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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
the fiscal year ended December 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to ,
 Commission File Number: 000-28402
 Aradigm Corporation
 (Exact Name of Registrant as Specified in Its Charter)
 California(State or Other Jurisdiction of 
Incorporation or Organization)
    
    94-3133088(I.R.S. Employer
Identification No.)
 3929 Point Eden Way, Hayward, CA 94545  (Address of Principal Executive Offices)
 Registrants telephone number, including area code:
(510) 265-9000
 Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PageCautionary Note Regarding Forward-Looking Statements
    
    
    2PART IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    16Item 1B. Unresolved Staff Comments
    
    
    26Item 2. Properties
    
    
    26Item 3. Legal Proceedings
    
    
    26Item 4. (Removed and Reserved)
    
    
    26PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
    
    
    27Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    34Item 8. Financial Statements and Supplementary Data
    
    
    35Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    55Item 9A. Controls and Procedures
    
    
    55Item 9B. Other Information
    
    
    56PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    56Item 11. Executive Compensation
    
    
    57Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    57Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    57Item 14. Principal Accountant Fees and Services
    
    
    57PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    58SIGNATURES
    
    
    61EX-23.1EX-31.1EX-31.2EX-32.1




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Cautionary Note Regarding Forward-Looking Statements
 This Annual Report on Form 10-K contains forward-looking statements that are based on the
current beliefs of management, as well as current assumptions made by, and information currently
available to, management. All statements contained in this Annual Report on Form 10-K, other than
statements that are purely historical, are forward-looking statements. Words such as anticipate,
expect, intend, plan, believe, may, will, could, continue, seek, estimate, or
the negative thereof and similar expressions also identify forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that could cause our future
actual results, performance or achievements to differ materially from those expressed in, or
implied by, any such forward-looking statements as a result of certain factors, including, but not
limited to, those risks and uncertainties discussed in this section, as well as in the section
entitled Risk Factors, and elsewhere in this Annual Report on Form 10-K and our other filings
with the United States Securities and Exchange Commission (the SEC). Forward-looking statements
include our belief that our cash, cash equivalents and short-term investments as of December 31,
2009 and the Zogenix milestone payment received in February 2010 and the quarterly royalty payments
will be sufficient to enable us to meet our obligations through 2010.
 These forward-looking statements and our business are subject to significant risks including,
but not limited to, our ability to obtain additional financing, our ability to implement our
product development strategy, the success of product development efforts, obtaining and enforcing
patents important to our business, clearing the lengthy and expensive regulatory approval process
and possible competition from other products. Even if product candidates appear promising at
various stages of development, they may not reach the market or may not be commercially successful
for a number of reasons. Such reasons include, but are not limited to, the possibilities that the
potential products may be found to be ineffective during clinical trials, may fail to receive
necessary regulatory approvals, may be difficult to manufacture on a large scale, are uneconomical
to market, may be precluded from commercialization by proprietary rights of third parties or may
not gain acceptance from health care professionals and patients.
 You are cautioned not to place undue reliance on the forward-looking statements contained
herein, which speak only as of the date of the filing of this Annual Report on Form 10-K. We
undertake no obligation to update these forward-looking statements in light of events or
circumstances occurring after the date of the filing of this Annual Report on Form 10-K or to
reflect the occurrence of unanticipated events.
 
 PART I
 
 Item 1. Business
 Overview
 ®
  2




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Our Strategy
  
    
    Develop a proprietary portfolio of products for the treatment of respiratory
diseases.We believe our expertise in the development of pulmonary pharmaceutical products
should enable us to advance and commercialize respiratory products for a variety of
indications. We select for development those product candidates that can benefit from our
experience in pulmonary delivery and that we believe are likely to provide a superior
therapeutic profile or other valuable benefits to patients when compared to existing
products.
    
    Accelerate the regulatory approval process.We believe our management teams expertise
in pharmaceutical inhalation products, new indications and reformulations of existing drugs
will enable us to pursue the most appropriate regulatory pathway for our product candidates.
Because our current product candidates incorporate FDA-approved drugs, we believe that the
most expedient review and approval pathway for these product candidates in the United States
will be under Section 505(b)(2) of the Food, Drug and Cosmetic Act, or the FDCA.
Section 505(b)(2) permits the FDA to rely on scientific literature or on the FDAs prior
findings of safety and/or effectiveness for approved drug products. By choosing to develop
new applications or reformulations of FDA-approved drugs, we believe that we can
substantially reduce or potentially eliminate the significant time, expenditure and risks
associated with preclinical testing of new chemical entities and biologics, as well as
utilize knowledge of these approved drugs to reduce the risk, time and cost of the clinical
trials needed to obtain drug approval. In addressing niche market opportunities, we have
already been granted or intend to pursue orphan drug designation for our products when
appropriate. Orphan drug designation may be granted to drugs and biologics that treat rare
life-threatening diseases that affect fewer than 200,000 persons in the United States. Such
designation provides a company with the possibility of market exclusivity for seven years as
well as regulatory assistance, reduced filing fees and possible tax credits.
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
    
    Develop our own sales and marketing capacity for products in niche markets.It is our
longer term strategy to develop our own targeted sales and marketing force for those of our
products prescribed primarily by the approximately 11,000 pulmonologists, or their
subspecialty associates, in the United States. We expect to begin establishing a sales force
as we approach commercialization of the first of such products. We believe that by
developing a small sales group dedicated to interacting with disease-specific physicians in
the respiratory field, we can create greater value from our products for our shareholders.
For markets where maximizing sales of the product would depend on marketing to primary
healthcare providers that are only addressable with a large sales force, we plan to enter
into co-marketing arrangements. We also intend to establish collaborative relationships to
commercialize our products in cases where we cannot meet these goals with a small sales
force or when we need collaborators with relevant expertise and capabilities, such as the
ability to address international markets. Through such collaborations, we may also utilize
our collaborators resources and expertise to conduct large late-stage clinical development.
    
    Exploit the broad applicability of our delivery technology through product development
collaborations.We continue to believe that companies can benefit by collaborating with us
when our proprietary delivery technologies create new pharmaceutical and biologics products.
We intend to continue to exploit the broad applicability of our delivery technologies for
systemic applications of our validated technologies in collaborations with companies and
organizations that will fund development and commercialization. We intend to continue to
out-license technologies and product opportunities that we have already developed to a
certain stage and that are outside of our core strategic focus. Collaborations and
out-licensing may generate additional revenues while we progress towards the development and
potential launch of our own proprietary products.
    
    Outsource manufacturing activities.We intend to outsource the late stage clinical and
commercial scale manufacturing of our products to conserve our capital for product
development. We believe that the required late stage clinical and commercial manufacturing
capacity can be obtained from contract manufacturers. With this approach, we seek
manufacturers whose expertise should allow us to reduce risk and the costs normally incurred
if we were to build, operate and maintain large-scale production facilities ourselves.
 Proprietary Programs Under Development
 Liposomal Ciprofloxacin
  ARD-3100  Liposomal Ciprofloxacin for the Treatment of Infections in Cystic Fibrosis (CF)
Patients
   4




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Pseudomonas aeruginosa,
  Development
  Pseudomonas aeruginosa
  ARD-3100 and ARD-3150  Liposomal Ciprofloxacin for the Treatment of Infections in Non-Cystic
Fibrosis Bronchiectasis (BE) Patients
  Development
   5




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Pseudomonas aeruginosa Pseudomonas aeruginosa
  Pseudomonas aeruginosa
  Pseudomonas aeruginosa
    ARD-1100  Liposomal Ciprofloxacin for the Treatment of Inhalation Anthrax
  6




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Development
 Francisella tularensis, Francisella
tularensis
  Smoking Cessation Therapy
 ARD-1600 (Nicotine) Tobacco Smoking Cessation Therapy
   Development
   7




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Other Potential Applications
   Zogenix DosePro Technology
      Pulmonary Drug Delivery Background
  8




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The AERx Delivery Technology
   ®
  Formulation Technologies
  Intellectual Property and Other Proprietary Rights
  9




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10




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Competition
   
    
    ARD-3100 and ARD-3150.There is no product approved in the United States specifically
for the treatment of bronchiectasis. Currently marketed inhaled antibiotics for the
management of infections associated with cystic fibrosis are TOBI* marketed by Novartis and
Cayston* marketed by Gilead Sciences. Inhaled products under development to treat
respiratory infections in CF and non-CF BE include dry powder tobramycin under development
by Novartis, dry powder ciprofloxacin by Bayer, liposomal amikacin by Transave,
levofloxacin by Mpex Pharmaceuticals and liposomal tobramycin by Axentis. Bayer was granted
orphan drug designation in the U.S. and in the European Union for their inhaled
ciprofloxacin product in development for the treatment of infections associated with cystic
fibrosis.
   Government Regulation
 United States
     
    
    preclinical laboratory and animal tests, and formulation studies;
 
    
    the submission to the FDA of an Investigational New Drug application, or IND, for human
clinical testing that must become effective before human clinical trials may begin;
 
    
    adequate and well controlled human clinical trials to establish the safety and efficacy
of the product candidate for each indication for which approval is sought;
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
    
    the submission to the FDA of a New Drug Application, or NDA, and FDAs acceptance of the
NDA for filing;
 
    
    satisfactory completion of an FDA inspection of the manufacturing facilities at which the
product is to be produced to assess compliance with the FDAs Good Manufacturing Practices,
or GMP; and
 
    
    FDA review and approval of the NDA.
 Preclinical Testing
   Clinical Trials
   
    
    Phase 1.Phase 1 clinical trials usually involve the initial introduction of the drug
into human subjects, frequently healthy volunteers. In Phase 1, the drug is usually
evaluated for safety, including adverse effects, dosage tolerance, absorption, distribution,
metabolism, excretion and pharmacodynamics.
 
    
    Phase 2.Phase 2 usually involves studies in a limited patient population with the
disease or condition for which the drug is being developed to (1) preliminarily evaluate the
efficacy of the drug for specific, targeted indications; (2) determine dosage tolerance and
appropriate dosage; and (3) identify possible adverse effects and safety risks.
 
    
    Phase 3.If a drug is found to be potentially effective and to have an acceptable safety
profile in Phase 2 studies, the clinical trial program will be expanded, usually to further
evaluate clinical efficacy and safety by administering the drug in its final form to an
expanded patient population at geographically dispersed clinical trial sites. Phase 3
studies usually include several hundred to several thousand patients.
     12




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Section 505(b)(2) Applications
 e.g.
   Orphan Drug Designation
  13




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International Regulation
  Scientific Advisory Board
  Name
    
    Affiliation
    
    Area of ExpertisePeter R. Byron, Ph.D.
    
    Medical College of Virginia, Virginia
Commonwealth University
    
    Aerosol Science/PharmaceuticsPeter S. Creticos, M.D.
    
    The Johns Hopkins University School
of Medicine
    
    Allergy/Immunology/AsthmaStephen J. Farr, Ph.D.
    
    Zogenix, Inc.
    
    Pulmonary Delivery/PharmaceuticsMichael Konstan, M.D.
    
    Rainbow Babies and Childrens Hospital
    
    Pulmonary Diseases/Cystic FibrosisBabatunde Otulana, M.D.
    
    Aerovance, Inc.
    
    Pulmonary Diseases/Cystic
Fibrosis/RegulatoryAdam Wanner, M.D.
    
    University of Miami
    
    Chronic Obstructive Pulmonary
Diseases (COPD)Martin Wasserman, Ph.D.
    
    Roche, AtheroGenics (retired)
    
    Asthma
  14




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Employees
    Corporate History and Website Information
 http://www.aradigm.com
  Executive Officers and Directors
  Name
    
    Age
    
    PositionIgor Gonda, Ph.D.
    
    
    62
    
    
    President, Chief Executive Officer and DirectorNancy E. Pecota
    
    
    50
    
    
    Vice President, Finance and Chief Financial OfficerD. Jeffery Grimes
    
    
    46
    
    
    Vice President, Legal Affairs, General CounselFrank H. Barker(1)(2)(3)
    
    
    79
    
    
    DirectorJohn M. Siebert, Ph.D.(1)(2)(3)
    
    
    69
    
    
    DirectorVirgil D. Thompson(1)(2)(3)
    
    
    70
    
    
    Chairman of the Board and Director
 
 (1)
    
    Member of the Audit Committee.(2)
    
    Member of the Compensation Committee.(3)
    
    Member of the Nominating and Corporate Governance Committee. Igor Gonda, Ph.D.
 Nancy E. Pecota
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D. Jeffery Grimes
 Frank H. Barker
 John M. Siebert, Ph.D.
 Virgil D. Thompson
 
 Item 1A.
    
    Risk Factors
 Except for historical information contained herein, the discussion in this Annual Report on
Form 10-K contains forward-looking statements, including, without limitation, statements regarding
timing and results of clinical trials, the establishment of corporate partnering arrangements, the
anticipated commercial introduction of our products and the timing of our cash requirements. These
forward-looking statements involve certain risks and uncertainties that could cause actual results
to differ materially from those in such forward-looking statements. Potential risks and
uncertainties include, without limitation, those mentioned in this report and in particular the
factors described below.
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Risks Related to Our Business
 We are an early-stage company.
  We will need additional capital, and we may not be able to obtain it on a timely basis or at
all.
  
    
    our progress in the application of our delivery and formulation technologies, which may
require further refinement of these technologies;
 
    
    the number of product development programs we pursue and the pace of each program;
 
    
    our progress with formulation development;
 
    
    the scope, rate of progress, results and costs of preclinical testing and clinical
trials;
 
    
    the time and costs associated with seeking regulatory approvals;
 
    
    our ability to outsource the manufacture of our product candidates and the costs of doing
so;
 
    
    the time and costs associated with establishing in-house resources to market and sell
certain of our products;
 
    
    our ability to establish collaborative arrangements with others and the terms of those
arrangements;
 
    
    the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims, and
 
    
    our need to acquire licenses, or other rights for our product candidates.
  17




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We have a history of losses, we expect to incur losses for at least the foreseeable future, and we
may never attain or maintain profitability.
  
    
    continue drug product development efforts;
 
    
    conduct preclinical testing and clinical trials;
 
    
    pursue additional applications for our existing delivery technologies;
 
    
    outsource the commercial-scale production of our products; and
 
    
    establish a sales and marketing force to commercialize certain of our proprietary
products if these products obtain regulatory approval.
  We are dependent upon Zogenix and its partners to successfully market and sell the SUMAVEL
DosePro needle-free delivery system in order to realize value from this asset.
  The results of later stage clinical trials of our product candidates may not be as favorable as
earlier trials and that could result in additional costs and delay or prevent commercialization of
our products.
  If our clinical trials are delayed because of patient enrollment or other problems, we would incur
additional costs and postpone the potential receipt of revenues.
  18




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We are subject to extensive regulation, including the requirement of approval before any of
our product candidates can be marketed. We may not obtain regulatory approval for our product
candidates on a timely basis, or at all.
   Regulatory authorities may delay or not approve our product candidates even if the product
candidates meet safety and efficacy endpoints in clinical trials or the approvals may be too
limited for us to earn sufficient revenues.
  Even if we are granted initial FDA approval for any of our product candidates, we may not be able
to maintain such approval, which would reduce our revenues.
  Because our proprietary liposomal ciprofloxacin programs rely on the FDAs and European Medicines
Agencys grant of orphan drug designation for potential market exclusivity, the product may not be
able to obtain market exclusivity and could be barred from the market in the US for up to seven
years or European Union for up to ten years.
  19




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We have very limited manufacturing capacity in the company and depend on contract manufacturers
and collaborators; if they do not perform as expected, our revenues and customer relations will
suffer.
     Our dependence on future collaborators and other contracting parties may delay or terminate
certain of our programs, and any such delay or termination would harm our business prospects and
stock price.
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We rely on a small number of vendors and contract manufacturers to supply us with specialized
equipment, tools and components; if they do not perform as we need them to, we will not be able to
develop or commercialize products.
  In order to market our proprietary products, we are likely to establish our own sales, marketing
and distribution capabilities. We have no experience in these areas, and if we have problems
establishing these capabilities, the commercialization of our products would be impaired.
  If any products that we may develop do not attain adequate market acceptance by healthcare
professionals and patients, our business prospects and results of operations will suffer.
  
    
    the demonstration of efficacy and safety in clinical trials;
    
    the existence, prevalence and severity of any side effects;
    
    the potential or perceived advantages or disadvantages compared to alternative
treatments;
    
    the timing of market entry relative to competitive treatments;
    
    the relative cost, convenience, product dependability and ease of administration;
    
    the strength of marketing and distribution support;
    
    the sufficiency of coverage and reimbursement of our product candidates by governmental
and other third-party payors; and
    
    the product labeling or product insert required by the FDA or regulatory authorities in
other countries.
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We depend upon our proprietary technologies, and we may not be able to protect our potential
competitive proprietary advantage.
   We may infringe on the intellectual property rights of others, and any litigation could force us
to stop developing or selling potential products and could be costly, divert management attention
and harm our business.
     We are in a highly competitive market, and our competitors have developed or may develop
alternative therapies for our target indications, which would limit the revenue potential of any
product we may develop.
  22




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If we do not continue to attract and retain key employees, our product development efforts will be
delayed and impaired.
  Acquisition of complementary businesses or technologies could result in operating difficulties and
harm our results of operations.
  
    
    diversion of our management from the development and commercialization of our pipeline
product candidates;
    
    difficulty in assimilating and efficiently using the acquired assets or personnel; and
    
    inability to retain key personnel.
  If we market our products in other countries, we will be subject to different laws and we may not
be able to adapt to those laws, which could increase our costs while reducing our revenues.
  23




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We may be exposed to product liability claims, which would hurt our reputation, market position
and operating results.
  If we cannot arrange for adequate third-party reimbursement for our products, our revenues will
suffer.
  Our use of hazardous materials could subject us to liabilities, fines and sanctions.
  If we are unable to effectively implement or maintain a system of internal control over financial
reporting, we may not be able to accurately or timely report our financial results and our stock
price could be adversely affected.
  Risks Related to Our Common Stock
 Our stock price is likely to remain volatile.
  24




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
    
    investor perception of us;
    
    market conditions relating to our segment of the industry or the securities markets in
general;
    
    investor perception of the value of the royalty stream from Zogenix;
    
    sales of our stock by certain large institutional shareholders to meet liquidity concerns
during the current economic climate or bankruptcy of the institutions holding the shares of
investors in our company, resulting in large quantities of our shares being traded at
discount prices;
    
    research analyst recommendations and our ability to meet or exceed quarterly performance
expectations of analysts or investors;
    
    failure to establish new collaborative relationships;
    
    fluctuations in our operating results;
    
    announcements of technological innovations or new commercial products by us or our
competitors;
    
    publicity regarding actual or potential developments relating to products under
development by us or our competitors;
    
    developments or disputes concerning patents or proprietary rights;
    
    delays in the development or approval of our product candidates;
    
    regulatory developments in both the United States and foreign countries;
    
    concern of the public or the medical community as to the safety or efficacy of our
products, or products deemed to have similar safety risk factors or other similar
characteristics to our products;
    
    future sales or expected sales of substantial amounts of common stock by shareholders;
    
    our ability to raise capital through the sale of securities (including debt securities)
or non-core assets; and
    
    economic and other external factors.
  Our common stock is quoted on the OTC Bulletin Board, which may provide less liquidity for our
shareholders than the national exchanges.
  We have implemented certain anti-takeover provisions, which may make an acquisition less likely or
might result in costly litigation or proxy battles.
  25




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We have never paid dividends on our capital stock, and we do not anticipate paying cash dividends
for at least the foreseeable future.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
 Arbitration Proceedings against Lung Rx, Inc.
   
 Item 4. (Removed and Reserved)
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PART II
 
 Item 5. Market for the Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Market Information
   High
    
    
    Low2008First Quarter
    
    $
    1.58
    
    
    $
    1.11Second Quarter
    
    
    1.09
    
    
    
    0.62Third Quarter
    
    
    0.80
    
    
    
    0.39Fourth Quarter
    
    
    0.40
    
    
    
    0.202009First Quarter
    
    $
    0.29
    
    
    $
    0.07Second Quarter
    
    
    0.34
    
    
    
    0.10Third Quarter
    
    
    0.28
    
    
    
    0.17Fourth Quarter
    
    
    0.20
    
    
    
    0.14
  Dividend Policy
  
 Item 6. Selected Financial Data
   Years Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands, except share data)Statements of operations data:Contract revenues
    
    $
    4,883
    
    
    $
    251
    
    
    $
    961
    
    
    $
    4,814
    
    
    $
    10,507Total operating expenses
    
    
    18,310
    
    
    
    23,257
    
    
    
    27,353
    
    
    
    38,918
    
    
    
    41,069Loss from operations
    
    
    (13,427
    )
    
    
    (23,006
    )
    
    
    (26,392
    )
    
    
    (34,104
    )
    
    
    (30,562
    )Gain on sale of patent and royalty interest to related party
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    Net interest income (expense)
    
    
    (356
    )
    
    
    373
    
    
    
    2,180
    
    
    
    1,054
    
    
    
    1,311Net loss
    
    
    (13,772
    )
    
    
    (22,608
    )
    
    
    (24,201
    )
    
    
    (13,027
    )
    
    
    (29,215
    )Basic and diluted net loss per share
    
    
    (0.15
    )
    
    
    (0.42
    )
    
    
    (0.48
    )
    
    
    (0.89
    )
    
    
    (2.01
    )Shares used in computing basic and diluted net loss per share
    
    
    92,348
    
    
    
    54,162
    
    
    
    50,721
    
    
    
    14,642
    
    
    
    14,513
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As of December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands)Balance sheet data:Cash, cash equivalents and short-term investments
    
    $
    9,131
    
    
    $
    19,140
    
    
    $
    40,510
    
    
    $
    27,514
    
    
    $
    27,694Working capital
    
    
    7,411
    
    
    
    17,313
    
    
    
    36,594
    
    
    
    25,405
    
    
    
    21,087Total assets
    
    
    11,965
    
    
    
    25,519
    
    
    
    45,813
    
    
    
    32,226
    
    
    
    39,497Note payable and accrued interest to former related party
    
    
    8,896
    
    
    
    8,472
    
    
    
    8,071
    
    
    
    7,686
    
    
    
    Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,669
    
    
    
    23,669Accumulated deficit
    
    
    (348,446
    )
    
    
    (334,674
    )
    
    
    (312,066
    )
    
    
    (287,865
    )
    
    
    (274,838
    )Total shareholders equity (deficit)
    
    
    (173
    )
    
    
    8,756
    
    
    
    30,299
    
    
    
    (3,947
    )
    
    
    7,171
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The discussion below contains forward-looking statements that are based on the current beliefs
of management, as well as current assumptions made by, and information currently available to,
management. All statements contained in the discussion below, other than statements that are purely
historical, are forward-looking statements. These forward-looking statements are subject to risks
and uncertainties that could cause our future actual results, performance or achievements to differ
materially from those expressed in, or implied by, any such forward-looking statements as a result
of certain factors, including, but not limited to, those risks and uncertainties discussed in this
section, as well as in the section entitled Risk Factors, and elsewhere in our other filings with
the SEC. See Cautionary Note Regarding Forward-Looking Statements elsewhere in this Annual
Report on Form 10-K.
 Our business is subject to significant risks including, but not limited to, our ability to
obtain additional financing, our ability to implement our product development strategy, the success
of product development efforts, obtaining and enforcing patents important to our business, clearing
the lengthy and expensive regulatory approval process and possible competition from other products.
Even if product candidates appear promising at various stages of development, they may not reach
the market or may not be commercially successful for a number of reasons. Such reasons include, but
are not limited to, the possibilities that the potential products may be found to be ineffective
during clinical trials, may fail to receive necessary regulatory approvals, may be difficult to
manufacture on a large scale, are uneconomical to market, may be precluded from commercialization
by proprietary rights of third parties or may not gain acceptance from health care professionals
and patients. Further, even if our product candidates appear promising at various stages of
development, our share price may decrease such that we are unable to raise additional capital
without dilution that may be unacceptable to our shareholders.
 Investors are cautioned not to place undue reliance on the forward-looking statements
contained herein. We undertake no obligation to update these forward-looking statements in light of
events or circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
 Overview
  28




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##### Table of Contents



Pseudomonas aeruginosa
 Pseudomonas aeruginosa
 Pseudomonas aeruginosa
  Pseudomonas aeruginosa
 29




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Revenue Recognition
 Revenue Recognition Revised and Updated Revenue Arrangements-Multiple Element
 30




---



##### Table of Contents



Arrangements
    Impairment of Long-Lived Assets
 , Property, Plant &
equipment  Overall
 Accounting for Costs Associated with Exit or Disposal Activities
 Exit or Disposal Cost Obligations ,
 Research and Development
  Income Taxes
  31




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##### Table of Contents



Stock Based Compensation
 Compensation-Stock
Compensation Equity-Equity Based Payments to Non-Employees
   Recent Accounting Pronouncements
  Results of Operations
 Years Ended December 31, 2009 and 2008
 Revenue
 Years EndedDecember 31,2009
    
    
    2008
    
    
    Increase(In thousands)Contract revenue
    
    $
    4,883
    
    
    $
    251
    
    
    $
    4,632
    
    
    
    1,845
    %
  Research and Development Expenses
 Years EndedDecember 31,2009
    
    
    2008
    
    
    Decrease(In thousands)Research and development expenses:Collaborative
    
    $
    1,362
    
    
    $
    2,111
    
    
    $
    (749
    )
    
    
    (35
    )%Self-initiated
    
    
    10,044
    
    
    
    14,388
    
    
    
    (4,344
    )
    
    
    (30
    )%Total research and development expenses
    
    $
    11,406
    
    
    $
    16,499
    
    
    $
    (5,093
    )
    
    
    (31
    )%
 32




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##### Table of Contents



General and Administrative Expenses
 Years EndedDecember 31,2009
    
    
    2008
    
    
    Decrease(In thousands)General and administrative expenses
    
    $
    5,030
    
    
    $
    6,679
    
    
    $
    (1,649
    )
    
    
    (25
    )%
  Restructuring and Asset Impairment
 Years EndedDecember 31,2009
    
    
    2008
    
    
    Increase(In thousands)Restructuring and asset impairment expenses
    
    $
    1,874
    
    
    $
    79
    
    
    $
    1,795
    
    
    
    2,272
    %
  Interest Income, Interest Expense and Other Income (Expense)
 Years EndedDecember 31,2009
    
    
    2008
    
    
    Decrease(In thousands)Interest income, interest expense and other income (expense):Interest income
    
    $
    72
    
    
    $
    781
    
    
    $
    (709
    )
    
    
    (91
    )%Interest expense
    
    
    (428
    )
    
    
    (408
    )
    
    
    (20
    )
    
    
    (5
    )%Other income (expense)
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    Total interest income, interest expense and other income (expense)
    
    $
    (360
    )
    
    $
    373
    
    
    $
    (733
    )
  33




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##### Table of Contents



Liquidity and Capital Resources
         Off-Balance Sheet Financings and Liabilities
  
 Item 7A. Quantitative and Qualitative Disclosure About Market Risk
  34




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      
 35




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##### Table of Contents



ARADIGM CORPORATION

BALANCE SHEETS
 December 31,2009
    
    
    2008(In thousands, exceptshare data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,903
    
    
    $
    16,741Short-term investments
    
    
    5,228
    
    
    
    2,399Receivables
    
    
    155
    
    
    
    393Restricted cash
    
    
    
    
    
    
    225Prepaid and other current assets
    
    
    328
    
    
    
    387Total current assets
    
    
    9,614
    
    
    
    20,145Property and equipment, net
    
    
    2,166
    
    
    
    5,093Notes receivable
    
    
    52
    
    
    
    34Other assets
    
    
    133
    
    
    
    247Total assets
    
    $
    11,965
    
    
    $
    25,519LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    572
    
    
    $
    739Accrued clinical and cost of other studies
    
    
    670
    
    
    
    94Accrued compensation
    
    
    341
    
    
    
    1,051Facility lease exit obligation
    
    
    263
    
    
    
    318Other accrued liabilities
    
    
    357
    
    
    
    630Total current liabilities
    
    
    2,203
    
    
    
    2,832Deferred rent, non-current
    
    
    136
    
    
    
    199Facility lease exit obligation, non-current
    
    
    828
    
    
    
    1,056Deferred revenue, non-current
    
    
    
    
    
    
    4,122Other non-current liabilities
    
    
    75
    
    
    
    82Note payable and accrued interest
    
    
    8,896
    
    
    
    8,472Total liabilities
    
    
    12,138
    
    
    
    16,763Commitments and contingenciesShareholders equity (deficit):Preferred stock, 2,950,000 shares authorized, none outstandingCommon stock, no par value; authorized shares: 150,000,000
at December 31, 2009 and 2008; issued and outstanding
shares: 102,381,116 at December 31, 2009; 55,029,384 at
December 31, 2008
    
    
    348,271
    
    
    
    343,426Accumulated other comprehensive income
    
    
    2
    
    
    
    4Accumulated deficit
    
    
    (348,446
    )
    
    
    (334,674
    )Total shareholders equity (deficit)
    
    
    (173
    )
    
    
    8,756Total liabilities and shareholders equity (deficit)
    
    $
    11,965
    
    
    $
    25,519
  36




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##### Table of Contents



ARADIGM CORPORATION
STATEMENTS OF OPERATIONS
 Years Ended December 31,2009
    
    
    2008(In thousands, exceptshare data)Revenue:Contract revenue
    
    $
    4,883
    
    
    $
    251Operating expenses:Research and development
    
    
    11,406
    
    
    
    16,499General and administrative
    
    
    5,030
    
    
    
    6,679Restructuring and asset impairment
    
    
    1,874
    
    
    
    79Total operating expenses
    
    
    18,310
    
    
    
    23,257Loss from operations
    
    
    (13,427
    )
    
    
    (23,006
    )Interest income
    
    
    72
    
    
    
    781Interest expense
    
    
    (428
    )
    
    
    (408
    )Other (expense), net
    
    
    (4
    )
    
    
    Loss before income taxes
    
    
    (13,787
    )
    
    
    (22,633
    )Income tax benefit
    
    
    15
    
    
    
    25Net loss
    
    $
    (13,772
    )
    
    $
    (22,608
    )Basic and diluted net loss per common share
    
    $
    (0.15
    )
    
    $
    (0.42
    )Shares used in computing basic and diluted net loss per common share
    
    
    92,348
    
    
    
    54,162
  37




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##### Table of Contents



ARADIGM CORPORATION
 STATEMENT OF SHAREHOLDERS EQUITY (DEFICIT)
 Accumulated
    
    
    
    
    
    
    TotalOther
    
    
    
    
    
    
    ShareholdersCommon Stock
    
    
    Comprehensive
    
    
    Accumulated
    
    
    EquityShares
    
    
    Amount
    
    
    Income (Loss)
    
    
    Deficit
    
    
    (Deficit)Balances at December 31, 2007
    
    
    54,772,705
    
    
    $
    342,355
    
    
    $
    10
    
    
    $
    (312,066
    )
    
    $
    30,299Issuance of common stock under the employee stock purchase plan
    
    
    300,524
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    190Issuance of common stock upon exercise of common stock options
    
    
    3,750
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Stock-based compensation
    
    
    
    
    
    
    877
    
    
    
    
    
    
    
    
    
    
    
    877Reversal of restricted stock award due to forfeiture
    
    
    (47,595
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,608
    )
    
    
    (22,608
    )Unrealized (loss) on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,614
    )Balances at December 31, 2008
    
    
    55,029,384
    
    
    
    343,426
    
    
    
    4
    
    
    
    (334,674
    )
    
    
    8,756Issuance of common stock in a public offering, net of issuance
costs
    
    
    44,663,071
    
    
    
    3,927
    
    
    
    
    
    
    
    
    
    
    
    3,927Issuance of common stock under the employee stock purchase plan
    
    
    371,036
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Issuance of common stock upon exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted stock awards
    
    
    2,418,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reversal of restricted stock award due to forfeiture
    
    
    (100,625
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    
    
    
    
    873Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,772
    )
    
    
    (13,772
    )Unrealized (loss) on available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,774
    )Balances at December 31, 2009
    
    
    102,381,116
    
    
    $
    348,271
    
    
    $
    2
    
    
    $
    (348,446
    )
    
    $
    (173
    )
  38




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##### Table of Contents



ARADIGM CORPORATION
 STATEMENTS OF CASH FLOWS
 Years Ended December 31,2009
    
    
    2008(In thousands)Cash flows from operating activities:Net loss
    
    $
    (13,772
    )
    
    $
    (22,608
    )Adjustments to reconcile net loss to net cash used in operating activities:Non-cash asset impairment on property and equipment
    
    
    1,654
    
    
    
    Facility lease exit costs
    
    
    158
    
    
    
    Amortization and accretion of investments
    
    
    21
    
    
    
    26Depreciation and amortization
    
    
    1,067
    
    
    
    871Stock-based compensation expense
    
    
    873
    
    
    
    877Loss on disposition of property and equipment
    
    
    4
    
    
    
    1Changes in operating assets and liabilities:Receivables
    
    
    238
    
    
    
    106Prepaid and other current assets
    
    
    61
    
    
    
    584Restricted cash
    
    
    225
    
    
    
    80Other assets
    
    
    14
    
    
    
    24Accounts payable
    
    
    (167
    )
    
    
    (1,113
    )Accrued compensation
    
    
    (710
    )
    
    
    (201
    )Accrued liabilities
    
    
    720
    
    
    
    (414
    )Deferred rent
    
    
    (63
    )
    
    
    (84
    )Deferred revenue
    
    
    (4,122
    )
    
    
    3,242Facility lease exit obligation
    
    
    (325
    )
    
    
    (375
    )Net cash used in operating activities
    
    
    (14,124
    )
    
    
    (18,984
    )Cash flows from investing activities:Capital expenditures
    
    
    185
    
    
    
    (2,548
    )Purchases of available-for-sale investments
    
    
    (11,438
    )
    
    
    (3,629
    )Proceeds from maturities of available-for-sale investments
    
    
    8,585
    
    
    
    11,744Notes receivable payments
    
    
    (18
    )
    
    
    Net cash provided (used) by investing activities
    
    
    (2,686
    )
    
    
    5,567Cash flows from financing activities:Proceeds from public offering of common stock, net
    
    
    3,927
    
    
    
    Proceeds from issuance of common stock to Employee Stock Purchase Plan
    
    
    45
    
    
    
    190Proceeds from exercise of common stock options
    
    
    
    
    
    
    4Net cash provided by financing activities
    
    
    3,972
    
    
    
    194Net (decrease) in cash and cash equivalents
    
    
    (12,838
    )
    
    
    (13,223
    )Cash and cash equivalents at beginning of year
    
    
    16,741
    
    
    
    29,964Cash and cash equivalents at end of year
    
    $
    3,903
    
    
    $
    16,741Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    4
    
    
    $
    7Cash paid (received) for income taxes
    
    $
    (25
    )
    
    $
    
  39




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##### Table of Contents



ARADIGM CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization
  Liquidity and Financial Condition
  Use of Estimates
  Cash Equivalents
  Investments
  Property and Equipment
  40




---



##### Table of Contents



Computer equipment and software
    
    3 to 5 yearsFurniture and fixtures
    
    5 to 7 yearsLab equipment
    
    5 to 7 yearsMachinery and equipment
    
    5 yearsLeasehold improvements
    
    5 to 17 years
 Impairment of Long-Lived Assets
 Property
Plant and Equipment  Overall
 Accounting for Costs Associated with Exit or Disposal Activities
 Exit or Disposal Activities
  Revenue Recognition
 Revenue Recognition Revised and Updated
( Revenue Recognition-Multiple Elements.
    41




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##### Table of Contents



Research and Development
  Advertising
  Stock-Based Compensation
 Compensation-Stock Compensation and ASC 505-50, Equity-Equity Based Payments to Non-Employees
 Income Taxes
   Net Loss Per Common Share
   Years Ended December 31,2009
    
    
    2008Outstanding stock options
    
    
    5,088
    
    
    
    4,185Unvested restricted stock
    
    
    2,668
    
    
    
    704
 42




---



##### Table of Contents



Significant Concentrations
  Comprehensive Income (Loss)
 Comprehensive Income
 Recently Issued Accounting Pronouncements
 Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements
 Fair Value Measurements and Disclosures
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No 162 .
 Subsequent Events Subsequent Events Subsequent Events
 Effective Date of FASB
Statement No. 157
 Business
Combinations
 43




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##### Table of Contents



Collaborative
Arrangements
 Research and
Development (formerly EITF Issue 07-03).
 Fair Value
Measurements
 2. Cash and Cash Equivalents and Short-term Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gain
    
    
    (Loss)
    
    
    Fair ValueDecember 31, 2009Cash and cash equivalents
    
    $
    3,903
    
    
    $
    
    
    
    $
    
    
    
    $
    3,903Short-term investments:Commercial paper
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    500Certificates of
deposit
    
    
    3,183
    
    
    
    2
    
    
    
    
    
    
    
    3,185U.S. Treasury and agencies
    
    
    1,543
    
    
    
    
    
    
    
    
    
    
    
    1,543Total
    
    $
    5,226
    
    
    $
    2
    
    
    $
    
    
    
    $
    5,228December 31, 2008Cash and cash equivalents
    
    $
    16,741
    
    
    $
    
    
    
    $
    
    
    
    $
    16,741Short-term investments:Commercial paper
    
    $
    2,395
    
    
    $
    4
    
    
    $
    
    
    
    $
    2,399U.S. Treasury and agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,395
    
    
    $
    4
    
    
    $
    
    
    
    $
    2,399
  44




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##### Table of Contents



3. Fair Value Measurements
 Fair Value Measurements.
 BalanceDecember 31,Description
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(In thousands)Cash and cash equivalents
    
    $
    3,903
    
    
    $
    3,903
    
    
    $
    
    
    
    $
    Short-term investments
    
    
    5,228
    
    
    
    
    
    
    
    5,228
    
    
    
    Total
    
    $
    9,131
    
    
    $
    3,903
    
    
    $
    5,228
    
    
    $
    
  4. Property and Equipment
  December 31,2009
    
    
    2008Machinery and equipment
    
    $
    4,510
    
    
    $
    5,282Furniture and fixtures
    
    
    1,138
    
    
    
    1,142Lab equipment
    
    
    2,488
    
    
    
    2,488Computer equipment and software
    
    
    2,630
    
    
    
    2,636Leasehold improvements
    
    
    1,861
    
    
    
    1,901Property and equipment at cost
    
    
    12,627
    
    
    
    13,449Less accumulated depreciation and amortization
    
    
    (10,461
    )
    
    
    (9,512
    )Subtotal
    
    
    2,166
    
    
    
    3,937Construction in progress
    
    
    
    
    
    
    1,156Property and equipment, net
    
    $
    2,166
    
    
    $
    5,093
  5. Restricted Cash
  6. Sublease Agreement and Lease Exit Liability:
  45




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##### Table of Contents



Exit or Disposal Cost Obligations,
 Year Ended December 31,2009
    
    
    2008Balance at beginning of year
    
    $
    1,374
    
    
    $
    1,749Loss on sublease amendment to Mendel
    
    
    42
    
    
    
    Accretion expense
    
    
    61
    
    
    
    79Lease payments
    
    
    (386
    )
    
    
    (454
    )Balance at end of the year
    
    $
    1,091
    
    
    $
    1,374
  7. Other Liabilities
  December 31,2009
    
    
    2008Other accrued liabilities:Accrued expense for services
    
    $
    302
    
    
    $
    389Payroll withholding liabilities
    
    
    47
    
    
    
    76Deposits
    
    
    
    
    
    
    153Other short term obligations
    
    
    8
    
    
    
    12Total other accrued liabilities
    
    $
    357
    
    
    $
    630Other non-current liabilities:Deposits
    
    $
    75
    
    
    $
    75Other long term obligations
    
    
    
    
    
    
    7Total other non-current liabilities
    
    $
    75
    
    
    $
    82
 8. Notes Payable and Accrued Interest
    46




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##### Table of Contents



9. Leases, Commitments and Contingencies
  Operating
    
    
    Mendel
    
    
    Net OperatingLeases
    
    
    Sub-Lease
    
    
    Lease PaymentsYear ending December 31:2010
    
    $
    1,850
    
    
    $
    (957
    )
    
    $
    8932011
    
    
    1,639
    
    
    
    (986
    )
    
    
    6532012
    
    
    1,704
    
    
    
    (896
    )
    
    
    8082013
    
    
    1,774
    
    
    
    
    
    
    
    1,7742014
    
    
    1,844
    
    
    
    
    
    
    
    1,8442015 and thereafter
    
    
    2,938
    
    
    
    
    
    
    
    2,938Total minimum lease payments
    
    $
    11,749
    
    
    $
    (2,839
    )
    
    $
    8,910
     Indemnification
  Legal Matters
  47




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##### Table of Contents



10. Shareholders Equity
   Reserved Shares
  Shareholder Rights Plan
  Stock Option Plans: 1996 Equity Incentive Plan, 2005 Equity Incentive Plan and 1996 Non-Employee
Directors Plan
    48




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##### Table of Contents



Options OutstandingWeightedShares Available
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Averagefor Grant of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ExerciseOption or Award
    
    
    Shares
    
    
    Price per Share
    
    
    PriceBalance at December 31, 2007
    
    
    1,837,161
    
    
    
    3,493,154
    
    
    $
    1.02
    
    
    
    
    
    
    $
    120.63
    
    
    $
    5.37Options authorized
    
    
    2,700,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (898,000
    )
    
    
    898,000
    
    
    $
    0.39
    
    
    
    
    
    
    $
    1.57
    
    
    $
    0.80Options exercised
    
    
    
    
    
    
    (3,750
    )
    
    $
    1.15
    
    
    
    
    
    
    $
    1.15
    
    
    $
    1.15Restricted stock awards granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options cancelled
    
    
    202,343
    
    
    
    (202,343
    )
    
    $
    1.23
    
    
    
    
    
    
    $
    71.25
    
    
    $
    10.65Restricted share awards cancelled
    
    
    147,595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan shares cancelled and not reauthorized
    
    
    (1,500
    )
    
    
    
    
    
    $
    71.25
    
    
    
    
    
    
    $
    71.25
    
    
    $
    71.25Balance at December 31, 2008
    
    
    3,987,599
    
    
    
    4,185,061
    
    
    $
    0.39
    
    
    
    
    
    
    $
    120.63
    
    
    $
    4.14Options granted
    
    
    (2,078,000
    )
    
    
    2,078,000
    
    
    $
    0.15
    
    
    
    
    
    
    $
    0.25
    
    
    $
    0.22Options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock awards granted
    
    
    (2,418,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options cancelled
    
    
    1,174,618
    
    
    
    (1,174,618
    )
    
    $
    0.17
    
    
    
    
    
    
    $
    112.50
    
    
    $
    4.34Restricted share awards cancelled
    
    
    100,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan shares cancelled and not reauthorized
    
    
    (3,407
    )
    
    
    
    
    
    $
    41.25
    
    
    
    
    
    
    $
    42.19
    
    
    $
    41.78Balance at December 31, 2009
    
    
    763,185
    
    
    
    5,088,443
    
    
    $
    0.15
    
    
    
    
    
    
    $
    120.63
    
    
    $
    2.49
 49




---



##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    Averageof
    
    
    Contractual
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseExercise Price Range
    
    Shares
    
    
    Life (In Years)
    
    
    Price
    
    
    Shares
    
    
    Price$0.15 - $0.25
    
    
    1,835,000
    
    
    
    9.16
    
    
    $
    0.22
    
    
    
    557,059
    
    
    $
    0.20$0.26 - $0.87
    
    
    540,000
    
    
    
    8.59
    
    
    
    0.63
    
    
    
    220,311
    
    
    
    0.69$0.88 - $1.70
    
    
    1,530,950
    
    
    
    7.37
    
    
    
    1.51
    
    
    
    1,050,906
    
    
    
    1.51$1.71 - $3.14
    
    
    762,400
    
    
    
    6.62
    
    
    
    1.86
    
    
    
    678,470
    
    
    
    1.85$3.15 - $9.45
    
    
    241,900
    
    
    
    4.85
    
    
    
    5.31
    
    
    
    238,150
    
    
    
    5.33$9.46 - $18.65
    
    
    67,866
    
    
    
    2.92
    
    
    
    15.65
    
    
    
    67,866
    
    
    
    15.65$18.66 - $29.75
    
    
    47,300
    
    
    
    2.08
    
    
    
    24.33
    
    
    
    47,300
    
    
    
    24.33$29.76 - $48.75
    
    
    22,642
    
    
    
    1.25
    
    
    
    30.99
    
    
    
    22,642
    
    
    
    30.99$48.76 - $120.63
    
    
    40,385
    
    
    
    0.43
    
    
    
    99.36
    
    
    
    40,385
    
    
    
    99.365,088,443
    
    
    
    7.72
    
    
    $
    2.49
    
    
    
    2,923,089
    
    
    $
    3.87
   Number of
    
    
    Weighted AverageShares
    
    
    Grant Date Fair ValueBalance at December 31, 2007
    
    
    870,724
    
    
    $
    1.66Restricted stock awards granted
    
    
    
    
    
    
    Restricted share awards vested
    
    
    (19,594
    )
    
    
    3.63Restricted share awards cancelled
    
    
    (147,595
    )
    
    
    1.66Balance at December 31, 2008
    
    
    703,535
    
    
    
    1.60Restricted stock awards granted
    
    
    2,418,250
    
    
    
    0.16Restricted share awards vested
    
    
    (353,154
    )
    
    
    0.90Restricted share awards cancelled
    
    
    (100,625
    )
    
    
    0.99Balance at December 31, 2009
    
    
    2,668,006
    
    
    
    0.41
   Employee Stock Purchase Plan
  50




---



##### Table of Contents



Years Ended December 31,2009
    
    
    2008Employee Stock Purchase PlanDividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility factor
    
    
    115.4
    %
    
    
    64.8
    %Risk-free interest rate
    
    
    0.9
    %
    
    
    1.7
    %Expected life (years)
    
    
    2.00
    
    
    
    0.52Weighted-average fair value of purchase rights granted during the period
    
    $
    0.11
    
    
    $
    0.15
 Stock-Based Compensation Expense
 Share-based
Payment
  2009
    
    
    2008Costs and ExpensesResearch and development
    
    $
    305
    
    
    $
    553General and administrative
    
    
    568
    
    
    
    324Total stock-based employee compensation expense
    
    $
    873
    
    
    $
    877Impact on basic and diluted net loss per common share
    
    $
    (0.01
    )
    
    $
    (0.02
    )
  Valuation Assumptions
  51




---



##### Table of Contents



Years Ended December 312009
    
    
    2008Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility factor
    
    
    91.6
    %
    
    
    67.7
    %Risk-free interest rate
    
    
    1.3
    %
    
    
    2.8
    %Expected term (years)
    
    
    3.7
    
    
    
    3.8Weighted-average fair value of options granted during the periods
    
    $
    0.14
    
    
    $
    0.33
 Stock-Based Compensation for Non-Employees
 Equity  Equity
Based Payments to Non-Employees,
 11. Collaborations and Royalty Agreements
 Lung Rx
   Zogenix
    52




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##### Table of Contents



12. Asset Impairment
   13. Employee Benefit Plans
  14. Income Taxes
   December 31,2009
    
    
    2008Net operating loss carryforwards
    
    $
    7,962
    
    
    $
    2,600Research and development credits
    
    
    6,389
    
    
    
    6,300Federal orphan drug credits
    
    
    3,360
    
    
    
    Other
    
    
    1,818
    
    
    
    3,000Total deferred tax assets
    
    
    19,529
    
    
    
    11,900Valuation allowance
    
    
    (19,529
    )
    
    
    (11,900
    )Net deferred tax assets
    
    $
    
    
    
    $
    
 Compensation-Stock Compensation
  53




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008Income tax benefit at federal statutory rate
    
    $
    (4,825
    )
    
    $
    (7,921
    )Expired net operating losses
    
    
    11
    
    
    
    554State taxes (net of federal)
    
    
    (847
    )
    
    
    (1,461
    )Credits
    
    
    (2,408
    )
    
    
    (289
    )Other
    
    
    425
    
    
    
    Reduction in deferred tax assets due to Section 382 limitations
    
    
    
    
    
    
    124,743Change in valuation allowance
    
    
    7,629
    
    
    
    (115,651
    )Total
    
    $
    (15
    )
    
    $
    (25
    )
      15. Quarterly Results of Operations (unaudited)
  March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    
    2009Contract revenues
    
    $
    
    
    
    $
    
    
    
    $
    4,883
    
    
    $
    Operating expenses:Research and development
    
    
    3,726
    
    
    
    2,927
    
    
    
    2,426
    
    
    
    2,327General and administrative
    
    
    1,398
    
    
    
    1,368
    
    
    
    1,323
    
    
    
    941Restructuring and asset impairment
    
    
    17
    
    
    
    205
    
    
    
    1,638
    
    
    
    14Total expenses
    
    
    5,141
    
    
    
    4,500
    
    
    
    5,387
    
    
    
    3,282Loss from operations
    
    
    (5,141
    )
    
    
    (4,500
    )
    
    
    (504
    )
    
    
    (3,282
    )Net interest income (expense)
    
    
    (76
    )
    
    
    (91
    )
    
    
    (93
    )
    
    
    (96
    )Other income (expense)
    
    
    (1
    )
    
    
    (3
    )
    
    
    1
    
    
    
    (1
    )Loss before income taxes
    
    
    (5,218
    )
    
    
    (4,594
    )
    
    
    (596
    )
    
    
    (3,379
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Net loss
    
    $
    (5,218
    )
    
    $
    (4,594
    )
    
    $
    (596
    )
    
    $
    (3,364
    )Basic and diluted net loss per common share
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )Shares used in computing basic and diluted net loss per common share
    
    
    70,704
    
    
    
    99,298
    
    
    
    99,347
    
    
    
    99,648
 54




---



##### Table of Contents



March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2008
    
    
    2008
    
    
    2008
    
    
    2008Contract revenues
    
    $
    
    
    
    $
    54
    
    
    $
    197
    
    
    $
    Operating expenses:Research and development
    
    
    4,329
    
    
    
    5,364
    
    
    
    3,199
    
    
    
    3,607General and administrative
    
    
    1,549
    
    
    
    1,825
    
    
    
    1,615
    
    
    
    1,690Restructuring and asset impairment
    
    
    22
    
    
    
    20
    
    
    
    19
    
    
    
    18Total expenses
    
    
    5,900
    
    
    
    7,209
    
    
    
    4,833
    
    
    
    5,315Loss from operations
    
    
    (5,900
    )
    
    
    (7,155
    )
    
    
    (4,636
    )
    
    
    (5,315
    )Net interest income (expense)
    
    
    263
    
    
    
    102
    
    
    
    41
    
    
    
    (33
    )Other income (expense)
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )
    
    
    1Loss before income taxes
    
    
    ( 5,638
    )
    
    
    (7,052
    )
    
    
    (4,596
    )
    
    
    (5,347
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Net loss
    
    $
    (5,638
    )
    
    $
    (7,052
    )
    
    $
    (4,596
    )
    
    $
    (5,322
    )Basic and diluted net loss per common share
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.08
    )
    
    $
    (0.10
    )Shares used in computing basic and diluted net loss per common share
    
    
    54,007
    
    
    
    54,159
    
    
    
    54,165
    
    
    
    54,317
 16. Subsequent Events
 Zogenix
  Property Tax Assessment
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   55




---



##### Table of Contents



Managements Annual Report on Internal Control Over Financial Reporting
   Internal Control  Integrated Framework
  Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Identification of Executive Officers
  Section 16(a) Beneficial Reporting Compliance
  56




---



##### Table of Contents



Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  57




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Financial Statements.
  Page inForm 10-KReport of Independent Registered Public Accounting Firm
    
    
    35Balance Sheets  December 31, 2009 and 2008
    
    
    36Statements of Operations  Years ended December 31, 2009 and 2008
    
    
    37Statements of Shareholders Equity (Deficit)  Years ended December 31, 2009 and 2008
    
    
    38Statements of Cash Flows  Years ended December 31, 2009 and 2008
    
    
    39Notes to Financial Statements
    
    
    40
 Financial Statement Schedules.
  Exhibits.
 ExhibitNo.
    
    Description3.1(1)
    
    Amended and Restated Articles of Incorporation of the Company.3.2(2)
    
    Bylaws of the Company, as amended.3.3(3)
    
    Certificate of Determination of Series A Junior Participating Preferred Stock.3.4(4)
    
    Amended and Restated Certificate of Determination of Preferences of Series A Convertible Preferred Stock.3.5(3)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.3.6(3)
    
    Certificate of Amendment of Certificate of Determination of Series A Junior Participating Preferred Stock.3.7(5)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.3.8(5)
    
    Certificate of Amendment of Certificate of Determination of Series A Junior Participating Preferred Stock.3.9(6)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.3.10(17)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9 and 3.10.4.2(1)
    
    Specimen common stock certificate.10.1(1)+
    
    Form of Indemnity Agreement between the Registrant and each of its directors and officers.10.2(1)+
    
    Form of the Companys Incentive Stock Option Agreement under the 2005 Equity Incentive Plan.10.3(1)+
    
    Form of the Companys Non-statutory Stock Option Agreement under the 2005 Equity Incentive Plan.10.4(1)+
    
    1996 Non-Employee Directors Stock Option Plan.10.5(1)+
    
    Form of the Companys Non-statutory Stock Option Agreement under the 1996 Non-Employee Directors Stock
Option Plan.10.6(1)+
    
    Form of the Companys Employee Stock Purchase Plan Offering Document.10.7(6)+
    
    Form of the Companys Restricted Stock Bonus Agreement under the 2005 Equity Incentive Plan.10.8(7)
    
    Promissory Note and Security Agreement, dated July 3, 2006, by and between the Company and Novo Nordisk
A/S.10.9(7)
    
    Amended and Restated Stock Purchase Agreement, dated as of January 26, 2005, by and among the Company,
Novo Nordisk A/S and Novo Nordisk Pharmaceuticals, Inc.10.10(7)#
    
    Asset Purchase Agreement, dated as of August 25, 2006, by and between the Company and Zogenix, Inc.10.11(7)+
    
    Employment Agreement, dated as of August 10, 2006, with Dr. Igor Gonda.
 58




---



##### Table of Contents



ExhibitNo.
    
    Description10.12(8)
    
    Lease Agreement for the property located in Phase V of the Britannia Point Eden Business Park in Hayward,
California, dated January 28, 1998, between the Company and Britannia Point Eden, LLC.10.13(9)#
    
    Restructuring Agreement, dated as of September 28, 2004, by and among the Company, Novo Nordisk A/S and
Novo Nordisk Delivery Technologies, Inc.10.14(10)
    
    Securities Purchase Agreement, dated as of December 17, 2004, by and among the Company and the purchasers
named therein.10.15(11)#
    
    Second Amended and Restated License Agreement, dated as of July 3, 2006, by and between the Company and
Novo Nordisk A/S.10.16(12)
    
    Consulting Agreement effective as of July 2, 2007 by and between the Company and Norman Halleen.10.17(13)
    
    Sublease between the Company and Mendel Biotechnology, Inc., dated July 11, 2007, under the Lease
Agreement by and between the Company and Hayward Point Eden I Limited Partnership, a Delaware limited
partnership, as successor-in-interest to Britannia Point Eden, LLC, as amended, for 3929 Point Eden Way,
Hayward, California.10.18(14)
    
    Manufacturing Agreement between the Company and Enzon Pharmaceuticals, Inc. dated August 8, 2007.10.19(15)#
    
    Exclusive License, Development and Commercialization Agreement, dated as of August 30, 2007, by and
between the Company and Lung Rx, Inc.10.20(15)#
    
    Collaboration Agreement, dated as of August 31, 2007, by and between the Company and CyDex, Inc.10.21(16)+
    
    2005 Equity Incentive Plan, as amended10.22(17)+
    
    Employee Stock Purchase Plan, as amended.10.23(18)
    
    Amended and Restated Rights Agreement, dated as of September 5, 2008 by and between the Company and
ComputerShare Trust Company, N.A.10.24(19)
    
    Separation Agreement between the Company and Dr. Babatunde Otulana, dated as of December 12, 2008.10.25(19)
    
    Consulting Agreement for Independent Contractors between the Company and Dr. Babatunde Otulana, effective
as of January 1, 2009.10.26(19)
    
    International Scientific Advisory Agreement between the Company and Dr. Babatunde Otulana, effective as
of January 1, 2009.10.27(20)+
    
    Amended and Restated form of Change of Control Agreement entered into between the Company and certain of
the Companys senior officers.10.28(20)+
    
    Amended and Restated Executive Officer Severance Benefit Plan.10.29(21)+
    
    Amended and Restated Change of Control Agreement, dated as of July 30, 2009 by and between Aradigm
Corporation and Igor Gonda.10.30(21)+
    
    Amended and Restated Change of Control Agreement, dated as of July 30, 2009 by and between Aradigm
Corporation and Nancy Pecota.10.31(21)+
    
    Amended and Restated Change of Control Agreement, dated as of July 30, 2009 by and between Aradigm
Corporation and Jeffery Grimes.10.32(21)
    
    Security Agreement, dated as of July 30, 2009 by and among Aradigm Corporation, Igor Gonda, Jeffery
Grimes and Nancy Pecota.23.1
    
    Consent of Odenberg Ullakko Muranishi & Co LLP, Independent Registered Public Accounting Firm.24.1
    
    Power of Attorney. Reference is made to the signature page.31.1
    
    Section 302 Certification of the Chief Executive Officer.31.2
    
    Section 302 Certification of the Chief Financial Officer32.1
    
    Section 906 Certification of the Chief Executive Officer and the Chief Financial Officer.
 
 +
    
    Represents a management contract or compensatory plan or arrangement.#
    
    The Commission has granted the Companys request for confidential treatment with respect to portions of
this exhibit.(1)
    
    Incorporated by reference to the Companys Form S-1 (No. 333-4236) filed on April 30, 1996, as amended.(2)
    
    Incorporated by reference to the Companys Form 10-Q filed on August 14, 1998.(3)
    
    Incorporated by reference to the Companys Form 10-K filed on March 29, 2002.(4)
    
    Incorporated by reference to the Companys Form S-3 (No. 333-76584) filed on January 11, 2002, as amended.(5)
    
    Incorporated by reference to the Companys Form 10-Q filed on August 13, 2004.(6)
    
    Incorporated by reference to the Companys Form 10-K filed on March 31, 2006. 59




---



##### Table of Contents



(7)
    
    Incorporated by reference to the Companys Form S-1 (No. 333-138169) filed on October 24, 2006, as amended.(8)
    
    Incorporated by reference to the Companys Form 10-K filed on March 24, 1998, as amended.(9)
    
    Incorporated by reference to the Companys Form 8-K filed on December 23, 2004.(10)
    
    Incorporated by reference to the Companys Form 10-Q filed on August 14, 2006.(11)
    
    Incorporated by reference to the Companys Form 8-K filed on October 13, 2005.(12)
    
    Incorporated by reference to the Companys Form 8-K filed on July 11, 2007.(13)
    
    Incorporated by reference to the Companys Form 8-K filed on July 24, 2007.(14)
    
    Incorporated by reference to the Companys Form 8-K filed on August 14, 2007.(15)
    
    Incorporated by reference to the Companys Form 10-Q filed on November 14, 2007.(16)
    
    Incorporated by reference to the Companys definitive proxy statement filed on April 7, 2008.(17)
    
    Incorporated by reference to the Companys Form 8-K filed on May 21, 2009.(18)
    
    Incorporated by reference to the Companys Form 10-Q filed on November 12, 2008.(19)
    
    Incorporated by reference to the Companys Form 8-K filed on December 19, 2008.(20)
    
    Incorporated by reference to the Companys Form 8-K filed on January 8, 2009.(21)
    
    Incorporated by reference to the Companys Form 10-Q filed on November 6, 2009. Index to Exhibits.
  Financial Statement Schedules.
    60




---



##### Table of Contents



SIGNATURES
  ARADIGM CORPORATIONBy:
    /s/ Igor GondaIgor GondaPresident and Chief Executive Officer    Signature
    
    Title
    
    Date/s/ Igor Gonda

Igor Gonda
    
    President, Chief Executive
Officer and Director (Principal
Executive Officer)
    
    March 23, 2010/s/ Nancy E. Pecota

Nancy E. Pecota
    
    Vice President, Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
    
    March 23, 2010/s/ Virgil D. Thompson

Virgil D. Thompson
    
    Chairman of the Board and Director
    
    March 23, 2010/s/ Frank H. Barker
    
    Director
    
    March 23, 2010Frank H. Barker/s/ John M. Siebert

John M. Siebert
    
    Director
    
    March 23, 2010
 61




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description3.1(1)
    
    Amended and Restated Articles of Incorporation of the Company.3.2(2)
    
    Bylaws of the Company, as amended.3.3(3)
    
    Certificate of Determination of Series A Junior Participating Preferred Stock.3.4(4)
    
    Amended and Restated Certificate of Determination of Preferences of Series A Convertible Preferred Stock.3.5(3)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.3.6(3)
    
    Certificate of Amendment of Certificate of Determination of Series A Junior Participating Preferred Stock.3.7(5)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.3.8(5)
    
    Certificate of Amendment of Certificate of Determination of Series A Junior Participating Preferred Stock.3.9(6)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.3.10(17)
    
    Certificate of Amendment of Amended and Restated Articles of Incorporation of the Company.4.1
    
    Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9 and 3.10.4.2(1)
    
    Specimen common stock certificate.10.1(1)+
    
    Form of Indemnity Agreement between the Registrant and each of its directors and officers.10.2(1)+
    
    Form of the Companys Incentive Stock Option Agreement under the 2005 Equity Incentive Plan.10.3(1)+
    
    Form of the Companys Non-statutory Stock Option Agreement under the 2005 Equity Incentive Plan.10.4(1)+
    
    1996 Non-Employee Directors Stock Option Plan.10.5(1)+
    
    Form of the Companys Non-statutory Stock Option Agreement under the 1996 Non-Employee Directors Stock
Option Plan.10.6(1)+
    
    Form of the Companys Employee Stock Purchase Plan Offering Document.10.7(6)+
    
    Form of the Companys Restricted Stock Bonus Agreement under the 2005 Equity Incentive Plan.10.8(7)
    
    Promissory Note and Security Agreement, dated July 3, 2006, by and between the Company and Novo Nordisk AS10.9(7)
    
    Amended and Restated Stock Purchase Agreement, dated as of January 26, 2005, by and among the Company,
Novo Nordisk A/S and Novo Nordisk Pharmaceuticals, Inc.10.10(7)#
    
    Asset Purchase Agreement, dated as of August 25, 2006, by and between the Company and Zogenix, Inc.10.11(7)+
    
    Employment Agreement, dated as of August 10, 2006, with Dr. Igor Gonda.10.12(8)
    
    Lease Agreement for the property located in Phase V of the Britannia Point Eden Business Park in Hayward,
California, dated January 28, 1998, between the Company and Britannia Point Eden, LLC.10.13(9)#
    
    Restructuring Agreement, dated as of September 28, 2004, by and among the Company, Novo Nordisk A/S and
Novo Nordisk Delivery Technologies, Inc.10.14(10)
    
    Securities Purchase Agreement, dated as of December 17, 2004, by and among the Company and the purchasers
named therein.10.15(11)#
    
    Second Amended and Restated License Agreement, dated as of July 3, 2006, by and between the Company and
Novo Nordisk A/S.10.16(12)
    
    Consulting Agreement effective as of July 2, 2007 by and between the Company and Norman Halleen.10.17(13)
    
    Sublease between the Company and Mendel Biotechnology, Inc., dated July 11, 2007, under the Lease
Agreement by and between the Company and Hayward Point Eden I Limited Partnership, a Delaware limited
partnership, as successor-in-interest to Britannia Point Eden, LLC, as amended, for 3929 Point Eden Way,
Hayward, California.10.18(14)
    
    Manufacturing Agreement between the Company and Enzon Pharmaceuticals, Inc. dated August 8, 2007.10.19(15)#
    
    Exclusive License, Development and Commercialization Agreement, dated as of August 30, 2007, by and
between the Company and Lung Rx, Inc.10.20(15)#
    
    Collaboration Agreement, dated as of August 31, 2007, by and between the Company and CyDex, Inc.10.21 (16)+
    
    2005 Equity Incentive Plan, as amended10.22(17)+
    
    Employee Stock Purchase Plan, as amended.10.23(18)
    
    Amended and Restated Rights Agreement, dated as of September 5, 2008 by and between the Company and
ComputerShare Trust Company, N.A.10.24(19)
    
    Separation Agreement between the Company and Dr. Babatunde Otulana, dated as of December 12, 2008.10.25(19)
    
    Consulting Agreement for Independent Contractors between the Company and Dr. Babatunde Otulana, effective
as of January 1, 2009.
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##### Table of Contents



ExhibitNo.
    
    Description10.26(19)
    
    International Scientific Advisory Agreement between the Company and Dr. Babatunde Otulana, effective as
of January 1, 2009.10.27(20)+
    
    Amended and Restated form of Change of Control Agreement entered into between the Company and certain of
the Companys senior officers.10.28(20)+
    
    Amended and Restated Executive Officer Severance Benefit Plan.10.29(21)+
    
    Amended and Restated Change of Control Agreement, dated as of July 30, 2009 by and between Aradigm
Corporation and Igor Gonda.10.30(21)+
    
    Amended and Restated Change of Control Agreement, dated as of July 30, 2009 by and between Aradigm
Corporation and Nancy Pecota.10.31(21)+
    
    Amended and Restated Change of Control Agreement, dated as of July 30, 2009 by and between Aradigm
Corporation and Jeffery Grimes.10.32(21)
    
    Security Agreement, dated as of July 30, 2009 by and among Aradigm Corporation, Igor Gonda, Jeffery
Grimes and Nancy Pecota.23.1
    
    Consent of Odenberg Ullakko Muranishi & Co LLP, Independent Registered Public Accounting Firm.24.1
    
    Power of Attorney. Reference is made to the signature page.31.1
    
    Section 302 Certification of the Chief Executive Officer.31.2
    
    Section 302 Certification of the Chief Financial Officer.32.1
    
    Section 906 Certification of the Chief Executive Officer and the Chief Financial Officer.
 
 +
    
    Represents a management contract or compensatory plan or arrangement.#
    
    The Commission has granted the Companys request for confidential treatment with respect to portions of
this exhibit.(1)
    
    Incorporated by reference to the Companys Form S-1 (No. 333-4236) filed on April 30, 1996, as amended.(2)
    
    Incorporated by reference to the Companys Form 10-Q filed on August 14, 1998.(3)
    
    Incorporated by reference to the Companys Form 10-K filed on March 29, 2002.(4)
    
    Incorporated by reference to the Companys Form S-3 (No. 333-76584) filed on January 11, 2002, as amended.(5)
    
    Incorporated by reference to the Companys Form 10-Q filed on August 13, 2004.(6)
    
    Incorporated by reference to the Companys Form 10-K filed on March 31, 2006.(7)
    
    Incorporated by reference to the Companys Form S-1 (No. 333-138169) filed on October 24, 2006, as amended.(8)
    
    Incorporated by reference to the Companys Form 10-K filed on March 24, 1998, as amended.(9)
    
    Incorporated by reference to the Companys Form 8-K filed on December 23, 2004.(10)
    
    Incorporated by reference to the Companys Form 10-Q filed on August 14, 2006.(11)
    
    Incorporated by reference to the Companys Form 8-K filed on October 13, 2005.(12)
    
    Incorporated by reference to the Companys Form 8-K filed on July 11, 2007.(13)
    
    Incorporated by reference to the Companys Form 8-K filed on July 24, 2007.(14)
    
    Incorporated by reference to the Companys Form 8-K filed on August 14, 2007.(15)
    
    Incorporated by reference to the Companys Form 10-Q filed on November 14, 2007.(16)
    
    Incorporated by reference to the Companys definitive proxy statement filed on April 7, 2008.(17)
    
    Incorporated by reference to the Companys Form 8-K filed on May 21, 2009.(18)
    
    Incorporated by reference to the Companys Form 10-Q filed on November 12, 2008.(19)
    
    Incorporated by reference to the Companys Form 8-K filed on December 19, 2008.(20)
    
    Incorporated by reference to the Companys Form 8-K filed on January 8, 2009.(21)
    
    Incorporated by reference to the Companys Form 10-Q filed on November 6, 2009. 63