Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Business

Nature of Business

Unless the context requires otherwise, references to “ARIAD,” “Company,” “we,” “our,” and “us,” in this quarterly report refer to ARIAD Pharmaceuticals, Inc. and its subsidiaries. ARIAD is a global oncology company focused on transforming the lives of cancer patients with breakthrough medicines. The Company’s mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest unmet medical need – aggressive cancers where current therapies are inadequate.

The Company is selling its cancer medicine, Iclusig® (ponatinib) for the treatment of adult patients with chronic myeloid leukemia (“CML”) and Philadelphia chromosome positive acute lymphoblastic leukemia (“Ph+ ALL”). In addition to commercializing Iclusig in the United States, Europe and other territories, the Company is developing Iclusig for approval in additional countries and for additional cancer indications and in earlier lines of therapy. The Company is also developing two product candidates, brigatinib (AP26113) and AP32788. Brigatinib is being studied in patients with advanced solid tumors, including non-small cell lung cancer. AP32788 is being developed for the treatment of non-small cell lung cancer and other solid tumors. Ridaforolimus, a compound that the Company discovered internally and subsequently out-licensed to Medinol, Ltd. (“Medinol”), is being developed by Medinol for use on drug-eluting stents. In addition to its clinical development programs, the Company has a focused drug discovery program centered on small-molecule therapies that are molecularly targeted to cell-signaling pathways implicated in cancer.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. The Company has prepared the condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015. The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated balance sheet included in the Annual Report on Form 10-K for the year ended December 31, 2015.

The Company has prepared the accompanying condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2016.

Marketable Securities

Marketable securities consist of 687,139 shares of common stock of REGENXBIO, Inc. (“REGENXBIO”), which became a publicly traded company in September 2015. At March 31, 2016, these shares had a value of $7.4 million. The Company obtained these shares in connection with a license agreement it entered into with REGENXBIO in November 2010 for certain gene expression regulation technology. The Company was restricted from trading these securities until March 14, 2016 pursuant to an agreement it entered into with REGENXBIO. The Company has classified these shares as “available for sale” investments and recognized an unrealized loss of $4.0 million, using a Level 1 valuation input, which has been excluded from the determination of net loss and is recorded in accumulated other comprehensive (loss) income, a separate component of stockholders’ equity, in the three-month period ended March 31, 2016. These shares had been accounted for using the equity method with a carrying value of zero due to losses incurred by REGENXBIO in previous years.

Accrued Rent

The Company recognizes rent expense for leases with increasing annual rents on a straight-line basis over the term of the lease. The amount of rent expense in excess of cash payments is classified as accrued rent. Any lease incentives received are deferred and amortized over the term of the lease.

Product Revenue, Net

The following table summarizes the activity in each of the product revenue allowances and reserve categories for the three-month period ended March 31, 2016:



In thousands	Trade Allowances			Rebates, Chargebacks and Discounts			Other Incentives/ Returns			Total
Balance, January 1, 2016	$	111		$	4,460		$	551		$	5,122
Provision	375			6,036			363			6,774
Payments or credits	(331		)	(4,936		)	(250		)	(5,517		)
Balance, March 31, 2016	$	155		$	5,560		$	664		$	6,379

In 2012, prior to the Company obtaining marketing authorization for Iclusig in Europe, the French regulatory authority granted an Autorisation Temporaire d’Utilisation (ATU), or Temporary Authorization for Use, for Iclusig for the treatment of patients with CML and Ph+ ALL under a nominative program on a patient-by-patient basis. Upon completion of this program, the Company became eligible to ship Iclusig directly to customers in France as of October 1, 2013. Shipments under these programs are subject to pricing and reimbursement negotiations that are in process as of March 31, 2016. As a result, these shipments have not met the criteria for revenue recognition as the price for these shipments is not yet fixed.

The price of Iclusig in France is expected to become fixed upon completion of pricing and reimbursement negotiations. At that time, the Company will record revenue for the cumulative shipments in France, net of amounts that will be refunded to the health authority based on the results of the pricing and reimbursement negotiations. The aggregate gross selling price of the shipments under these programs amounted to $28.4 million through March 31, 2016, of which $26.7 million was received as of March 31, 2016. Amounts received from shipments in France are recorded in other current liabilities in the consolidated balance sheet.

The Company has entered into distributor arrangements for Iclusig in a number of countries including Australia, Canada, Israel, certain countries in central and Eastern Europe, and Turkey and Japan. The Company recognizes net product revenue from sales of Iclusig under these arrangements when all criteria for revenue recognition have been satisfied.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of accounts receivable from customers and cash held at financial institutions. The Company believes that such customers and financial institutions are of high credit quality. As of March 31, 2016, a portion of the Company’s cash and cash equivalent accounts were concentrated at a single financial institution, which potentially exposes the Company to credit risks. The Company does not believe that there is significant risk of non-performance by the financial institution and the Company’s cash on deposit at this financial institution is fully liquid.

Segment Reporting and Geographic Information

The Company organizes itself into one operating segment reporting to the Chief Executive Officer.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new standard which amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2017 and allows for adoption using a full retrospective method, or a modified retrospective method. Entities may elect to early adopt the standard for annual periods beginning after December 15, 2016. We are currently assessing the method of adoption and the expected impact the new standard has on our financial position and results of operations.

On February 25, 2016, the FASB issued ASU No. 2016-02-Leases (Topic 842), which provides new guidance on the accounting for leases. The provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim periods therein. The Company has not yet assessed the impact of this new standard on its financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities, and any related valuation allowance, be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company is currently evaluating the options for adoption and the impact on its balance sheet presentation.