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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington D.C.
    20549
 Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          ,   Commission File Number:
    000-28402
 Aradigm Corporation
 (Exact Name of Registrant as
    Specified in Its Charter)
  California

94-3133088(State or Other Jurisdiction
    of
    Incorporation or Organization)

(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
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Parts of the Registrants Proxy Statement for the 2011
    Annual Meeting of Shareholders are incorporated by reference
    into Part III of this Annual Report on
    Form 10-K.
    Except as expressly incorporated by reference, the
    Registrants Proxy Statement for the 2011 Annual Meeting of
    Shareholders shall not be deemed to be a part of this Annual
    Report on
    Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PageCautionary Note Regarding Forward-Looking
    Statements


3PART IItem 1.

Business


3Item 1A.

Risk Factors


21Item 1B.

Unresolved Staff Comments


32Item 2.

Properties


32Item 3.

Legal Proceedings


32Item 4.

(Removed and Reserved)


33PART IIItem 5.

Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


33Item 6.

Selected Financial Data


33Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


34Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


43Item 8.

Financial Statements and Supplementary Data


44Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


68Item 9A.

Controls and Procedures


68Item 9B.

Other Information


69PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


69Item 11.

Executive Compensation


69Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


69Item 13.

Certain Relationships and Related Transactions
    and Director Independence


69Item 14.

Principal Accounting Fees and Services


69PART IVItem 15.

Exhibits and Financial Statement Schedules


70SIGNATURES


73EX-23.1EX-31.1EX-31.2EX-32.1   2




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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 contained in this Annual Report on
    Form 10-K
    include, but are not limited to, statements regarding:
    (i) our belief that our cash, cash equivalents and
    short-term investments as of December 31, 2010, as well as
    anticipated recurring royalty payments from Zogenix will be
    sufficient to fund our operations through at least the second
    quarter of 2011; (ii) our business strategies, including
    our intent to pursue selected opportunities for delivery via
    inhalation by seeking collaborations and government grants that
    will fund development and commercialization; (iii) our
    strategy to commercialize our respiratory product candidates
    with our own focused sales and marketing force addressing
    pulmonary specialty doctors in the United States or in the
    European Union and our intent to use our pulmonary delivery
    methods and formulations of drugs and biologics to improve their
    safety, efficacy and convenience of administration to patients,
    (iv) our expectations regarding clinical trials, including
    the expected timing and completion of the ORBIT-1 trial;
    (v) our expectation that we will incur additional operating
    losses; (vi) our expectation that we will continue to
    receive royalty revenue from Zogenix and (vii) our focus on
    establishing funded partnering agreements and sale or
    out-licensing of non-strategic assets as the means to generate
    the capital resources needed to fund the further development of
    the bronchiectasis and cystic fibrosis indications for our
    liposomal ciprofloxacin program.
  These forward-looking statements and our business are subject
    to significant risks such as the risks and uncertainties
    discussed in the section entitled Risk Factors,
    including, but not limited to: (i) our ability to enter
    into partnering agreements and (ii) our need and ability to
    raise additional capital, whether non-dilutive or otherwise,.
    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 unsafe in animal or human
    trials, 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
  ®
 3




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4




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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 that 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. Similar legislation exists in the
    EU with a market exclusivity of 10 years.
    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 may also decide alternatively to explore the use of
    our sales force to serve pulmonary specialty physicians in
    another significant pharmaceutical market, such as the EU. 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 5




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applicability of our delivery technologies for systemic
    applications of our 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 Management of Infections in
    Cystic Fibrosis (CF) Patients
  Pseudomonas aeruginosa,
 6




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Pseudomonas
    aeruginosa,
    Development
    14-day Pseudomonas aeruginosa 14-day
 7




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ARD-3100
    and ARD-3150  Liposomal Ciprofloxacin for the
    Management of Infections in Non-Cystic Fibrosis Bronchiectasis
    (BE) Patients
  ARD-3100
  Development
      once-a-day Pseudomonas aeruginosa Pseudomonas aeruginosa 28-day
    once-a-day
 8




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Pseudomonas aeruginosa
  Pseudomonas
    aeruginosa 10 10
  Pseudomonas aeruginosa
        ARD-1100 
    Liposomal Ciprofloxacin for the Treatment of Inhalation Anthrax
    and other biodefense purposes
   9




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Development
  Francisella
    tularensis, Francisella
    tularensis
    Smoking
    Cessation Therapy
  ARD-1600
    (Nicotine) Tobacco Smoking Cessation Therapy
     10




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Development
        Other
    Potential Applications
      Zogenix
    DosePro Technology
       11




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Pulmonary
    Drug Delivery Background
    The AERx
    Delivery Technology
      ®
 12




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Formulation
    Technologies
    Intellectual
    Property and Other Proprietary Rights
         13




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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.   14




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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;
    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
   15




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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
    preclinical (animal), Phase 1 and Phase 2 human 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.    Pseudomonas aeruginosa
  Pseudomonas
    aeruginosa 10 10
 16




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Section 505(b)(2)
    Applications
  e.g.
  and/or
 17




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Orphan
    Drug Designation
          International
    Regulation
   18




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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     Employees
        Corporate
    History and Website Information
  (510) 265-9000. Form 10-K, Form 10-Q, Form 8-K http://www.aradigm.com Form 10-K 1-800-SEC-0330. http://www.sec.gov
 19




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Executive
    Officers and Directors
    Name

Age

PositionIgor Gonda, Ph.D.


63


President, Chief Executive Officer and DirectorNancy E. Pecota


51


Vice President, Finance and Chief Financial OfficerFrank H. Barker(1)(2)(3)


80


DirectorTamar D. Howson(2)


62


DirectorJohn M. Siebert, Ph.D.(1)(2)(3)


70


DirectorVirgil D. Thompson(1)(2)(3)


71


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
  Frank H. Barker
  Tamar D. Howson
 20




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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 expressed
    in, or implied by, any such forward-looking statements.
    Potential risks and uncertainties include, without limitation,
    those mentioned in this report and in particular the factors
    described below.
  Risks
    Related to Our Business
  We are
    an early-stage company.
   21




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We
    will need to raise additional capital and we may not be able to
    raise additional capital on a timely basis, on reasonable terms
    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 and maintaining
    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.    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.
   22




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
    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.
  and/or
  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.
  and/or
  If our
    clinical trials are delayed because of patient enrollment or
    other problems, we would incur additional costs and delay the
    potential receipt of revenues.
   23




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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.
   24




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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.
    and/or
    We
    have limited manufacturing capacity and will have to depend on
    contract manufacturers and collaborators; if they do not perform
    as expected, our revenues and customer relations will
    suffer.
     25




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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.
        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 or our future collaborators 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; 26




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
    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.    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.
     27




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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.
    If we
    do not continue to attract and retain key employees, our product
    development efforts will be delayed and impaired.
    If we
    market our products in other countries, we will be subject to
    different laws and regulations and we may not be able to adapt
    to those laws and regulations, which could increase our costs
    while reducing our revenues.
   28




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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.
   29




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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.
  Form 10-K
  Risks
    Related to Our Common Stock
  Our
    stock price is likely to remain volatile.
    
    investor perception of us;
    our available cash;
    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;
    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; and
    economic and other external factors. 30




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Our
    common stock is quoted on the OTC Bulletin Board, which may
    provide less liquidity for our shareholders than the national
    exchanges.
    Our
    common stock may be considered penny stock and may
    be difficult to sell.
    We
    have implemented certain anti-takeover provisions, which may
    make an acquisition less likely or might result in costly
    litigation or proxy battles.
        We
    have never paid dividends on our capital stock, and we do not
    anticipate paying cash dividends for at least the foreseeable
    future.
   31




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A
    small number of shareholders own a large percentage of our
    common stock and can influence the outcome of matters submitted
    to our shareholders for approval.
    Our
    independent public accounting firm, in its audit opinion issued
    in connection with the accompanying financial statements, has
    expressed substantial doubt about our ability to continue as a
    going concern given our recurring losses from
    operations.
  Form 10-K
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  Form 10-K).
  Item 3.
    Legal
    Proceedings   32




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Item 4.
    (Removed
    and Reserved) PART II  Item 5.
    Market
    for the Registrants Common Stock, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Market
    Information
  over-the-counter,
    High

Low2009First Quarter

$
0.29


$
0.07Second Quarter


0.34



0.10Third Quarter


0.28



0.17Fourth Quarter


0.20



0.142010First Quarter

$
0.18


$
0.13Second Quarter


0.15



0.11Third Quarter


0.20



0.11Fourth Quarter


0.29



0.13     Dividend
    Policy
    Item 6.
    Selected
    Financial Data  Form 10-K.
  Form 10-K. Form 10-K.
  33




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Years Ended December 31,2010

2009

2008

2007

2006(In thousands, except per share data)Statements of operations data:Total revenues

$
4,383


$
4,883


$
251


$
961


$
4,814Total operating expenses


14,743



18,310



23,257



27,353



38,918Loss from operations


(10,360
)


(13,427
)


(23,006
)


(26,392
)


(34,104
)Gain on sale of patent and royalty interest to related party


















20,000Net interest income (expense)


(298
)


(356
)


373



2,180



1,054Other income (expense), including extinguishment of debt


5,279



(4
)






11



23Net loss


(5,379
)


(13,772
)


(22,608
)


(24,201
)


(13,027
)Basic and diluted net loss per share


(0.04
)


(0.15
)


(0.42
)


(0.48
)


(0.89
)Shares used in computing basic and diluted net loss per share


128,660



92,348



54,162



50,721



14,642   As of December 31,2010

2009

2008

2007

2006(In thousands)Balance sheet data:Cash, cash equivalents and short-term investments

$
5,546


$
9,131


$
19,140


$
40,510


$
27,514Working capital


3,780



7,411



17,313



36,594



25,405Total assets


7,628



11,965



25,519



45,813



32,226Note payable and accrued interest to former related party






8,896



8,472



8,071



7,686Convertible preferred stock


















23,669Accumulated deficit


(353,825
)


(348,446
)


(334,674
)


(312,066
)


(287,865
)Total shareholders equity (deficit)


4,599



(173
)


8,756



30,299



(3,947
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Cautionary
    Note Regarding Forward-Looking Statements
  The discussion below contains forward-looking statements that
    are based on the current beliefs of our management, as well as
    current assumptions made by, and information currently available
    to, our 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
 34




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##### Table of Contents



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
      14-day Pseudomonas aeruginosa 14-day
 35




---



##### Table of Contents



once-a-day Pseudomonas aeruginosa 28-day
      once-a-day Pseudomonas aeruginosa
  Pseudomonas
    aeruginosa 10 10
 36




---



##### Table of Contents



Pseudomonas aeruginosa
           37




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    Revenue
    Recognition
  Revenue
    Recognition Revised and Updated 605-25, Revenue Arrangements-Multiple Element Arrangements 605-25). ASC 605-25,
  ASC 605-25.
  ASC 605-25
 38




---



##### Table of Contents



Gain
    on Debt Extinguishment
  ASC 470-60 ,
    Troubled Debt Restructuring. ASC 470-60-35-4 states
  Impairment
    of Long-Lived Assets
  ASC 360-10,
  Accounting
    for Costs Associated with Exit or Disposal
    Activities
  Exit or Disposal Cost
    Obligations,
  Research
    and Development
    Income
    Taxes
   39




---



##### Table of Contents



Stock-Based
    Compensation
  Compensation-Stock Compensation ASC 505-50, Equity-Equity Based Payments to Non-Employees
    Form 10-K.
  Recent
    Accounting Pronouncements
  Form 10-K
  Results
    of Operations
  Years
    ended December 31, 2010 and 2009
   40




---



##### Table of Contents



Liquidity
    and Capital Resources
   41




---



##### Table of Contents



Year
    ended December 31, 2010
      Year
    ended December 31, 2009
     42




---



##### Table of Contents



Off-Balance
    Sheet Financings and Liabilities
    Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk   43




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            
    44




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##### Table of Contents



ARADIGM
    CORPORATION
  BALANCE SHEETS
  December 31,2010


2009(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents

$
5,295


$
3,903Short-term investments


251



5,228Receivables


180



155Prepaid and other current assets


180



328Total current assets


5,906



9,614Property and equipment, net


1,553



2,166Notes receivable


54



52Other assets


115



133Total assets

$
7,628


$
11,965LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
257


$
572Accrued clinical and cost of other studies


993



670Accrued compensation


327



341Facility lease exit obligation


99



263Other accrued liabilities


450



357Total current liabilities


2,126



2,203Deferred rent, non-current


99



136Facility lease exit obligation, non-current


729



828Other non-current liabilities


75



75Note payable and accrued interest






8,896Total liabilities


3,029



12,138Commitments and contingencies (See Note 8)Shareholders equity (deficit):Preferred stock, 5,000,000 shares authorized, none
    outstanding






Common stock, no par value; authorized shares: 213,527,214 at
    December 31, 2010 and 150,000,000 at December 31,
    2009; issued and outstanding shares: 172,304,235 at
    December 31, 2010; 102,381,116 at December 31, 2009


358,424



348,271Accumulated other comprehensive income






2Accumulated deficit


(353,825
)


(348,446
)Total shareholders equity (deficit)


4,599



(173
)Total liabilities and shareholders equity (deficit)

$
7,628


$
11,965    45




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##### Table of Contents



ARADIGM
    CORPORATION
  STATEMENTS OF OPERATIONS
  Years Ended December 31,2010


2009(In thousands, except per share data)Revenue:Total revenue

$
4,383


$
4,883Operating expenses:Research and development


10,210



11,406General and administrative


4,485



5,030Restructuring and asset impairment


48



1,874Total operating expenses


14,743



18,310Loss from operations


(10,360
)


(13,427
)Interest income


20



72Interest expense


(318
)


(428
)Other income (expense), net


844



(4
)Gain from extinguishment of debt


4,435



Loss before income taxes


(5,379
)


(13,787
)Income tax benefit






15Net loss

$
(5,379
)

$
(13,772
)Basic and diluted net loss per common share

$
(0.04
)

$
(0.15
)Shares used in computing basic and diluted net loss per common
    share


128,660



92,348    46




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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)(In thousands, except share data)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











45Stock-based compensation






873











873Issuance of restricted stock awards


2,418,250















Reversal of restricted stock award due to forfeiture


(100,625
)














Comprehensive 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
)Issuance of common stock in a private offering, net of issuance
    costs


42,229,726



4,553











4,553Issuance of common stock to Novo Nordisk, for extinguishment of
    debt, net of issuance costs


26,000,000



4,680











4,680Issuance of common stock under the employee stock purchase plan


498,870



61











61Issuance of restricted stock awards


1,824,523















Reversal of restricted stock award due to forfeiture


(630,000
)














Stock-based compensation






859











859Comprehensive loss:Net loss














(5,379
)


(5,379
)Unrealized loss on
    available-for-sale
    investments










(2
)






(2
)Total comprehensive loss


















(5,381
)Balances at December 31, 2010


172,304,235


$
358,424


$



$
(353,825
)

$
4,599    47




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##### Table of Contents



ARADIGM
    CORPORATION
  STATEMENTS OF CASH FLOWS
  Years Ended December 31,2010


2009(In thousands)Cash flows from operating activities:Net loss

$
(5,379
)

$
(13,772
)Adjustments to reconcile net loss to net cash used in operating
    activities:Non-cash asset impairment on property and equipment






1,654Facility lease exit costs






158Amortization and accretion of investments


26



21Depreciation and amortization


606



1,067Stock-based compensation expense


859



873Loss on disposal of property and equipment


11



4Gain on extinguishment of debt


(4,526
)


Changes in operating assets and liabilities:Receivables


(25
)


238Prepaid and other current assets


148



61Restricted cash






225Other assets


16



14Accounts payable


(314
)


(167
)Accrued compensation


(14
)


(710
)Accrued liabilities


726



720Deferred rent


(37
)


(63
)Deferred revenue






(4,122
)Facility lease exit obligation


(263
)


(325
)Net cash used in operating activities


(8,166
)


(14,124
)Cash flows from investing activities:Capital expenditures


(5
)


185Purchases of
    available-for-sale
    investments


(521
)


(11,438
)Proceeds from maturities of
    available-for-sale
    investments


5,470



8,585Notes receivable payments






(18
)Net cash provided by (used in) investing activities


4,944



(2,686
)Cash flows from financing activities:Proceeds from public offering of common stock, net


4,553



3,927Proceeds from issuance of common stock to Employee Stock
    Purchase Plan


61



45Net cash provided by financing activities


4,614



3,972Net increase (decrease) in cash and cash equivalents


1,392



(12,838
)Cash and cash equivalents at beginning of year


3,903



16,741Cash and cash equivalents at end of year

$
5,295


$
3,903Supplemental disclosure of cash flow information:Cash received for income taxes

$
(16
)

$
(25
)Cash paid for interest

$



$
4Non cash reduction in note payable from issuance of common stock

$
4,680


$
    48




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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
  available-for-sale, available-for-sale other-than-temporary other-than-temporary,
 49




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##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Property
    and Equipment
      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
  360-10, 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 ASC 605-25, Revenue Recognition-Multiple Elements. ASC 605-25,
   50




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##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    ASC 605-25. ASC 605-25,
    Research
    and Development
    Stock-Based
    Compensation
  Compensation-Stock Compensation
    and
    ASC 505-50,
    Equity-Equity Based Payments to Non-Employees
  Other
    Income
    Income
    Taxes
   51




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##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      Net
    Loss Per Common Share
      Years Ended December 31,2010

2009Outstanding stock options


6,355



5,088Unvested restricted stock awards


2,448



2,668   Significant
    Concentrations
    Comprehensive
    Income (Loss)
  Comprehensive Income available-for-sale
  Recently
    Issued Accounting Pronouncements
  2010-17, Milestone Method of Revenue Recognition a consensus of the
    FASB Emerging Issues Task Force.
 52




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##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    No. 2009-13 Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
    Arrangements No. 08-1
  2.
    Cash and
    Cash Equivalents and Short-term Investments  available-for-sale
  Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gain


(Loss)


Fair ValueDecember 31, 2010Cash and cash equivalents

$
5,295


$



$



$
5,295Short-term investments:U.S. Treasury and agencies


251











251Total

$
251


$



$



$
251December 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


$



$
5,228   available-for-sale available-for-sale
  3.
    Fair
    Value Measurements  Fair Value Measurements.
 53




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    BalanceDecember 31,Description

2010


Level 1


Level 2


Level 3(In thousands)Cash and cash equivalents

$
5,295


$
333


$
4,962


$
Short-term investments


251







251



Total

$
5,546


$
333


$
5,213


$
     4.
    Property
    and Equipment    December 31,2010


2009Machinery and equipment

$
4,410


$
4,510Furniture and fixtures


1,138



1,138Lab equipment


2,150



2,488Computer equipment and software


2,630



2,630Leasehold improvements


1,839



1,861Property and equipment at cost


12,167



12,627Less accumulated depreciation and amortization


(10,614
)


(10,461
)Property and equipment, net

$
1,553


$
2,166     5.
    Sublease
    Agreement and Lease Exit Liability:    Exit or Disposal Cost Obligations,
 54




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Year Ended December 31,2010


2009Balance at beginning of year

$
1,091


$
1,374Loss on sublease amendment to Mendel






42Accretion expense


48



61Lease payments


(311
)


(386
)Balance at end of the year

$
828


$
1,091     6.
    Other
    Liabilities    December 31,2010


2009Other accrued liabilities:Accrued expense for services

$
413


$
302Payroll withholding liabilities


37



47Other short term obligations






8Total other accrued liabilities

$
450


$
357Other non-current liabilities:Deposits

$
75


$
75Total other non-current liabilities

$
75


$
75     7.
    Notes
    Payable and Accrued Interest and Debt Extinguishment   55




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      8.
    Leases,
    Commitments and Contingencies    Operating


Mendel


Net OperatingLeases


Sub-Lease


Lease PaymentsYear ending December 31:2011


1,639



(986
)


6532012


1,704



(896
)


8082013


1,774







1,7742014


1,844







1,8442015


1,918







1,9182016


1,020







1,020Total minimum lease payments

$
9,899


$
(1,882
)

$
8,017        56




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      Indemnification
    Legal
    Matters
    9.
    Shareholders
    Equity  Form S-1 (no. 333-168770).
  Form S-3 (no. 333-148623)
  Reserved
    Shares
   57




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Shareholder
    Rights Plan
    Stock
    Option Plans: 1996 Equity Incentive Plan, 2005 Equity Incentive
    Plan and 1996 Non-Employee Directors Plan
       58




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
       59




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Options OutstandingWeightedShares Available








Averagefor Grant of


Number of





ExerciseOption or Award


Shares


Price per Share


PriceBalance at December 31, 2008


3,987,599



4,185,061


$
0.39






$
120.63


$
4.14Options authorized






















Options 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


$
2.49Shares added


4,000,000






$







$



$
Options granted


(1,990,000
)


1,990,000


$
0.12






$
0.18


$
0.17Options exercised






















Restricted stock awards granted


(2,157,856
)


















Options cancelled


723,685



(723,685
)

$
0.25






$
120.63


$
6.43Restricted share awards cancelled


630,000



















Plan shares cancelled and not reauthorized


(9,736
)





$
107.81






$
120.63


$
113.26Balance at December 31, 2010


1,959,278



6,354,758


$
0.12






$
64.69


$
1.32     Options OutstandingWeighted





Options ExercisableAverage


Weighted





WeightedNumber


Remaining


Average





AverageOf


Contractual


Exercise


Number of


ExerciseExercise Price Range

Shares


Life (In Years)


Price


Shares


Price$0.12  $0.15


456,000



9.42


$
0.13



151,500


$
0.12$0.16  $0.23


2,194,000



9.31



0.18



826,250



0.17$0.24  $0.39


1,083,031



7.98



0.28



514,059



0.28$0.40  $0.87


90,000



7.42



0.81



83,437



0.83$0.88  $1.41


497,861



6.27



1.31



462,919



1.30$1.42  $1.87


1,672,000



6.03



1.72



1,521,812



1.74$1.88  $4.75


93,300



4.29



3.99



93,300



3.99$4.76  $9.45


137,700



3.59



6.06



137,700



6.06$9.46  $34.00


130,026



1.37



21.17



130,026



21.17$34.01  $64.69


840



0.10



63.93



840



63.936,354,758



7.60


$
1.32



3,921,843


$
1.95    60




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  (in-the-money
    Number of


Weighted AverageShares


Grant Date Fair ValueBalance 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



0.41Restricted stock awards granted


1,824,523



0.16Restricted share awards vested


(1,414,256
)


0.19Restricted share awards cancelled


(630,000
)


0.13Balance at December 31, 2010


2,448,273



0.44         Employee
    Stock Purchase Plan
   61




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Years Ended December 31,2010

2009Employee Stock Purchase PlanDividend yield


0.0
%


0.0
%Volatility factor


136.0
%


115.4
%Risk-free interest rate


1.0
%


0.9
%Expected life (years)


2.00



2.00Weighted-average fair value of purchase rights granted during
    the period

$
0.12


$
0.11   Stock-Based
    Compensation Expense
  Share-based Payment
    2010


2009Costs and ExpensesResearch and development

$
218


$
305General and administrative


641



568Total stock-based employee compensation expense

$
859


$
873Impact on basic and diluted net loss per common share

$
(0.01
)

$
(0.01
)      62




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Valuation
    Assumptions
    Years Ended December 312010

2009Dividend yield


0.0
%


0.0
%Volatility factor


98.7
%


91.6
%Risk-free interest rate


1.7
%


1.3
%Expected term (years)


5.5



3.7Weighted-average fair value of options granted during the periods

$
0.13


$
0.14   Stock-Based
    Compensation for Non-Employees
  ASC 505-50, Equity  Equity Based Payments to Non-Employees,
  10.
    Collaborations
    and Royalty Agreements  Lung
    Rx
     63




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Zogenix
      11.
    Asset
    Impairment      12.
    Employee
    Benefit Plans   64




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  13.
    Income
    Taxes      December 31,2010


2009Net operating loss carryforwards

$
9,114


$
7,962Research and development credits


6,461



6,389Federal orphan drug credits


3,801



3,360Debt extinguishment


(1,149
)


Other


1,922



1,818Total deferred tax assets


20,149



19,529Valuation allowance


(20,149
)


(19,529
)Net deferred tax assets

$



$
   Compensation-Stock
    Compensation
    Year Ended December 31,2010


2009Income tax benefit at federal statutory rate

$
(1,882
)

$
(4,825
)Expired net operating losses


65



11State taxes (net of federal)


(116
)


(847
)Credits


(2,621
)


(2,408
)Other


85



425Reduction in deferred tax assets due to Section 382
    limitations


3,849



Change in valuation allowance


620



7,629Total

$



$
(15
)    65




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
          14.
    Quarterly
    Results of Operations (unaudited)    March 31,


June 30,


September 30,


December 31,2010


2010


2010


2010Total revenue

$
4,000


$



$
239


$
144Operating expenses:Research and development


2,837



2,736



2,403



2,234General and administrative


1,253



1,382



895



955Restructuring and asset impairment


13



13



11



11Total expenses


4,103



4,131



3,309



3,200Loss from operations


(103
)


(4,131
)


(3,070
)


(3,056
)Net interest expense


(99
)


(105
)


(92
)


(2
)Other income (expense), including extinguishment of debt


(2
)


108



4,477



696Loss before income taxes


(204
)


(4,128
)


1,315



(2,362
)Income tax benefit (provision)














Net income (loss)

$
(204
)

$
(4,128
)

$
1,315


$
(2,362
)Basic and diluted net income (loss) per common share

$
(0.00
)

$
(0.04
)

$
0.01


$
(0.01
)Shares used in computing basic net loss per common share


99,872



104,891



139,167



169,824Shares used in computing diluted net loss per common share


99,872



104,891



140,177



169,824  66




---



##### Table of Contents



ARADIGM
    CORPORATION
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  March 31,


June 30,


September 30,


December 31,2009


2009


2009


2009Total 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 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   15.
    Subsequent
    Events   67




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Managements
    Annual Report on Internal Control Over Financial
    Reporting
      Internal Control 
    Integrated Framework
    Changes
    in Internal Control Over Financial Reporting
   68




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##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Identification
    of Executive Officers
  Form 10-K.
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    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
    Accounting Fees and Services   69




---



##### 



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements.
  Form 10-K:
   
 Page inForm 10-KReport of Independent Registered Public
    Accounting Firm


44Balance Sheets  December 31, 2010
    and 2009


45Statements of Operations  Years ended
    December 31, 2010 and 2009


46Statements of Shareholders Equity
    (Deficit)  Years ended December 31, 2010 and
    2009


47Statements of Cash Flows  Years ended
    December 31, 2010 and 2009


48Notes to Financial Statements


49    Financial Statement Schedules.
    Exhibits.
  ExhibitNo.

Description3
.1(1)

Amended and Restated Articles of Incorporation of the Company.3
.2(2)

Amended and Restated 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, 3.10 and 3.11.4
.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. 70




---



##### Table of Contents



ExhibitNo.

Description10
.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, 2009.10
.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.10
.33(22)

Securities Purchase Agreement, dated June 18, 2010, by and
    among Aradigm Corporation and investors listed on the Schedule
    of Buyers attached thereto.*10
.34(22)

Form of Registration Rights Agreement used in connection with
    the June 2010 private placement.10
.35(22)

Form of Warrant used in connection with the June 2010 private
    placement.10
.36(23)

Stock Purchase Agreement, dated as of July 30,02010, by and
    among Aradigm Corporation and Novo Nordisk A/S.*10
.37(23)

Registration Rights Agreement, dated as of July 20, 2010,
    by and among Aradigm Corporation and Novo Nordisk A/S.10
.38(23)

First Amendment to Securities Purchase Agreement and
    Registration Rights Agreement, dated as of July 20, 2010,
    by and among Aradigm Corporation and the investors party thereto.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. 71




---



##### Table of Contents



ExhibitNo.

Description31
.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.(22)
    
    Incorporated by reference to the Companys
    Form 8-K
    filed on June 21, 2010.(23)
    
    Incorporated by reference to the Companys
    Form 8-K
    filed on August 2, 2010.(24)
    
    Incorporated by reference to the Companys
    Form 8-K
    filed on September 20, 2010.  Index to Exhibits.
    Financial Statement Schedules.
       72




---



##### Table of Contents



SIGNATURES  Form 10-K
    By:
    /s/  Igor
    Gonda   President and Chief Executive Officer
  Form 10-K,
    Form 10-K
  Signature

Title

Date/s/  Igor
    GondaIgor
    Gonda

President, Chief Executive Officer and Director
    (Principal Executive Officer)

March 24, 2011/s/  Nancy
    E. PecotaNancy
    E. Pecota

Vice President, Finance and Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 24, 2011/s/  Virgil
    D. ThompsonVirgil
    D. Thompson

Chairman of the Board and Director

March 24, 2011/s/  Frank
    H. BarkerFrank
    H. Barker

Director

March 24, 2011/s/  Tamar
    D. HowsonTamar
    D. Howson

Director

March 24, 2011/s/  John
    M. SiebertJohn
    M. Siebert

Director

March 24, 2011  73




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description3
.1(1)

Amended and Restated Articles of Incorporation of the Company.3
.2(2)

Amended and Restated 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, 3.10 and 3.11.4
.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. 74




---



##### Table of Contents



ExhibitNo.

Description10
.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.10
.33(22)

Securities Purchase Agreement, dated June 18, 2010, by and
    among Aradigm Corporation and investors listed on the Schedule
    of Buyers attached thereto.*10
.34(22)

Form of Registration Rights Agreement used in connection with
    the June 2010 private placement.10
.35(22)

Form of Warrant used in connection with the June 2010 private
    placement.10
.36(23)

Stock Purchase Agreement, dated as of July 30,02010, by and
    among Aradigm Corporation and Novo Nordisk A/S.*10
.37(23)

Registration Rights Agreement, dated as of July 20, 2010,
    by and among Aradigm Corporation and Novo Nordisk A/S.10
.38(23)

First Amendment to Securities Purchase Agreement and
    Registration Rights Agreement, dated as of July 20, 2010,
    by and among Aradigm Corporation and the investors party thereto.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. 75




---



##### Table of Contents



(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.(22)
    
    Incorporated by reference to the Companys
    Form 8-K
    filed on June 21, 2010.(23)
    
    Incorporated by reference to the Companys
    Form 8-K
    filed on August 2, 2010.(24)
    
    Incorporated by reference to the Companys
    Form 8-K
    filed on September 20, 2010. 76