XML 68 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
Nature of Business and Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2012
Nature of Business

Nature of Business

ARIAD is a global oncology company whose vision is to transform 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 and most urgent unmet medical need – aggressive cancers where current therapies are inadequate. The Company is focused on the commercialization of its first approved cancer medicine, Iclusig™ (ponatinib), a tyrosine kinase inhibitor (“TKI”) approved by the U.S. Food and Drug Administration (“FDA”) on December 14, 2012 for the treatment of patients with chronic myeloid leukemia (“CML”) or Philadelphia chromosome-positive acute lymphoblastic leukemia (Ph+ ALL) who are resistant or intolerant to other TKI therapies, as well as developing additional novel, molecularly targeted therapies to treat patients with blood cancers and solid tumors. The Company began shipping Iclusig in January 2013, and therefore recognized no product revenues from the sale of Iclusig in the United States in the year ended December 31, 2012.

In addition to commercializing Iclusig, the Company is developing Iclusig for approval in additional countries and cancer indications and has two other product candidates in development, AP26113 and ridaforolimus. AP26113 is being studied in a Phase 1/2 clinical trial in patients with advanced solid tumors including non-small cell lung cancer (“NSCLC”). The Company expects to commence the Phase 2 portion of the trial in the first half of 2013 and, subject to further discussions with the regulatory agencies, commence a pivotal trial of AP26113 in ALK-positive NSCLC patients in mid-2013 in parallel with the four cohorts of the Phase 2 portion of the trial. Ridaforolimus is being studied in multiple clinical trials in patients with various types of cancers by Merck & Co., Inc. (“Merck”) under a license agreement the Company entered into with Merck in 2010. Under the terms of the license agreement, Merck is responsible for all activities related to the development, manufacture, and commercialization of ridaforolimus and the Company is eligible to receive milestone and royalty payments. See Note 2. 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.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of ARIAD Pharmaceuticals, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Foreign Currency

Foreign Currency

A subsidiary’s functional currency is the currency of the primary economic environment in which the subsidiary operates; normally, that is the currency of the environment in which a subsidiary primarily generates and expends cash. For subsidiaries that are primarily a direct and integral component or extension of the parent entity’s operations, the U.S. dollar is the functional currency.

For foreign subsidiaries where the functional currency is the U.S. dollar, monetary assets and liabilities are remeasured into U.S. dollars at the current exchange rate on the balance sheet date. Nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Revenue and expense items are translated at average rates of exchange prevailing during each period. The Company has established the U.S. dollar as the functional currency of subsidiaries that are holding companies and its primary European operating entity. Through December 31, 2012, the Company does not have significant subsidiary operations with the functional currency denominated as the local currency.

Accounting Estimates

Accounting Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the consolidated financial statements and the reported amounts and disclosure of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash Equivalents

Cash equivalents include short-term, highly liquid investments, which consist principally of United States government and agency securities, with remaining maturities at the date of purchase of 90 days or less, and money market accounts.

Restricted Cash

Restricted Cash

Restricted cash consists of cash balances held as collateral for outstanding letters of credit related to the lease of the Company’s laboratory and office facilities and other purposes.

Marketable Securities

Marketable Securities

Marketable debt securities consist of United States government and agency backed securities. The Company classifies these marketable debt securities as available-for-sale at fair value. The Company records the amortization of premium and accretion of discounts on marketable debt securities in the results of operations. The Company uses the specific identification method as a basis for determining cost and calculating realized gains and losses with respect to marketable debt securities.

Inventory

Inventory

Inventory costs include the costs related to the manufacturing of drug product for Iclusig, including costs of contract manufacturing, quality control costs and shipping costs from the manufacturers to the final distribution warehouse. The Company values its inventories at the lower of cost or market. The Company determines the cost of its inventories on a first-in, first-out basis. If the Company identifies excess, obsolete or unsalable items, it writes down its inventory to its net realizable value in the period in which the impairment is first identified. Estimates of excess inventory consider the Company’s projected sales of the product and the remaining shelf lives of product. On December 14, 2012, the Company began capitalizing inventory costs for Iclusig being manufactured for commercial sale. At December 31, 2012, other current assets on the balance sheet includes capitalized inventory costs of $6,000.

Prior to receiving approval from the FDA to sell its first new cancer medicine, Iclusig, on December 14, 2012, the Company expensed all costs incurred related to the manufacture of Iclusig as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates.

Property and Equipment

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). Leasehold improvements and assets under capital leases are amortized over the shorter of their useful lives or lease term using the straight-line method.

Intangible and Other Assets

Intangible and Other Assets

Intangible and other assets consist primarily of purchased technology and capitalized patent and license costs. The cost of purchased technology, patents and patent applications, costs incurred in filing patents and certain license fees are capitalized when recovery of the costs is probable. Capitalized costs related to purchased technology are amortized over the estimated useful life of the technology. Capitalized costs related to issued patents are amortized over a period not to exceed seventeen years or the remaining life of the patent, whichever is shorter, using the straight-line method. Capitalized license fees are amortized over the periods to which they relate. In addition, capitalized costs are expensed when it becomes determinable that the related patents, patent applications or technology will not be pursued.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including the above-mentioned intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Accrued Rent

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. At December 31, 2012 and 2011, the amount of accrued rent is $5.0 million and $1.7 million, respectively. Of these amounts, at December 31, 2012 and 2011, $4.7 million and $1.7 million, respectively, are included in other long-term liabilities, with the remaining $0.3 million as of December 31, 2012 included in other current liabilities.

Revenue Recognition

Revenue Recognition

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable and collection is reasonably assured. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price of each deliverable and the appropriate revenue recognition principles are applied to each unit.

License and Collaboration Revenue

The Company has historically generated revenue from license and collaboration agreements with third parties related to use of the Company’s technology and/or development and commercialization of product candidates. Such agreements may provide for payment to the Company of up-front payments, periodic license payments, milestone payments and royalties. The Company also generates service revenue from license agreements with third parties related to internal services provided under such agreements. Service revenue is recognized as the services are delivered.

Product Revenue

On December 14, 2012, the Company obtained accelerated approval from the FDA to sell its first new cancer medicine, Iclusig. In January 2013, the Company commenced sales and marketing of Iclusig, and the medicine is now available to patients in the United States through specialty pharmacies and specialty distributors. Product sales are recorded net of estimated government-mandated rebates and chargebacks, distribution fees, copay assistance programs, product returns and other deductions. The Company reflects these estimated adjustments as either a reduction in the related accounts receivable from the specialty pharmacy or specialty distributor, or as an accrued liability depending on the nature of the sales deduction. The Company began shipping Iclusig in January 2013, and therefore recognized no product revenues in the year ended December 31, 2012.

Although Iclusig has not been approved for commercial sale in the European Union by the European Medicines Agency, patients are being treated with Iclusig both in the framework of the Company’s clinical trials and related studies and in named patient programs. The French regulatory authority had 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. The Company began shipping product under this program during the year ended December 31, 2012. Until all revenue recognition criteria are met, all amounts received by or due to the Company under this program (approximately $1.1 million as of December 31, 2012) have not been recognized as revenue.

Income Taxes

Income Taxes

The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax computations are based on enacted tax laws and rates applicable to the years in which the differences are expected to affect taxable income. A valuation allowance is established when it is necessary to reduce deferred income tax assets to the amount that is considered to be more-likely-than-not realizable.

The Company does not recognize a tax benefit unless it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Any interest and penalties on uncertain tax benefits are included within the tax provision.

Segment Reporting

Segment Reporting

The Company organizes itself into one operating segment reporting to the chief executive officer.

Stock-Based Compensation

Stock-Based Compensation

The Company awards stock options and other equity-based instruments to its employees, directors and consultants and provides employees the right to purchase common stock (collectively “share-based payments”), pursuant to stockholder approved plans. Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date and is recognized on a straight-line basis over the requisite service period, which generally equals the vesting period.

Executive Compensation Plan

Executive Compensation Plan

The Company has an unfunded deferred executive compensation plan that defers the payment of annual bonus awards to officers to future periods as specified in each award. The value of the awards is indexed to the value of specified mutual funds. The Company accrues a liability based on the value of the awards ratably over the vesting period. The recorded balances of such awards are increased or decreased based on the actual total return and quoted market prices of the specified mutual funds.

Subsequent Events

Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income, which requires the presentation of comprehensive income in either a continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-05 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2011 and requires retrospective application. The Company adopted this ASU on January 1, 2012, and included separate consolidated statements of comprehensive income (loss).