R. LaMarche(1).................... 50 Executive Vice President and Chief Financial Officer,
Treasurer and Director
Joan S. Brugge, Ph.D.................. 47 Senior Vice President, Exploratory Research, Co-chair,
Board of Scientific and Medical Advisors and Director
Manfred Weigele, Ph.D................. 64 Senior Vice President, Physical and Chemical Sciences
David L. Berstein..................... 44 Vice President, Chief Patent Counsel
Dennis A. Holt, Ph.D.................. 40 Vice President, Drug Discovery -- Chemistry
John D. Iuliucci, Ph.D................ 54 Vice President, Drug Development
Kathleen L. Mattis.................... 40 Vice President, Finance and Corporate Controller
Mark J. Zoller, Ph.D.................. 43 Vice President, Drug Discovery -- Signal Transduction
David T. Washburn..................... 66 Secretary
Vaughn D. Bryson(1)................... 58 Director
John M. Deutch, Ph.D.................. 58 Director
Philip Felig, M.D.(2)................. 60 Director
Frank J. Hoenemeyer(3)................ 77 Director
Peter T. Joseph(3).................... 46 Director
Joel S. Marcus(3)..................... 49 Director
Sandford D. Smith(2).................. 50 Director
Raymond S. Troubh(2).................. 70 Director
- - ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
Harvey J. Berger, M.D. is the principal founder of ARIAD and has served as
the Company's Chairman of the Board, President and Chief Executive Officer since
April 1991. From 1986 to 1991, Dr. Berger held a series of senior management
positions at Centocor, Inc., a biotechnology company, most recently as Executive
Vice President and President, Research and Development Division. Dr. Berger
currently is a Lecturer in the Division of Health Sciences and Technology at the
Massachusetts Institute of Technology and the Harvard Medical School. He also
has held senior academic and administrative appointments at Emory University,
Yale University and the University of Pennsylvania and was an Established
Investigator of the American
43
45
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.
Edgar Haber, M.D., Vice Chairman of the Board of Directors of ARIAD since
October 1991, is Director of the Division of Biological Sciences and the Elkan
R. Blout Professor of Biological Sciences at the Harvard School of Public Health
and Professor of Medicine at Harvard Medical School. Prior to these
appointments, from 1990 to 1991, Dr. Haber was President of the Bristol-Myers
Squibb Pharmaceutical Research Institute and a Director of the Bristol-Myers
Squibb Company, where he directed overall research and development activities.
Previously, from 1988 to 1990, he was President of the Squibb Institute of
Medical Research and a Director of the Squibb Corporation. Dr. Haber received
his A.B. degree from Columbia College, his M.D. degree from the Columbia College
of Physicians and Surgeons and an Honorary A.M. degree from Harvard University.
He received his postdoctoral training at Massachusetts General Hospital, the
National Heart Institute and St. George's Hospital.
Charles C. Cabot III has served as Executive Vice President and Chief
Operating Officer of ARIAD since March 1997. He served as Senior Vice President
and Chief Operating Officer from January 1994 to February 1997 and as Senior
Vice President, Business Operations of ARIAD from January 1992 to December 1993.
Prior to joining ARIAD, from 1985 to 1991, Mr. Cabot held several positions at
Centocor Inc., most recently as a Vice President in the corporate group. Prior
to joining Centocor Inc., he was employed at Arthur D. Little where he was a
Program Manager in the Decision Resources Division. Mr. Cabot received his A.B.
in English and American Literature from Harvard College.
Michael Gilman, Ph.D. has served as Executive Vice President and Chief
Scientific Officer since March 1997. He served as Senior Vice President, Drug
Discovery from October 1996 to February 1997 and as Vice President,
Research -- Gene Therapy from August 1994 to September 1996. Dr. Gilman has
served as Scientific Director of ARIAD Gene Therapeutics, Inc. since August
1994. Prior to joining ARIAD, Dr. Gilman was on the staff at the Cold Spring
Harbor Laboratory since 1986, most recently as a Senior Scientist. Dr. Gilman
received his Ph.D. in Biochemistry from the University of California, Berkeley.
He received an S.B. degree in life sciences from the Massachusetts Institute of
Technology.
Jay R. LaMarche has served as Chief Financial Officer, Treasurer, and a
Director of ARIAD since January 1992. Mr. LaMarche has served as Executive Vice
President since March 1997, and as Senior Vice President, Finance from January
1992 to February 1997. Prior to joining ARIAD, he was Chief Financial Officer
and a Director of ChemDesign Corporation, a fine chemicals manufacturer, where
he served in several capacities, most recently as Executive Vice President.
Prior to his employment at ChemDesign, Mr. LaMarche was a partner with Deloitte
Haskins & Sells. Mr. LaMarche received his B.B.A. degree in Public Accountancy
from the University of Notre Dame and served as an officer in the United States
Navy.
Joan S. Brugge, Ph.D. has served as Senior Vice President, Exploratory
Research since October 1996. She served as Senior Vice President,
Research-Biology from May 1992 to September 1996 and as Scientific Director of
ARIAD from May 1992 to February 1997. Dr. Brugge was elected a Director of ARIAD
in February 1995. Since March 1997, she has co-chaired the Advisory Board. As of
July 1, 1997, Dr. Brugge will be Professor of Cell Biology at Harvard Medical
School pending final approval of the Harvard Medical School governing board. She
has agreed to serve as a consultant to ARIAD on an exclusive basis and will
continue as Co-chair of the Advisory Board. From 1989 to 1992, Dr. Brugge was a
Professor of Microbiology at the University of Pennsylvania School of Medicine
and an Investigator of the Howard Hughes Medical Institute. She received her
A.B. in Biology from Northwestern University and her Ph.D. in Virology from
Baylor College of Medicine and completed postdoctoral research at the University
of Colorado Medical Center.
Manfred Weigele, Ph.D. has served as Senior Vice President, Physical and
Chemical Sciences since October 1996 and served as Senior Vice President,
Research -- Chemistry of ARIAD from October 1991 to September 1996. Prior to
joining ARIAD, from 1985 to 1991, Dr. Weigele was a Vice President and Group
Director of Chemistry Research for Hoffmann-LaRoche Inc., where he directed
chemistry research. He joined Hoffmann-LaRoche, a worldwide pharmaceuticals
company, in 1965. Dr. Weigele received his
44
46
undergraduate training at Technische Universitat in Braunschweig, Germany and
his Ph.D. degree from the University of Wisconsin.
David L. Berstein has served as Vice President, Chief Patent Counsel of
ARIAD since September 1993. Prior to joining ARIAD, from 1990 through 1993, Mr.
Berstein was Patent Counsel at BASF Bioresearch Corporation where he was
responsible for intellectual property matters, including patents and licensing.
Prior to joining BASF, from 1985 to 1990, Mr. Berstein was a patent attorney at
Genetics Institute, Inc. where he was involved in various aspects of the patent
process from patent procurement through litigation. Mr. Berstein joined Genetics
Institute from the law firm of Cooper & Dunham. Mr. Berstein received his B.S.
degree from the University of Michigan and his J.D. degree from Fordham
University.
Dennis Holt, Ph.D. has served as Vice President, Drug
Discovery -- Chemistry since October 1996 and served as Director of Research,
Chemistry from August 1994 to September 1996. Prior to joining ARIAD, Dr. Holt
was Associate Director of the medicinal chemistry group at SmithKline Beecham
Pharmaceuticals where he focused on the discovery of novel synthetic and
semi-synthetic drugs. Dr. Holt received his B.A. degree from Johns Hopkins
University and his M.A. and Ph.D. degrees from Harvard University.
John D. Iuliucci, Ph.D. has served as Vice President, Drug Development
since October 1996 and served as Vice President, Preclinical Development of
ARIAD from June 1992 to September 1996. Prior to joining ARIAD, Dr. Iuliucci was
Director of Preclinical Pharmacology and Toxicology at Centocor, Inc. from 1984
to 1992. From 1975 to 1984, Dr. Iuliucci headed the Drug Safety Evaluation
Department at Adria Laboratories. He was a Senior Toxicologist at the
Warner-Lambert Pharmaceutical Research Institute from 1972 to 1975. Dr. Iuliucci
received a B.S. degree in Pharmacy and M.S. and Ph.D. degrees in Pharmacology
from Temple University.
Kathleen L. Mattis has served as Vice President, Finance and Corporate
Controller of ARIAD since November 1994. Previously, she served as Director of
Finance and Corporate Controller for ARIAD from February 1992 to October 1994.
Ms. Mattis was formerly Director of Finance in the Research and Development
Division of Centocor, Inc. from 1990 to 1992. Previously, she was Director of
Finance and Controller of Novo Nordisk Pharmaceuticals, Inc. She also held
positions as Financial Analyst and Senior Auditor at Bristol-Myers Squibb. Ms.
Mattis received her B.S. in Accounting from Drexel University and an M.B.A. from
the Wharton School of the University of Pennsylvania.
Mark J. Zoller, Ph.D. has served as Vice President, Drug
Discovery -- Signal Transduction since October 1996 and served as Vice
President, Research -- Molecular Biology from November 1994 to September 1996.
Previously, he served as Director, Molecular Biology for ARIAD from June 1992 to
October 1994. Prior to joining ARIAD, he was a Senior Scientist and group leader
of Genentech, Inc. Previously, Dr. Zoller was a Senior Staff Investigator at the
Cold Spring Harbor Laboratory where he focused on the development of molecular
genetic systems to study protein kinases. Dr. Zoller received his Ph.D. in
Chemistry from the University of California, San Diego and was a Postdoctoral
Fellow in Molecular Biology at the University of Vancouver, Canada.
David T. Washburn, Secretary of ARIAD since October 1991, is of counsel to
the firm of Paul, Weiss, Rifkind, Wharton & Garrison, general counsel to ARIAD.
Mr. Washburn received his B.A. from the University of Vermont in 1952 and his
LL.B. from New York University in 1955.
Vaughn D. Bryson, a Director of ARIAD since February 1995, is President of
Life Science Advisors, Inc. Mr. Bryson is a thirty-two year veteran of Eli Lilly
& Co. ("Lilly") and was President and Chief Executive Officer of Lilly from 1991
to 1993. He served as Executive Vice President from 1986 until 1990. He also was
a member of Lilly's Board of Directors from 1984 until his retirement in 1993.
Mr. Bryson was Vice Chairman of Vector Securities International Inc. from April
1994 to December 1996. He also is a Director of EndoVascular Therapeutics, Inc.,
Fusion Medical Technologies, Inc., Quintiles Transnational Corp., NaPro
BioTherapeutics, Inc., and Perclose, Inc. 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., a Director of ARIAD since March 1997, is an
Institute Professor at the Massachusetts Institute of Technology. He has
previously served as Director of the United States Central
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47
Intelligence Agency, Deputy Secretary of Defense, Undersecretary of Defense
(Acquisition and Technology), Provost of the Massachusetts Institute of
Technology, Dean of the School of Science, Chairman of the Department of
Chemistry and the Karl Taylor Compton Professor of Chemistry. Dr. Deutch has
received numerous awards and honors in physical chemistry and computational
sciences. Dr. 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. Dr. Deutch is a Director of
Citicorp, CMS Energy and Palomar Medical Technologies.
Philip Felig, M.D., a Director of ARIAD since October 1991, is currently in
medical practice specializing in endocrinology and diabetes as an Attending
Physician on the Senior Medical Staff at Lenox Hill Hospital and as Clinical
Professor of Medicine at New York Medical College. Prior to this, from 1986 to
1987, he was Chief Executive Officer of Sandoz Pharmaceuticals Corporation and
from 1984 to 1987, President of the Sandoz Research Institute. Dr. Felig came to
Sandoz from the Yale University School of Medicine where he was Professor and
Vice-Chairman of the Department of Medicine and Chief of Endocrinology. Dr.
Felig received his B.A. degree from Princeton University and his M.D. degree
from the Yale University School of Medicine and did further medical training at
the Yale-New Haven Hospital, the Joslin Laboratory at Harvard Medical School and
the Peter Bent Brigham Hospital. Dr. Felig also holds an Honorary Doctor of
Medicine from the Karolinska Institute.
Frank J. Hoenemeyer, a Director of ARIAD since October 1991, is an
independent financial consultant. Mr. Hoenemeyer was the President of Gregory
and Hoenemeyer Inc., a financial consulting firm, from 1987 to 1990. He was Vice
Chairman of The Prudential Insurance Company of America from 1981 until his
retirement in 1984, Chief Investment Officer from 1965 to 1984 and a Director
from 1974 to 1984. Mr. Hoenemeyer serves on several private and public boards,
including American International Group Inc., Mitsui Trust Bank, USA, Carey
Fiduciaries Advisors, a subsidiary of W. P. Carey & Co., Inc., Cincinnati
Incorporated and Wellsford Residential Property Trust. He is also Chairman of
the Turrell Fund. Mr. Hoenemeyer received his B.S. degree from Xavier University
and his M.B.A. degree from the Wharton School of the University of Pennsylvania.
Peter T. Joseph, a Director of ARIAD since October 1991, is Chairman and
Chief Executive Officer of Rosecliff, Inc., an investment management firm which
he has headed since 1987. Mr. Joseph joined the Bass family interests in 1984
and became a Vice President of Keystone, Inc. (formerly the Robert M. Bass
Group, Inc.) in 1986. He founded Acadia Partners, L.P. in 1987, where he was the
Managing General Partner. He served as Vice President of Keystone, Inc. and
Managing Partner of Acadia until March 1992. Prior to joining the Bass family
interests, Mr. Joseph managed his own merchant banking firm, worked in the
corporate finance and merger and acquisition areas at Morgan Stanley & Co. and
practiced as a tax and corporate attorney at Paul, Weiss, Rifkind, Wharton &
Garrison. He graduated from the Woodrow Wilson School of Public and
International Affairs at Princeton University with a A.B. degree and an M.P.A.
degree in Public Affairs and earned a J.D. degree from Yale Law School.
Joel S. Marcus, a Director of ARIAD since February 1995, is Chief Executive
Officer-elect of Alexandria Real Estate Equities, Inc. a real estate investment
trust principally focused on the life sciences industry. Mr. Marcus is a founder
and principal of Health Science Capital Partners, which invests in healthcare
related companies. Mr. Marcus was a partner with Brobeck, Phleger & Harrison, a
law firm from 1991 to 1994. Mr. Marcus is a co-founder of the International Life
Science Partnering Conference and was one of the original architects and
officers of the Kirin-Amgen, Inc. joint venture, which financed the development
of two leading genetically engineered pharmaceuticals. He received his
undergraduate degree from the University of California, Los Angeles ("UCLA"),
and a doctor of jurisprudence degree also from UCLA. He is a licensed certified
public accountant.
Sandford D. Smith, a Director of ARIAD since October 1991, is President,
Specialty Therapeutics and International Group, Genzyme Corporation. Previously,
from May 1996 to September 1996, he was Vice President and General Manager,
Specialty Therapeutics and International Group, Genzyme Corporation. Mr. Smith
was President and Chief Executive Officer and a Director of the Repligen
Corporation from 1986 to March 1996. Mr. Smith previously held a number of
positions with the Bristol-Myers Company from 1977
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to 1986, including, most recently, Vice President of Corporate Development and
Planning for the United States Pharmaceutical and Nutritional Group. Mr. Smith
earned his B.A. degree from the University of Denver. Mr. Smith is also a
Director of CSPI.
Raymond S. Troubh, a Director of ARIAD since October 1991, has been a
financial consultant for more than the past five years. He was a general partner
of Lazard Freres & Co., an investment banking firm, and a governor of the
American Stock Exchange. Mr. Troubh is a Director of ADT Limited, America West
Airlines, Inc., Becton, Dickinson and Company, Diamond Offshore Drilling, Inc.,
Foundation Health Corporation, General American Investors Company, Inc., Olsten
Corporation, Petrie Stores Corporation, Time Warner Inc., Triarc Companies, Inc.
and WHX Corporation. He received his A.B. degree from Bowdoin College and his
LL.B. degree from Yale Law School.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions
"Proposal 1. -- Election of Class 3 Directors -- Additional Information
Concerning the Board of Directors" and "Executive Compensation" is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by this
reference.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following Consolidated Financial Statements, Notes thereto and
Independent Auditors' Report are incorporated herein by reference
to Item 8:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) The Exhibits listed in the Exhibit Index are filed herewith in the
manner set forth therein.
48
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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, 1997.
ARIAD PHARMACEUTICALS, INC.
By: /s/ HARVEY J. BERGER
--------------------------------------
Name: Harvey J. Berger, M.D.
Title: Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - ----------------------------------- --------------------------------------------- ----------------
/s/ HARVEY J. BERGER Chairman of the Board of Directors, President March 28, 1997
- - ----------------------------------- and Chief Executive Officer (Principal
Harvey J. Berger, M.D. Executive Officer)
/s/ EDGAR HABER Vice Chairman of the Board of Directors March 28, 1997
- - -----------------------------------
Edgar Haber, M.D.
/s/ JAY R. LAMARCHE Executive Vice President, Chief Financial March 28, 1997
- - ----------------------------------- Officer, Treasurer and Director (Principal
Jay R. LaMarche Financial and Accounting Officer)
/s/ JOAN S. BRUGGE Senior Vice President, Exploratory Research, March 28, 1997
- - ----------------------------------- and Director
Joan S. Brugge, Ph.D.
/s/ VAUGHN D. BRYSON Director March 28, 1997
- - -----------------------------------
Vaughn D. Bryson
/s/ JOHN M. DEUTCH Director March 28, 1997
- - -----------------------------------
John M. Deutch, Ph.D.
/s/ PHILIP FELIG Director March 28, 1997
- - -----------------------------------
Philip Felig, M.D.
/s/ FRANK J. HOENEMEYER Director March 28, 1997
- - -----------------------------------
Frank J. Hoenemeyer
/s/ PETER T. JOSEPH Director March 28, 1997
- - -----------------------------------
Peter T. Joseph
/s/ JOEL S. MARCUS Director March 28, 1997
- - -----------------------------------
Joel S. Marcus
/s/ SANDFORD D. SMITH Director March 28, 1997
- - -----------------------------------
Sandford D. Smith
/s/ RAYMOND S. TROUBH Director March 28, 1997
- - -----------------------------------
Raymond S. Troubh
49
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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 (1)
3.3 -- Amendment of Certificate of Incorporation of the Company, dated April 8, 1994
(2)
3.4 -- Amendment of Certificate of Incorporation of the Company, dated October 4, 1994
(5)
3.5 -- Amendment of By-laws of the Company, adopted September 16, 1994 (5)
4.1 -- Form of ARIAD Pharmaceuticals, Inc. Common Stock Purchase Warrant (1)
4.2 -- Principal Stockholders' Agreement, dated as of January 5, 1992, among ARIAD
Pharmaceuticals, Inc., David Blech, David Blech as trustee of The Blech Family
Trust, Mark S. Germain, Harvey J. Berger, Harvey J. Berger and Wendy S. Berger
as Trustees of the Berger Family Trust, Avalon Ventures and Avalon Ventures IV.
(1)
4.3 -- Form of Warrant Agreement (with Form of Warrant). (3)
4.4 -- Rights Agreement, dated as of December 15, 1994, between the Company and State
Street Bank and Trust Company, which includes the Certificate of Designations in
respect of the Series A Preferred Stock, as Exhibit A, the Form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Series A
Preferred Stock as Exhibit C. Pursuant to the Rights Agreement, Right
Certificates will not be mailed until after the Separation Date (as defined
therein). (4)
4.5 -- Amendment, dated as of April 24, 1995, to Rights Agreement, dated as of December
15, 1994, between ARIAD Pharmaceuticals, Inc. and State Street Bank and Trust
Company. (6)
4.6 -- Stock Purchase Agreement, dated as of April 24, 1995, between ARIAD
Pharmaceuticals, Inc. and Biotech Target S.A. (7)
10.1 -- Lease Agreement, dated January 8, 1992, between ARIAD Pharmaceuticals, Inc. and
Forest City Cambridge, Inc. (1)
10.2 -- Executive Employment Agreement, dated as of January 1, 1992, between ARIAD
Pharmaceuticals, Inc. and Harvey J. Berger, M.D. (1)
10.3 -- Executive Employment Agreement, dated as of January 3, 1992, between ARIAD
Pharmaceuticals, Inc. and Joan S. Brugge, Ph.D. (1)
10.4 -- Executive Employment Agreement, dated as of January 1, 1992, between ARIAD
Pharmaceuticals, Inc. and Charles C. Cabot III. (1)
10.5 -- Executive Employment Agreement, dated as of January 1, 1992, between ARIAD
Pharmaceuticals, Inc. and Jay R. LaMarche. (1)
10.6 -- Executive Employment Agreement, dated as of October 14, 1991, between ARIAD
Pharmaceuticals, Inc. and Manfred Weigele, Ph.D. (1)
10.7 -- Loan and Security Agreement, dated September 23, 1992, by and between ARIAD
Pharmaceuticals, Inc., ARIAD Corporation and BayBank Boston, N.A. and related
instruments and documents. (1)
10.8 -- Loan Agreement, dated October 28, 1992, among ARIAD Corporation, ARIAD
Pharmaceuticals, Inc. and the Massachusetts Business Development Corporation and
related instruments and documents. (1)
10.9 -- Equipment Lease Agreement, dated December 10, 1992, by and between ARIAD
Corporation and General Electric Capital Corporation. (1)
10.10 -- Master Lease Agreement, dated December 21, 1992, by and between ARIAD
Corporation and Comdisco, Inc. (1)
10.11 -- ARIAD Pharmaceuticals, Inc. 1991 Stock Option Plan for Employees, as amended.
(5)
50
52
EXHIBIT NO. TITLE
- - ----------- --------------------------------------------------------------------------------
10.12 -- ARIAD Pharmaceuticals, Inc. 1991 Stock Option Plan for Directors. (1)
10.13 -- ARIAD Retirement Savings Plan. (1)
10.14 -- Agreement dated as of January 1, 1994 between The Board of Trustees of The
Leland Stanford Junior University and ARIAD Gene Therapeutics, Inc. (3)
10.15 -- Amendment, dated April 19, 1994, to Executive Employment Agreement between ARIAD
Pharmaceuticals, Inc. and Harvey J. Berger, M.D. (3)
10.16 -- Amendment, dated March 2, 1994, to Executive Employment Agreement between ARIAD
Pharmaceuticals, Inc. and Joan S. Brugge, Ph.D. (3)
10.17 -- Amendment, dated March 2, 1994, to Executive Employment Agreement between ARIAD
Pharmaceuticals, Inc. and Charles C. Cabot III. (3)
10.18 -- Amendment, dated March 2, 1994, to Executive Employment Agreement between ARIAD
Pharmaceuticals, Inc. and Jay R. LaMarche. (3)
10.19 -- Amendment, dated March 2, 1994, to Executive Employment Agreement between ARIAD
Pharmaceuticals, Inc. and Manfred Weigele, Ph.D. (3)
10.20 -- Unit Purchase and Technology Right of First Negotiation Agreement, dated May 5,
1994, among Genentech, Inc. ARIAD Pharmaceuticals, Inc. and ARIAD Gene
Therapeutics, Inc. (3)
10.21 -- Amendment No. 2, dated June 30, 1994, to Executive Employment Agreement between
ARIAD Pharmaceuticals, Inc. and Harvey J. Berger, M.D. (5)
10.22 -- ARIAD Pharmaceuticals, Inc. 1994 Stock Option Plan for Non-Employee Directors.
(5)
10.23 -- Collaborative Research and License Agreement, dated November 5, 1995, between
Roussel Uclaf and ARIAD Pharmaceuticals, Inc. (7)
21.1 -- Subsidiaries of the Company. (3)
- - ---------------
(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.
51