**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**


|X|
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF
        THE
        SECURITIES EXCHANGE ACT OF 1934
 **For
        the quarterly period ended March 31, 2007**
 
 OR
 
 |
 |
        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: 0-21696
 
 **ARIAD
        Pharmaceuticals, Inc.**
 (Exact
        name of Registrant as specified in its charter)
 **Delaware**
                **22-3106987**(State
                    or other jurisdiction of
                (I.R.S.
                    Employer Identification No.)incorporation
                    or organization)


**26
      Landsdowne Street, Cambridge, Massachusetts 02139**


(Address
      of principal executive offices) (Zip Code)





**Registrant’s
      Telephone Number, Including Area Code: (617) 494-0400**





Former
      Name, Former Address and Former Fiscal Year,


If
      Changed
      Since Last Report: Not Applicable





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


**Yes
                  |X|**
              **No
                  | |**




Indicate
        by check mark whether the Registrant is a large accelerated filer, an
        accelerated filer or a non-accelerated filer. See definition of “large
        accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange
        Act.


**Large
                  accelerated filer | |**
            **Accelerated
                  filer |X|**
            **Non-accelerated
                  filer | |**




Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b
        - 2 of the Exchange Act).
  **Yes
                  | |**
              **No
                  |X|**




The
        number
        of shares of the Registrant’s common stock outstanding as of April 20, 2007 was
        68,676,033.
   **ARIAD
            PHARMACEUTICALS, INC.**
 
 **TABLE
            OF CONTENTS**
   PART
                        I.
                    FINANCIAL
                        INFORMATION
                    1ITEM
                        1.
                    UNAUDITED
                        FINANCIAL STATEMENTS
                    1Condensed
                        Consolidated Balance Sheets - March 31,
                        2007 and December 31, 2006
                    1Condensed
                        Consolidated Statements of Operations for the
                        Three Months Ended March 31, 2007 and 2006
                    2Condensed
                        Consolidated Statements of Cash Flows for the
                        Three Months Ended March 31, 2007 and 2006
                    3Notes
                        to Unaudited Condensed Consolidated Financial
                        Statements
                    4ITEM
                        2.
                    MANAGEMENT’S
                        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                        AND RESULTS OF OPERATIONS
                    10ITEM
                        3.
                    QUANTITATIVE
                        AND QUALITATIVE DISCLOSURES ABOUT MARKET
                        RISK
                    20ITEM
                        4.
                    CONTROLS
                        AND PROCEDURES
                    20PART
                        II.
                    OTHER
                        INFORMATION
                    22ITEM
                        1.
                    LEGAL
                        PROCEEDINGS
                    22ITEM
                        6.
                    EXHIBITS
                    25SIGNATURES
                    26EXHIBIT
                        INDEX
                    27




**PART
      I.****FINANCIAL
      INFORMATION**





**ITEM
      1.****UNAUDITED
      FINANCIAL STATEMENTS**





**ARIAD
                PHARMACEUTICALS, INC. AND
                SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED BALANCE
                SHEETS*****In
                thousands, except share and per share
                data***
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006****(Unaudited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            23,947
            
            $
            31,728Marketable
                securities
            
            
            15,127
            
            
            8,076Inventory
                and other current assets
            
            
            2,408
            
            
            1,839Total
                current assets
            
            
            41,482
            
            
            41,643Property
                and equipment:Leasehold
                improvements
            
            
            18,126
            
            
            18,126Equipment
                and furniture
            
            
            10,757
            
            
            10,677Total
            
            
            28,883
            
            
            28,803Less
                accumulated depreciation and
                amortization
            
            
            (24,086
            )
            
            (23,721
            )Property
                and equipment, net
            
            
            4,797
            
            
            5,082Intangible
                and other assets, net
            
            
            4,316
            
            
            4,318Total
                assets
            
            $
            50,595
            
            $
            51,043**LIABILITIES
                AND STOCKHOLDERS’
                EQUITY**Current
                liabilities:Current
                portion of long-term debt
            
            $
            5,255
            
            $
            1,920Accounts
                payable
            
            
            3,619
            
            
            4,003Accrued
                compensation and benefits
            
            
            766
            
            
            428Accrued
                product development expenses
            
            
            6,916
            
            
            6,612Other
                accrued expenses
            
            
            2,706
            
            
            1,841Current
                portion of deferred executive
                compensation
            
            
            536
            
            
            528Current
                portion of deferred revenue
            
            
            264
            
            
            452Total
                current liabilities
            
            
            20,062
            
            
            15,784Long-term
                debt
            
            
            
            
            
            3,815Deferred
                revenue
            
            
            
            
            
            2Deferred
                executive compensation
            
            
            1,390
            
            
            1,180Stockholders’
equity:Common
                stock, $.001 par value; authorized, 145,000,000 shares;
                issued and outstanding, 68,632,137 shares in 2007 and 65,391,347
                shares in
                2006
            
            
            69
            
            
            65Additional
                paid-in capital
            
            
            353,050
            
            
            339,220Accumulated
                other comprehensive income
            
            
            1
            
            
            3Accumulated
                deficit
            
            
            (323,977
            )
            
            (309,026
            )Total
                stockholders’ equity
            
            
            29,143
            
            
            30,262Total
                liabilities and stockholders’ equity
            
            $
            50,595
            
            $
            51,043See
                notes to unaudited condensed consolidated financial
                statements.








1




**ARIAD
                PHARMACEUTICALS, INC. AND
                SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED STATEMENTS OF
                OPERATIONS**
              **(Unaudited)****Three
                Months Ended*****In
                thousands, except share and per share
                data***
            
            **March
                31,****2007**
            
            **2006**License
                revenue
            
            $
            190
            
            $
            229Operating
                expenses:Research
                and development
            
            
            11,023
            
            
            11,674General
                and administrative
            
            
            4,403
            
            
            4,456Total
                operating expenses
            
            
            15,426
            
            
            16,130Loss
                from operations
            
            
            (15,236
            )
            
            (15,901
            )Other
                income (expense):Interest
                income
            
            
            390
            
            
            664Interest
                expense
            
            
            (105
            )
            
            (121
            )Total
                other income, net
            
            
            285
            
            
            543Net
                loss
            
            $
            (14,951
            )
            $
            (15,358
            )Net
                loss per share
            
            $
            (.23
            )
            $
            (.25
            )Weighted-average
                number of shares of common stock
                outstanding
            
            
            65,625,902
            
            
            61,728,913See
                notes to unaudited condensed consolidated financial
                statements.








2






**ARIAD
                  PHARMACEUTICALS, INC. AND
                  SUBSIDIARIES**
                **CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH
                  FLOWS**
                **(Unaudited)****Three
                  Months Ended**
                **March
                  31,*****In
                  thousands***
              
              **2007**
              
              **2006**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (14,951
              )
              $
              (15,358
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              572
              
              
              1,240Accretion
                  of discount on marketable
                  securities
              
              
              (121
              )
              
              (539
              )Deferred
                  executive compensation expense
              
              
              218
              
              
              220Stock-based
                  compensation
              
              
              1,287
              
              
              1,176Increase
                  (decrease) from:Inventory
                  and other current assets
              
              
              (569
              )
              
              (84
              )Other
                  assets
              
              
              (6
              )
              
              6Accounts
                  payable
              
              
              (384
              )
              
              (522
              )Accrued
                  compensation and benefits
              
              
              338
              
              
              347Accrued
                  product development expenses
              
              
              304
              
              
              241Other
                  accrued expenses
              
              
              865
              
              
              (556
              )Deferred
                  revenue
              
              
              (190
              )
              
              96Deferred
                  executive compensation paid
              
              
              
              
              
              (212
              )Net
                  cash used in operating activities
              
              
              (12,637
              )
              
              (13,945
              )Cash
                  flows from investing activities:Proceeds
                  from maturities of marketable
                  securities
              
              
              8,107
              
              
              22,831Purchases
                  of marketable securities
              
              
              (15,038
              )
              
              (11,640
              )Investment
                  in property and equipment
              
              
              (80
              )
              
              (354
              )Investment
                  in intangible assets
              
              
              (200
              )
              
              (208
              )Net
                  cash (used in) provided by investing
                  activities
              
              
              (7,211
              )
              
              10,629Cash
                  flows from financing activities:Repayment
                  of borrowings
              
              
              (480
              )
              
              (480
              )Proceeds
                  from the issuance of stock , net of issuance
                  costs
              
              
              12,300Proceeds
                  from issuance of stock pursuant to stock option and
                  purchase plans
              
              
              247
              
              
              986Net
                  cash provided by financing activities
              
              
              12,067
              
              
              506Net
                  decrease in cash and cash equivalents
              
              
              (7,781
              )
              
              (2,810
              )Cash
                  and cash equivalents, beginning of
                  period
              
              
              31,728
              
              
              25,453Cash
                  and cash equivalents, end of period
              
              $
              23,947
              
              $
              22,643See
                  notes to unaudited condensed consolidated financial
                  statements.




3


**ARIAD
        PHARMACEUTICALS, INC. AND
        SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED
        CONSOLIDATED**
 **FINANCIAL
        STATEMENTS**
 
 **1.****Management
        Statement**
 
 In
        the opinion of the Company’s management, the accompanying
        unaudited condensed consolidated financial statements contain all adjustments
        (consisting of items of a normal and recurring nature) necessary to present
        fairly the financial position as of March 31, 2007, the results of operations
        for the three-month periods ended March 31, 2007 and 2006 and cash flows
        for the
        three-month periods ended March 31, 2007 and 2006. The results of operations
        for
        the three-month period ended March 31, 2007 are not necessarily indicative
        of
        the results to be expected for the full year. These financial statements
        should
        be read in conjunction with the Company’s Annual Report on Form 10-K for the
        year ended December 31, 2006, which includes consolidated financial statements
        and notes thereto for the years ended December 31, 2006, 2005 and
        2004.
 
 At
        March 31, 2007, the Company has cash, cash equivalents and
        marketable securities totaling $39.1 million. The Company believes that the
        combination of its cash, cash equivalents and marketable securities, together
        with the availability of $37.5 million under its equity financing facility
        with
        Azimuth Opportunity Ltd. (Note 5), provide sufficient resources for the Company
        to fund its anticipated spending through at least the middle of
        2008.
 
 **2.****Marketable
        Securities**
 
 The
        Company has classified its marketable securities as
        available-for-sale and, accordingly, carries such securities at aggregate
        fair
        value. At March 31, 2007, all of the Company’s marketable securities consisted
        of United States Treasury or agency securities.
 
 At
        March 31, 2007, the aggregate fair value and amortized cost of the
        Company’s marketable securities were $15,127,000 and $15,126,000, respectively.
        Gross unrealized gains and losses were $2,000 and $1,000, respectively, at
        March
        31, 2007. The gross unrealized losses of $1,000 pertain to two marketable
        securities with an aggregate fair value of $5,367,000, both of which have
        been
        in a continuous loss position for less than twelve months.
 
 At
        December 31, 2006, the aggregate fair value and amortized cost of
        the Company’s marketable securities were $8,076,000 and $8,073,000,
        respectively. Gross unrealized gains and losses were $3,000 and $0 respectively,
        at December 31, 2006.
 
 The
        Company’s marketable securities with unrealized losses consist of
        U.S. Treasury and agency securities that are guaranteed by the U.S. government
        or an agency thereof. The unrealized losses were caused by increased interest
        rates. Because the Company has the intent and ability to hold the securities
        to
        maturity, which should result in a recovery of the fair value, the Company
        does
        not consider the investments to be other-than-temporarily
        impaired.
 
 Realized
        gains and losses on investment security transactions are
        reported on the specific-identification method. There were no realized gains
        or
        losses on sales of marketable securities during the three months ended March
        31,
        2007. Changes in market values resulted in a decrease in net unrealized gains
        of
        $2,000 for the three-month period ended March 31, 2007.
 
 **3.****Executive
        Compensation Plans**
 
 Under
        the Company’s deferred executive compensation plan established
        in 1997, participants were granted options to purchase shares of certain
        designated mutual funds at a discount equal to the amount of the award. The
        options vested equally over four years. The fair value of the awards were
        recognized as expense over the vesting period.
  Effective
        in October 2005, the Company adopted a new deferred
        executive compensation plan that defers the payment of annual bonus awards
        to
        future periods as specified in each award. The Company accrues a liability
        based
        on the fair value of the awards ratably over the vesting period. The recorded
        balances of such awards are increased or decreased based on the actual total
        return and quoted market prices of specified mutual funds. There were no
        awards
        made under these plans in 2006 or in the quarter ended March 31, 2007. Total
        expense related to these plans amounted to $218,000 and $220,000 for the
        three-month periods ended March 31, 2007 and 2006,
        respectively.
   4
  **4.****Net
        Loss Per Share**
 
 Net
        loss per share amounts have been computed based on the
        weighted-average number of common shares outstanding during each period.
        Because
        of the net loss reported in each period, diluted and basic per share amounts
        are
        the same. For the three months ended March 31, 2007 and 2006, options to
        purchase 7,099,565 and 6,948,950 shares of common stock, respectively, were
        not
        included in the computation of net loss per share, because the effect would
        be
        anti-dilutive.
 
 **5.****Equity
        Financing Facility**
 
 On
        February 14, 2007, the Company entered into an agreement with
        Azimuth Opportunity Ltd. (“Azimuth”) under which the Company may offer and sell,
        at the Company’s sole discretion, and Azimuth is committed to purchase, subject
        to the terms and conditions set forth in the agreement, up to $50 million
        of the
        Company’s common stock, or the number of shares which is one less than twenty
        percent of the issued and outstanding shares of the Company’s common stock as of
        the date of the agreement, whichever is fewer. The per share purchase price
        for
        these shares will equal the daily volume weighted average price of the Company’s
        common stock on such date, less a discount ranging from 3.5% to 5.5%. The
        term
        of the agreement is eighteen months. Upon each sale of common stock to Azimuth,
        the Company will pay to Reedland Capital Partners a placement fee equal to
        1.0%
        of the aggregate dollar amount received by the Company from such
        sale.
 
 Pursuant
        to the terms of this agreement, on March 26, 2007, the
        Company sold to Azimuth 3,072,393 shares of its common stock at an aggregate
        purchase price of $12.5 million. The net proceeds from this transaction,
        after
        deducting issuance expenses, were approximately $12.3 million. Following
        this
        transaction, $37.5 million remains available to the Company under this equity
        financing facility.
 
 The
        shares of common stock sold to Azimuth were registered under a
        shelf registration statement filed by the Company with the U.S. Securities
        and
        Exchange Commission (“SEC”) on January 30, 2007 and declared effective by the
        SEC on February 6, 2007 which registered for issuance a total of $100 million
        of
        securities. Following the sale of common stock to Azimuth, $87.5 million
        of
        securities remain available for issuance under this shelf registration
        statement.
 
 **6.****Stock-Based
        Compensation**
 
 The
        Company awards stock options and other equity-based instruments
        to its employees, directors and consultants and provides employees the right
        to
        purchase common stock (collectively “share-based payments”), pursuant to
        stockholder approved plans. The Company’s statement of operations included total
        compensation cost from share-based payments for the three-month periods ended
        March 31, 2007 and 2006 as follows:
   5




**Three
                  Months Ended**
                **March
                  31,*****In
                  thousands***
              
              **2007**
              
              **2006**Compensation
                  cost from:Stock
                  options
              
              $
              886
              
              $
              984Stock
                  and stock units
              
              
              388
              
              
              184Purchases
                  of common stock at a discount
              
              
              13
              
              
              8$
              1,287
              
              $
              1,176The
                  Company made awards of stock options, common stock and stock units
                  to
                  employees and directors, and sold common stock to employees
                  at a discount pursuant to the Company’s employee stock purchase plan,
                  during the three-month periods ended March 31, 2007 and 2006 as
                  follows:
  **Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006****Shares**
              
              **Weighted-Average**
                **Grant-Date**
                ******Fair
                  Value**
              
              **Total**
                **Fair
                  Value**
              
              **Shares**
              
              **Weighted-Average**
                **Grant-Date**
                **Fair
                  Value**
              
              **Total**
                **Fair
                  Value*****(Per
                  Share)***
              
              ***(in
                  000’s)***
              
              
              
              ***(Per
                  Share)***
              
              ***(in
                  000’s)***Stock
                  options
              
              
              782,720
              
              $
              3.19
              
              $
              2,494
              
              
              429,095
              
              $
              4.74
              
              $
              2,050Stock
                  and stock units
              
              
              134,000
              
              
              4.94
              
              
              662
              
              
              80,000
              
              
              6.43
              
              
              514Purchases
                  of commonstock
                  at a discount
              
              
              10,811
              
              
              1.20
              
              
              13
              
              
              8,557
              
              
              0.98
              
              
              8927,531
              
              
              
              
              
              
              
              
              517,652Stock
                  options are granted with an exercise price equal to the
                  closing price of the Company’s common stock on the date of grant and have
                  a term of ten years. Stock options generally vest 25% per year
                  over four years. Stock options are valued using the Black-Scholes
                  option
                  valuation model and compensation expense is recognized based on
                  such fair
                  value, net of the impact of forfeitures, over the vesting period
                  on a
                  straight-line basis. The weighted average assumptions used in the
                  Black-Scholes model to value stock options granted during the three-month
                  periods ended March 31, 2007 and 2006 were as
                  follows:
  **Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006**Expected
                  life of options granted (in years)
              
              
              7.03
              
              
              7.00Expected
                  volatility
              
              
              68.18
              %
              
              71.04
              %Risk
                  free interest rate
              
              
              4.43
              %
              
              4.58
              %Expected
                  annual dividends
              
              $
              0.00
              
              $
              0.00Stock
                  and stock unit grants are valued based on the closing
                  price of the Company’s common stock on the date of grant and compensation
                  expense is recognized over the requisite service periodor period
                  during which restrictions remain on the common stock or stock units
                  granted. Compensation expense related to purchases of common stock
                  by
                  employees under the Company’s employee stock purchase plan is recognized
                  in the period of purchase.
 
    6




**7.****Litigation**
 
 **NF-κB
        Patent Infringement Litigation and
        Reexamination**
 
 *Lilly
        Litigation*
 
 In
        2002,
        the Company, together with Massachusetts Institute of Technology, The Whitehead
        Institute for Biomedical Research and Harvard University (collectively, the
        Plaintiffs) filed a lawsuit in the United States District Court for the District
        of Massachusetts(the “U.S. District Court“) against Eli Lilly and Company
        (“Lilly”) alleging infringement of certain claims (the “NF-κB
‘516
        Claims”)
        of the
        Plaintiffs’ U.S. Patent No. 6,410,516 (the “‘516 Patent”),
        covering
        methods of treating human disease by regulating NF-κB cell-signaling activity
        through sales of Lilly’s osteoporosis drug, Evista®,
        and
        Lilly’s septic shock drug, Xigris®,
        and
        seeking monetary damages from Lilly.
 
 This
        case
        was tried before a jury in the U.S. District Court from April 10, 2006 through
        April 28, 2006. After deliberations, on May 4, 2006, the jury rendered a
        verdict
        in favor of the Plaintiffs by finding
        that
        the NF-κB ‘516 Claims asserted in the lawsuit are valid and infringed by Lilly
        through sales of Evista and Xigris in the United States. One defense regarding
        validity was not submitted to the jury and was instead the subject of a bench
        trial, asaddressed
        below. The jury awarded damages to the Plaintiffs in the amount of approximately
        $65.2 million, based on the jury’s determination of a reasonable royalty rate of
        2.3% to be paid by Lilly to the Plaintiffs based on U.S. sales of Evista
        and
        Xigris from the date of the filing of the lawsuit on June 25, 2002 through
        February 28, 2006. The jury awarded further damages on an ongoing basis,
        in
        amounts to be determined, equal to 2.3% of U.S. sales of Evista and Xigris
        through the year 2019, when the patent expires. If the verdict is upheld,
        damages paid by Lilly will be applied first to reimburse the Company for
        any
        unreimbursed legal fees and expenses relating to the litigation. The Company
        will receive 91% of the remainder, and the co-plaintiffs will receive
        9%.
 
 A
        separate
        trial,
        or
        bench trial, was held in the U.S. District Court from August 7, 2006 through
        August 9, 2006 on certain defenses asserted by Lilly relating to the
        enforceability of the NF-κB ‘516 Claims and one defense related to the validity
        of these claims.The
        Company is currently awaiting the judge’s ruling on the issues tried in the
        bench trial before a final judgment may be entered in this lawsuit. Lilly
        has
        the right to file motions challenging the jury’s verdict in this lawsuit, and,
        upon the entry of a final judgment by the U.S. District Court, to file an
        appeal
        of the jury’s verdict and other rulings by the U.S. District Court with the
        Court of Appeals for the Federal Circuit.
 
 *Amgen
        Litigation*
 
 On
        April
        20, 2006, Amgen Inc. and certain affiliated entities (“Amgen“) filed a lawsuit
        against the Company in the U.S. District Court for the District of Delaware
        (the
“Delaware Court“) seeking a declaratory judgment that each of the claims
        contained in the ‘516 Patent are invalid and that Amgen has not infringed any of
        the claims of the ‘516 Patent based on activities related to Amgen’s products,
        Enbrel®and
        Kineret®.
        The
        Company filed a motion to dismiss this case in the Delaware Court on June
        14,
        2006, which was, after a hearing held on September
 11,
        2006, denied in an order dated September 13,
        2006.
 
 On
        September 25, 2006, the Company filed a motion requesting the
        judge to certify the Delaware Court’s September 13, 2006 order denying our
        motion to dismiss for immediate appeal to the Court of Appeals for the Federal
        Circuit (“CAFC”). On October 5, 2006, the Company also filed a renewed motion to
        dismiss the Amgen litigation for failure to name the university patentees
        as
        necessary and indispensable parties or, in the alternative, to transfer this
        case to the U.S. District Court for the District of Massachusetts (the
“Massachusetts Court”).
  At
        a hearing on these motions held on November 3, 2006, the Delaware
        Court granted the Company’s motion certifying the Delaware Court’s September 13,
        2006 order for immediate appeal and denied, as moot and without prejudice,
        the
        Company’s renewed motion to dismiss or transfer the case. The Delaware Court
        also stayed discovery in the case pending a ruling on the Company’s petition for
        permission to appeal the Delaware Court’s September 13, 2006 order (the
“Petition“) to be filed with the CAFC. The Company filed its Petition with the
        CAFC on November 16, 2006, which was denied by the CAFC on December 29, 2006.
        As
        a result of the CAFC’s denial of the Company’s Petition, the temporary stay
        issued by the Delaware Court expired.
   7
  On
        February 20, 2007, a hearing was held before the Delaware Court on the Company’s
        renewed motion to dismiss the Amgen litigation, or in the alternative, to
        transfer this case to the Massachusetts Court. The Delaware Courtissued
        an
        order on March 27, 2007 denying the Company’s renewed motion to dismiss or
        alternatively to transfer this case. In its Order, the Delaware Court found
        that
        the university patentees are necessary, but not indispensable, parties to
        the
        action, and ordered Amgen to join The Whitehead Institute for Biomedical
        Research as a party. In addition, the Delaware Court ordered ARIAD to inform
        the
        Delaware Court, by April 13, 2007, whether Harvard University and Massachusetts
        Institute of Technology would voluntarily join the action.
 
 On
        April 13, 2007, Amgen filed an Amended Complaint for Declaratory
        Judgment of Patent Invalidity and Non-Infringement against the Company and
        The
        Whitehead Institute and requested leave from the Delaware Court to file a
        Second
        Amended Complaint to add a claim for inequitable conduct. On the same day,
        the
        Company together with the university patentees filed a lawsuit against Amgen
        and
        Wyeth alleging infringement of the ‘516 Patent based on activities related to
        Enbrel and Kineret, as well as the Company’s Answer to Amended Complaint,
        Counter-claim and Demand for Jury Trial.
 
 A
        scheduling order pursuant to Rule 16 of the Federal Rules of Civil
        Procedure was entered by the Delaware Court on February 23, 2007. The technology
        tutorial was held before the Delaware Court on May 1, 2007 pursuant to that
        order. The claim construction hearing in this case is scheduled for January
        7,
        2008, with trial scheduled to commence on May 12, 2008.
 
 *Re-examination
        Proceedings in PTO*
 
 On
        April 4, 2005, Lilly filed a request in the United States Patent
        and Trademark Office (“PTO“) to reexamine the patentability of certain claims of
        the ‘516 Patent. An unrelated third party filed a similar request in the PTO on
        December 2, 2005 to reexamine the patentability of certain claims of the
‘516
        Patent. These two requests have been granted and were merged by the PTO into
        a
        single reexamination proceeding. The Company petitioned the PTO to vacate
        or
        stay the grant of these requests, but these petitions were rejected. The
        Company
        (with the Plaintiffs) also filed a complaint in the U.S. District Court in
        the
        Eastern District of Virginia requesting that the court enjoin the PTO from
        continuing with the reexamination proceedings, along with a motion for summary
        judgment, both of which were denied by the Court in an order dated October
        3,
        2006 granting the PTO’s motion to dismiss this action. The Company filed a
        motion to dismiss our appeal in this case on November 8, 2006.
 
 The
        PTO issued its first office action on August 2, 2006. In this
        first office action, 160 of the 203 claims of the ‘516 Patent were rejected by
        the PTO, including the claims asserted by the Company in the Lilly litigation
        and claims which may be asserted by the Company in the Amgen litigation.
        The
        Company’s response to the first office action was filed on November 9, 2006, and
        the Company awaits receipt of a final office action from the PTO. Accordingly,
        the Company can provide no assurance that the PTO will not invalidate some
        of
        the claims of the ‘516 Patent in this reexamination process, including the
        claims which were asserted against Lilly or might be asserted against Amgen,
        or
        that the Company will ultimately prevail in either of these
        litigations.
 
 8
  The
        timing and ultimate outcome of the Lilly litigation (including
        the pending bench trial and any appeal of the jury verdict and court’s ruling in
        the bench trial), the Amgen litigation (including pending motion to dismiss,
        or
        in the alternative, to transfer the case to the Massachusetts Court) and
        the
        reexamination proceedings cannot be determined at this time, and, as a result,
        no determination can be made with respect to allowance of the claims of the
‘516
        Patent, nor can any final determination be made with respect to the validity
        or
        infringement of the claims of the ‘516 Patent in the Lilly litigation and the
        Amgen litigation, nor can the Company predict whether the damages awarded
        by the
        jury in the U.S. District Court in the Lilly litigation will be upheld,
        eliminated or limited. Although the Company has prevailed at jury trial in
        the
        Lilly litigation, the damages the Company was awarded by the jury may be
        eliminated or limited by an adverse finding in the bench trial, on post-trial
        motions, upon appeal or in the event that the claims of the ‘516 Patent are
        invalidated by the PTO.
 
 **8.****Recently
        Issued Accounting Pronouncement**
 
 The
        Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.
        48 (“FIN 48”),*Accounting
        for Uncertainties in Income Taxes*,
        on
        January 1, 2007. FIN 48 defines the threshold for recognizing the benefits
        of
        tax-return positions in the financial statements as “more-likely-than-not” to be
        sustained by the taxing authorities. FIN 48 also requires explicit disclosure
        requirements about a company’s uncertainties related to their income tax
        position, including a detailed roll-forward of tax benefits taken that do
        not
        qualify for financial statement recognition. The adoption of FIN 48 did not
        have
        a material impact on the Company’s financial statements as of and for the period
        ended March 31, 2007.
 
 9
  **ITEM
        2.****MANAGEMENTS’
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 *Unless
        stated otherwise, references in this Quarterly Report on Form
        10-Q to “we,” “us,” or “our” refer to ARIAD Pharmaceuticals, Inc., a Delaware
        corporation, and our subsidiaries including our 80% owned subsidiary, ARIAD
        Gene
        Therapeutics, Inc., or AGTI, unless the context requires
        otherwise.*
 
 **Overview**
 
 We
        are
        engaged in the discovery and development of breakthrough medicines to treat
        cancers by regulating cell signaling with small molecules. We are developing
        a
        comprehensive approach to patients with cancer that addresses the greatest
        medical need - aggressive and advanced-stage cancers for which current
        treatments are inadequate. Our goal is to build a fully integrated oncology
        company focused on novel, molecularly targeted therapies to treat solid tumors
        and hematologic cancers, as well as the spread of primary tumors to distant
        sites.
 
 Our
        lead
        cancer product candidate, AP23573, has been or is being studied in multiple
        clinical trials in patients with various types of cancers, including sarcomas,
        hormone refractory prostate cancer, endometrial cancer, brain cancer and
        leukemias and lymphomas. We expect to initiate patient enrollment in our
        initial
        Phase 3 clinical trial of AP23573 in patients with metastatic sarcoma in
        the
        third quarter 2007. We discovered AP23573 in a research and development program
        conducted by us on behalf of ARIAD Gene Therapeutics, Inc., or AGTI, our
        80%-owned subsidiary. In 2005, we entered into a partnership with Medinol
        Ltd.,
        a leading cardiovascular medical device company, to develop and commercialize
        stents and other medical devices to deliver AP23573 in order to prevent
        reblockage of injured vessels following stent-assisted angioplasty, a common
        non-surgical procedure for dilating or opening narrowed arteries. Our second
        product candidate, AP24534, is in preclinical testing for the treatment of
        chronic myeloid leukemia. We expect to file an Investigational New Drug
        application, or IND, for this product candidate with the United States Food
        and
        Drug Administration, or FDA, in the second half of 2007.
 
 In
        addition to our lead development programs, we have a focused drug discovery
        program centered on small-molecule, molecularly targeted therapies and
        cell-signaling pathways implicated in cancer. We also have an exclusive license
        to a family of patents, three in the U.S. and one in Europe, including a
        pioneering U.S. patent covering methods of treating human disease by regulating NF-κB
        cell-signaling activity. Additionally, we have developed a proprietary portfolio
        of cell-signaling regulation technologies, our ARGENT technology, to control
        intracellular processes w ith
        small
        molecules, which may be useful in the development of therapeutic vaccines
        and
        gene and cell therapy products and which provide versatile tools for
        applications in cell biology, functional genomics and drug discovery
        research.
 
 Since
        our
        inception in 1991, we have devoted substantially all of our resources to
        our
        research and development programs, including those we conduct on behalf of
        AGTI.
        We receive no revenue from the sale of pharmaceutical products, and most
        of our
        revenue to date was received in connection with a joint venture we had with
        a
        major pharmaceutical company from 1997 to 1999. Except for the gain on the
        sale
        of our fifty percent interest in that joint venture in December 1999, which
        resulted in net income for fiscal 1999, we have not been profitable since
        inception. We expect to incur substantial and increasing operating losses
        for
        the foreseeable future, primarily due to costs associated with our
        pharmaceutical product development programs, including costs for clinical
        trials
        and product manufacturing, personnel and our intellectual property. We expect
        that losses will fluctuate from quarter to quarter and that these fluctuations
        may be substantial.
 
 As
        of
        March 31, 2007, we had an accumulated deficit of $324.0 million and cash,
        cash
        equivalents and marketable securities of $39.1 million and working capital
        of
        $21.4 million. In February 2007, we obtained a commitment for up to $50 million
        in equity financing from Azimuth Opportunity Ltd. which is available for
        us to
        access, subject to certain terms and conditions, over the 18-month term of
        the
        agreement. On March 26, 2007, we sold Azimuth 3,072,393 shares of our common
        stock at an aggregate purchase price of $12.5 million under this agreement.
        The
        net proceeds from this transaction, after deducting issuance expenses, were
        approximately $12.3 million. As of March 31, 2007, $37.5 million remained
        available to us under this equity financing facility.
 
 10
  **General**
 
 Our
        operating losses are primarily due to the costs associated with our
        pharmaceutical product development programs, personnel and intellectual property
        protection and enforcement. As our product development programs progress,
        we
        incur significant costs for toxicology and pharmacology studies, product
        development, manufacturing, clinical trials and regulatory support. These
        costs
        can vary significantly from quarter to quarter depending on the number of
        product candidates in development, the stage of development of each product
        candidate, the number of patients enrolled in and complexity of clinical
        trials
        and other factors. Costs associated with our intellectual property include
        legal
        fees and other costs to prosecute, maintain, protect and enforce our
        intellectual property, which can fluctuate from quarter to quarter depending
        on
        the status of patent issues being pursued.
 
 Because
        we
        currently receive no revenue from the sale of pharmaceutical products and
        receive only limited license revenue, we have relied primarily on the capital
        markets as our source of funding. In October 2006, we raised approximately
        $14.3
        million through an underwritten offering of our common stock. We have also
        entered into a $50 million equity financing facility pursuant to which we
        raised
        approximately $12.5 million in March 2007. We utilize long-term debt to
        supplement our funding, particularly as a means to fund investment in property
        and equipment and infrastructure needs. In addition, we plan to seek funding
        from collaborations with pharmaceutical, biotechnology and/or medical device
        companies for development and commercialization of our product candidates.
        We
        are completing negotiations for a partnership to develop and commercialize
        AP23573 in a broad range of cancers, although we can provide no assurance
        that
        we will be able to reach a definitive agreement on acceptable terms. These
        collaborations may take the form of licensing arrangements, co-development
        or
        joint venture arrangements or other structures. If funding from these various
        sources is unavailable on reasonable terms, we may be required to reduce
        our
        operating expenses in order to conserve cash and capital by delaying, scaling
        back or eliminating one or more of our product development
        programs.
 
 **Critical
        Accounting Policies and Estimates**
 
 Our
        financial position and results of operations are affected by subjective and
        complex judgments, particularly in the areas of the carrying value of intangible
        assets, deferred compensation benefits for executives, and stock-based
        compensation.
 
 At
        March
        31, 2007, we reported $4.3 million of intangible assets, consisting of
        capitalized costs related primarily to purchased and issued patents, patent
        applications and licenses, net of accumulated amortization. These costs are
        being amortized over the estimated useful lives of the underlying patents
        or
        licenses. Changes in these lives or a decision to discontinue using the
        technologies could result in material changes to our balance sheet and
        statements of operations. We have concluded that the carrying value of our
        intangible assets is not currently impaired because such carrying value does
        not
        exceed the future net cash flows expected to be generated by such intangible
        assets. If we were to abandon the underlying technologies or terminate our
        efforts to pursue collaborations or license agreements, we may be required
        to
        write off a portion of the carrying value of our intangible assets. The net
        book
        value as of March 31, 2007 of intangible assets related to our NF-êB technology is $470,000. If the patentability of our NF-κB patents,
        one of which is currently the subject of litigation and reexamination
        proceedings (see Part II, Item 1, Legal Proceedings), is successfully challenged
        and such patents are subsequently narrowed, invalidated or circumvented,
        we may
        be required to write off some or all of the net book value related to such
        technology.
 
 11
  Under
        our
        deferred executive compensation plans, we are required to adjust our recorded
        obligations to our employees on a periodic basis to reflect fair value based
        on
        the quoted market value of certain underlying mutual funds. Fluctuations
        in the
        quoted market value of such mutual funds can result in uneven expense charges
        or
        credits to our statements of operations. If, for example, the quoted market
        prices of the underlying mutual funds were 10% higher at March 31, 2007,
        we
        would have recognized an additional $97,000 in compensation expense in the
        three-month period ended March 31, 2007.
 
 In
        determining expense related to stock-based compensation, we utilize the
        Black-Scholes valuation model to estimate the fair value of stock options
        granted to employees, consultants and directors. Application of the
        Black-Scholes option valuation model requires the use of factors such as
        the
        market value and volatility of our common stock, a risk-free discount rate
        and
        an estimate of the life of the option contract. Fluctuations in these factors
        can result in adjustments to our statements of operations. If, for example,
        the
        market value of our common stock, its volatility, or the expected life of
        stock
        options granted in the three-month period ended March 31, 2007 were 10% higher
        or lower than used in the valuation of such stock options, our valuation
        of such
        awards would have increased or decreased by up to $264,000, $154,000, or
        $142,000, respectively. This increase or decrease in valuation would be
        recognized on our statement of operations over the vesting period of such
        awards.
 
 **Results
        of Operations**
 
 ***For
        the three months ended March 31, 2007 and 2006***
 
 ***Revenue***
 
 We
        recognized license revenue of $190,000 in the three month period ended March
        31,
        2007, compared to $229,000 in the corresponding period in 2006. The decrease
        in
        license revenue was due primarily to the impact of the expected timing of
        receipt of future milestone payments pursuant to our agreement with Medinol
        Ltd., in accordance with our revenue recognition policy.
 
 ***Operating
        Expenses***
 
 *Research
        and Development Expenses*
 
 Research
        and development expenses decreased by $651,000, or 6%, to $11.0 million in
        the
        three month period ended March 31, 2007, compared to $11.7 million in the
        corresponding period in 2006. The research and development process necessary
        to
        develop a pharmaceutical product for commercialization is subject to extensive
        regulation by numerous governmental authorities in the United States and
        other
        countries. This process typically takes years to complete and requires the
        expenditure of substantial resources. Current requirements include:
 
 ·
              preclinical
                  toxicology, pharmacology and metabolism studies, as well as*in
                  vivo*efficacy studies in relevant animal models of
                  disease;
 
 ·
              manufacturing
                  of drug product for preclinical studies and clinical trials and
                  ultimately
                  for commercial supply;
 
 ·
              submission
                  of the results of preclinical studies and information regarding
                  manufacturing and control and proposed clinical protocol to the
                  FDA in an
                  IND (or similar filings with regulatory agencies outside the United
                  States);
 
 ·
                conduct
                    of clinical trials designed to provide data and information regarding
                    the
                    safety and efficacy of the product candidate in humans;
                    and
 
 ·
                submission
                    of all the results of testing to the FDA in a New Drug Application,
                    or NDA
                    (or similar filings with regulatory agencies outside the United
                    States).
 
 12
  Upon
        approval by the appropriate regulatory authorities, including in some countries
        approval of product pricing, we may commence commercial marketing and
        distribution of the product.
 
 We
        group
        our research and development, or R&D, expenses into two major categories:
        direct external expenses and all other R&D expenses. Direct external
        expenses consist of costs of outside parties to conduct laboratory studies,
        to
        develop manufacturing processes and manufacture the product candidate, to
        conduct and manage clinical trials and similar costs related to our clinical
        and
        preclinical studies. These costs are accumulated and tracked by product
        candidate. All other R&D expenses consist of costs to compensate personnel,
        to purchase lab supplies and services, to maintain our facility, equipment
        and
        overhead and similar costs of our research and development efforts. These
        costs
        apply to work on our clinical and preclinical candidates as well as our
        discovery research efforts. These costs are not tracked by product candidate
        because the number of product candidates and projects in R&D may vary from
        time to time and because we utilize internal resources across multiple projects
        at the same time.
 
 Direct
        external expenses are further categorized as costs for clinical programs
        and
        costs for preclinical programs. Preclinical programs include product candidates
        undergoing toxicology, pharmacology, metabolism and efficacy studies and
        manufacturing process development required before testing in humans can begin.
        Product candidates are designated as clinical programs once we have filed
        an IND
        with the FDA, or a similar filing with regulatory agencies outside the United
        States, for the purpose of commencing clinical trials in humans.
 
 Our
        research and development expenses for the three month period ended March
        31,
        2007, as compared to the corresponding period in 2006, were as
        follows:
 
 **Three
                  months ended March 31,**
              
              **Increase/*****In
                  thousands***
              
              **2007**
              
              **2006**
              
              **(decrease)**Direct
                  external expenses:Clinical
                  programs
              
              $
              3,170
              
              $
              4,183
              
              $
              (1,013
              )Preclinical
                  programs
              
              
              1,549
              
              
              135
              
              
              1,414All
                  other R&D expenses
              
              
              6,304
              
              
              7,356
              
              
              (1,052
              )$
              11,023
              
              $
              11,674
              
              $
              (651
              )
 
 AP23573,
        our lead product candidate which is in Phase 2 clinical trials, was our only
        clinical program in 2007 and 2006. Direct external expenses for AP23573
        decreased by $1.0 million in the three-month period ended March 31, 2007,
        as
        compared to the corresponding period in 2006, due primarily to decreases
        in
        manufacturing related costs of $917,000 and clinical trials costs of $251,000.
        The decrease in manufacturing related costs was due to the timing of production
        runs of AP23573. The decrease in clinical trial costs is directly related
        to a
        decrease in number of patients on trial during the period driven by the
        successful conclusion of enrollment in several clinical trials in 2005 and
        2006.
        Through March 31, 2007, we have incurred a total of approximately $59.1 million
        in direct external expenses for AP23573 from the date it became a clinical
        program. We expect that our direct external costs for AP23573 will increase
        during the remainder of 2007 as we prepare to initiate enrollment in our
        initial
        Phase 3 clinical trial for this product candidate.
 
 Our
        preclinical programs are focused on the development of additional novel,
        small
        molecule, molecularly targeted therapies including kinase inhibitors targeting
        cancer-related processes such as cell survival, metastasis and angiogenesis.
        Our
        kinase inhibitor program includes our second product candidate, AP24534.
        Direct
        external expenses for preclinical programs will increase or decrease over
        time
        depending on the status and number of programs in this stage of development
        and
        the mix between external and internal efforts applied to such programs. Direct
        external expenses for preclinical programs increased by $1.4 million in the
        three-month period ended March 31, 2007, as compared to the corresponding
        period
        in 2006 due primarily to the initiation of certain toxicology and contract
        manufacturing studies for AP24534 in 2007. We expect that our direct external
        expenses for preclinical programs will increase slightly during the remainder
        of
        2007, as resources allow, as we prepare to file an IND for AP24534 in the
        second
        half of 2007 and continue to move our other preclinical programs forward
        in
        development.
   13
  All
        other
        R&D expenses decreased by $1.1 million in the three month period ended March
        31, 2007 as compared to the corresponding period in 2006, due to lower personnel
        costs primarily from a decrease in stock-based compensation expense of $253,000
        due to the impact of stock option forfeitures and the timing of stock option
        awards, a decrease in depreciation and amortization of $526,000 due to an
        increase in the useful life of leasehold improvements upon the extension
        of the
        term of the lease of our lab and office facility, and a decrease in laboratory
        supplies and services of $182,000 as we shifted later stage preclinical testing
        from internal studies to external contract laboratories. We expect that all
        other R&D expenses will increase slightly during the remainder of 2007 to
        support our clinical and preclinical development programs.
 
 The
        successful development of our product candidates is uncertain and subject
        to a
        number of risks. We cannot be certain that any of our product candidates
        will
        prove to be safe and effective or will meet all of the applicable regulatory
        requirements needed to receive and maintain marketing approval. Data from
        preclinical studies and clinical trials are susceptible to varying
        interpretations that could delay, limit or prevent regulatory clearance.
        We, the
        FDA or other regulatory authorities may suspend clinical trials at any time
        if
        we or they believe that the subjects participating in such trials are being
        exposed to unacceptable risks or if such regulatory agencies find deficiencies
        in the conduct of the trials or other problems with our products under
        development. Delays or rejections may be encountered based on additional
        governmental regulation, legislation, administrative action or changes in
        FDA or
        other regulatory policy during development or the review process. Other risks
        associated with our product development programs are described under the
        heading
“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
        December 31, 2006 as updated from time to time in our subsequent periodic
        reports and current reports filed with the SEC. Due to these uncertainties,
        accurate and meaningful estimates of the ultimate cost to bring a product
        to
        market, the timing of completion of any of our drug development programs
        and the
        period in which material net cash inflows from any of our drug development
        programs will commence are unavailable.
 
 *General
        and Administrative Expenses*
 
 General
        and administrative expenses decreased by $53,000, or 1%, to $4.4 million
        in the
        three month period ended March 31, 2007, compared to $4.5 million in the
        corresponding period in 2006. The decrease in expenses was due primarily
        to
        decreases in professional services, primarily $289,000 in legal fees associated
        with our patent litigation, costs related to business and commercial development
        initiatives completed in 2006, and miscellaneous decreases in other expenses,
        offset in part by an increase in personnel expenses related to stock-based
        compensation expense of $401,000 resulting from grants of stock options and
        restricted stock in the three-month period ended March 31, 2007. We expect
        that
        our general and administrative expenses will remain at approximately the
        current
        level for the remainder of 2007 as necessary to support our research and
        development programs.
 
 We
        expect
        that our operating expenses in total will increase during the remainder of
        2007
        for the reasons described above. Operating expenses may fluctuate from quarter
        to quarter. The actual amount of any change in operating expenses will depend
        on
        the progress of our product development programs, including preclinical and
        clinical studies and product manufacturing, the status of our patent
        infringement litigation with Lilly and Amgen, our ability to raise funding
        through equity offerings, collaborations, licensing, joint ventures or other
        sources and the timing of any such funding transaction.
 
 ***Interest
        Income/Expense***
 
 Interest
        income decreased to $390,000 in the three month period ended March 31, 2007
        from
        $664,000 in the corresponding period in 2006, as a result of a lower average
        balance of funds invested in 2007, offset in part by higher interest yields
        from
        our securities.
 
 14
  Interest
        expense decreased to $105,000 in the three month period ended March 31, 2007
        from $121,000 in the corresponding period in 2006, as a result of lower average
        loan balances in 2007, offset, in part, by higher interest rates on our
        long-term debt.
 
 ***Operating
        Results***
 
 We
        reported a loss from operations of $15.2 million in the three month period
        ended
        March 31, 2007 compared to a loss from operations of $15.9 million in the
        corresponding period in 2006, a decrease in loss of $665,000, or 4%. Such
        decrease was due primarily to the decrease in operating expenses noted above.
        We
        expect that our loss from operations will increase slightly during the reminder
        of 2007 due to the various factors discussed under “Operating Expenses” above.
        Losses may fluctuate depending on the extent to which, if at all, we enter
        into
        collaborations for one or more of our product candidates or licenses for
        our
        technologies. The extent of operating losses will also depend on our ability
        to
        raise funds from other sources, such as the capital markets, or utilize the
        remaining $37.5 million under our equity financing facility, which will
        influence the amount we will spend on research and development and the
        development timelines for our product candidates.
 
 We
        reported a net loss of $15.0 million in the three month period ended March
        31,
        2007, compared to a net loss of $15.4 million in the corresponding period
        in
        2006, a decrease in net loss of $407,000 or 3%, and a net loss per share
        of
        $0.23 and $0.25, respectively.
 
 **Liquidity
        and Capital Resources**
 
 We
        have
        financed our operations and investments primarily through sales of our common
        stock to institutional investors and, to a lesser extent, through issuances
        of
        our common stock pursuant to our stock option and employee stock purchase
        plans,
        supplemented by the issuance of long-term debt. We sell securities and incur
        debt when the terms of such transactions are deemed favorable to us and as
        necessary to fund our current and projected cash needs. We seek to balance
        the
        level of cash, cash equivalents and marketable securities on hand with our
        projected needs and to allow us to withstand periods of uncertainty relative
        to
        the availability of funding on favorable terms.
 
 ***Sources
        of Funds***
 
 For
        the
        three months ended March 31, 2007 and 2006, our sources of funds were as
        follows:
  **Three
                    Months Ended**
                  **March
                    31,*****In
                    thousands***
                
                **2007**
                
                **2006**Maturities
                    of marketable securities,
                  net
                    of purchases
                
                $
                (6,931
                )
                $
                11,191Proceeds
                    from issuance of common stock,
                  net
                    of issuance costs
                
                
                12,300Proceeds
                    from issuance of common stock
                  pursuant
                    to stock option and purchase plans
                
                
                247
                
                
                986$
                5,616
                
                $
                12,177
  We
        manage
        our marketable securities portfolio to provide cash for payment of our
        obligations. We purchase marketable securities to enhance our yield on invested
        funds and when such amounts are not needed for near-term payment of obligations.
        We generally hold our marketable securities to maturity. Upon maturity of
        such
        marketable securities, a portion may be retained as cash to provide for payment
        of current obligations while the remainder will be reinvested in accordance
        with
        our investment policy. For the three-month periods ended March 31, 2007 and
        2006, proceeds from maturities of marketable securities, purchases of marketable
        securities and the resulting net amount retained as cash for payment of
        obligations or reinvested was as follows:
   15
 **Three
                  Months Ended**
                **March
                  31,*****In
                  thousands***
              
              **2007**
              
              **2006**Proceeds
                  from maturities of marketable securities
              
              $
              8,107
              
              $
              22,831Purchases
                  of marketable securities
              
              
              (15,038
              )
              
              (11,640
              )$
              (6,931
              )
              $
              11,191
 
 The
        amount
        of funding we raise through sales of our common stock depends on many factors,
        including, but not limited to, the status and progress of our product
        development programs, projected cash needs, availability of funding from
        other
        sources, our stock price and the status of the capital markets.
 
 We
        have
        filed shelf registration statements with the SEC, from time to time, to register
        shares of our common stock for sale, giving us the opportunity to raise funding
        when needed or otherwise considered appropriate. On January 30, 2007, we
        filed a
        shelf registration statement with the SEC registering for issuance, from
        time to
        time, $100 million of common stock, preferred stock, various series of debt
        securities and/or warrants to purchase any of such securities, at prices
        and on
        terms to be determined at the time of any such offerings. This filing was
        declared effective on February 6, 2007.
 
 On
        February 14, 2007, we entered into an agreement with Azimuth Opportunity
        Ltd.
        under which we may offer and sell, at our sole discretion, and Azimuth is
        committed to purchase, subject to the terms and conditions set forth in the
        agreement, the lesser of up to $50 million of our common stock, or the number
        of
        shares which is one less than twenty percent of the issued and outstanding
        shares of our common stock as of the effective date of the agreement. The
        per
        share purchase price for these shares will equal the daily volume weighted
        average price of our common stock on such date, less a discount ranging from
        3.5% to 5.5%. The term of the agreement is eighteen months. Upon each sale
        of
        common stock to Azimuth, we will pay to Reedland Capital Partners a placement
        fee equal to 1.0% of the aggregate dollar amount received by us from such
        sale.
 
 In
        March
        2007, we sold to Azimuth 3,072,393 shares of our common stock pursuant to
        this
        agreement. We received aggregate gross proceeds from this sale of $12.5 million,
        or $12.3 million net of issuance expenses. These shares were registered under
        our shelf registration statement filed on January 30, 2007. Following this
        transaction, we have $37.5 million available under our equity financing facility
        with Azimuth and $87.5 million of securities remaining for issuance under
        our
        shelf registration statement.
 
 In
        March
        2003, we entered into a term loan agreement with a bank for $7.5 million,
        the
        proceeds of which were used to repay existing long-term debt, to pay off
        our
        obligations under certain operating leases for equipment and for general
        working
        capital purposes. The loan is secured by all of our assets excluding
        intellectual property, which we have agreed not to pledge to any other party
        without the consent of the bank. The loan carries interest at the bank’s prime
        rate or LIBOR plus 2%. We amended the terms of the loan on December 31, 2003
        and
        December 31, 2004, receiving another $2.0 million and $3.0 million,
        respectively, in loan proceeds. The amended loan is payable in monthly
        installments of $160,000 plus interest beginning in January 2005 with a final
        payment of $3.5 million due in March 2008. The terms of the loan require
        us to
        maintain at least $13.0 million in unrestricted cash, cash equivalents and
        investments. The agreement also contains certain covenants that restrict
        additional indebtedness, additional liens, and sales of assets, and dividends,
        distributions or repurchases of common stock. The balance outstanding as
        of
        March 31, 2007 was $5,255,000.
 
 **Uses
        of Funds**
 
 The
        primary uses of our cash are to fund our operations and working capital
        requirements and, to a lesser degree, to repay our long-term debt, to invest
        in
        intellectual property and to invest in our property and equipment as needed
        for
        our business. For the three months ended March 31, 2007 and 2006, our uses
        of
        funds were as follows:
 
 16
  **Three
                  Months Ended**
                **March
                  31,*****In
                  thousands***
              
              **2007**
              
              **2006**Net
                  cash used in operating activities
              
              $
              12,637
              
              $
              13,945Repayment
                  of borrowings
              
              
              480
              
              
              480Investment
                  in intangible assets
              
              
              200
              
              
              208Investment
                  in property and equipment
              
              
              80
              
              
              354$
              13,397
              
              $
              14,987
 
 The
        net
        cash used in operating activities is comprised of our net losses, adjusted
        for
        non-cash expenses and working capital requirements. As noted above, our net
        loss
        for the three months ended March 31, 2007 decreased by $407,000, as compared
        to
        the corresponding period in 2006, due primarily to decreased research and
        development expenses. As a result of changes in our working capital requirements
        offset in part by decreases in non-cash expenses, including depreciation
        and
        amortization expense, our net cash used in operating activities decreased
        by
        $1.6 million for the three months ended March 31, 2007, as compared with
        the
        corresponding period in 2006. Also, as noted above,
        we
        expect that our loss from operations will increase in the remainder of 2007
        due
        to continued progress in development of our product candidates, and we expect
        that our net cash used in operations will increase accordingly. We also expect
        that our investment in intangible assets, consisting of our intellectual
        property, will increase in support of our product development
        activities.
 
 ***Contractual
        Obligations***
 
 We
        have
        substantial fixed contractual obligations under various research and licensing
        agreements, consulting and employment agreements, lease agreements and long-term
        debt instruments. These contractual obligations were comprised of the following
        as of March 31, 2007:
 
 **Payments
                  Due By Period*****In
                  thousands***
              
              **Total**
              
              **In**
                **2007**
              
              **2008**
                **through**
                **2010**
              
              **2011**
                **through**
                **2012**
              
              **After**
                **2012**Long-term
                  debt
              
              $
              5,255
              
              $
              1,440
              
              $
              3,815
              
              $
              —
              
              $
              —Operating
                  leases, net of sub-leases
              
              
              10,770
              
              
              1,057
              
              
              6,358
              
              
              3,355
              
              
              —Employment
                  agreements
              
              
              6,646
              
              
              3,218
              
              
              3,428
              
              
              —
              
              
              —Other
                  long-term obligations
              
              
              4,318
              
              
              596
              
              
              3,037
              
              
              290
              
              
              395Total
                  fixed contractual obligations
              
              $
              26,989
              
              $
              6,311
              
              $
              16,638
              
              $
              3,645
              
              $
              395
 
 Long-term
        debt consists of scheduled principal payments on such debt. Interest on our
        long-term debt is based on variable interest rates. Assuming a constant interest
        rate of 7.4%, our average interest rate on our debt at March 31, 2007, over
        the
        remaining term of the debt, our interest expense would total approximately
        $252,000 for the remainder of 2007 and $66,000 in 2008.
 
 Other
        long-term obligations are comprised primarily of our deferred executive
        compensation plans and license agreements. The license agreements generally
        provide for payment by us of annual license fees, milestone payments and
        royalties upon successful commercialization of products. All license agreements
        are cancelable by us. The above table reflects remaining license fees for
        the
        lives of the agreements but excludes milestone and royalty payments, as such
        amounts are not probable or estimable at this time.
 
 17
  ***Liquidity***
 
 At
        March
        31, 2007, we had cash, cash equivalents and marketable securities totaling
        $39.1
        million and working capital of $21.4 million, compared to cash, cash equivalents
        and marketable securities totaling $39.8 million and working capital of $25.9
        million at December 31, 2006.
 
 We
        will
        require substantial additional funding for our research and development
        programs, including pre-clinical development and clinical trials, for operating
        expenses including intellectual property protection and enforcement, for
        the
        pursuit of regulatory approvals, and for establishing manufacturing, marketing
        and sales capabilities. In order to fund our needs, we may, among other things,
        (1) sell securities of the Company through public or private offerings as
        market
        conditions permit or to Azimuth under the equity financing facility, (2)
        enter
        into partnerships for our product candidates, and/or (3) license our
        cell-signaling technologies, including our ARGENT and NF- k B
        intellectual property portfolios.
 
 We
        believe
        that our cash, cash equivalents and marketable securities, should be sufficient
        to satisfy our capital and operating requirements approximately through the
        fourth quarter of 2007. If we fully utilize the remaining $37.5 million
        remaining under our equity financing facility, we could extend the sufficiency
        of our cash, cash equivalents and marketable securities to at least mid-2008.
        However, there are numerous factors that are likely to affect our spending
        levels, including the timing of the start of, and the rate of patient enrollment
        in, our initial Phase 3 clinical trial for AP23573, the timing of product
        and
        process development work for AP23573, the manufacture of drug product for
        clinical trials and potential product launch, if approved, developments in
        our
        ongoing clinical trials, the timing and terms of a partnership, if any, to
        develop and commercialize AP23573, the status of our in-house efforts to
        prepare
        for the potential launch of AP23573, the progress of our preclinical programs,
        the potential acquisition of or other strategic transaction regarding the
        minority stockholders’ interests in AGTI, and developments in our
        NF- k B
        litigation, among other factors. These variables could result in earlier
        depletion of our current funds if we are to continue operations in accordance
        with our current plans and achieve our intended timelines for development.
        In
        any event, we expect to need additional capital in order to pursue our business
        plan, which we will seek to raise through the sale of additional securities,
        including the possible sale of common stock to Azimuth under our equity
        financing facility, collaborative partnerships, and possible additional credit
        arrangements. There can be no assurance, however, that adequate resources
        will
        be available when needed or on terms acceptable to us, if at all.
 
 **Securities
        Litigation Reform Act**
 
 *Safe
        harbor statement under the Private Securities Litigation Reform Act of
        1995* :
        Except
        for the historical information contained in this Quarterly Report on Form
        10-Q,
        some of the matters discussed herein are “forward-looking statements” within the
        meaning of the Private Securities Litigation Reform Act of 1995. Such statements
        are identified by the use of words such as “may,” “anticipate,” “estimate,”
“expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of
        similar meaning in connection with any discussion of future operating or
        financial performance. Such statements are based on management’s current
        expectations and are subject to certain factors, risks and uncertainties
        that
        may cause actual results, outcome of events, timing and performance to differ
        materially from those expressed or implied by such forward-looking statements.
        These risks include, but are not limited to, risks and uncertainties regarding
        our ability to accurately estimate the timing and actual research and
        development expenses and other costs associated with the preclinical and
        clinical development and manufacture of our product candidates, the adequacy
        of
        our capital resources and the availability of additional funding, risks and
        uncertainties regarding our ability to successfully recruit centers, enroll
        patients and conduct clinical studies of product candidates, risks and
        uncertainties regarding our ability to manufacture or have manufactured our
        product candidates on a commercial scale or to supply our product candidates
        to
        partners, risks and uncertainties that clinical trial results at any phase
        of
        development may be adverse or may not be predictive of future results or
        lead to
        regulatory approval of any of our or any partner’s product candidates, risks and
        uncertainties of third-party intellectual property claims relating to our
        and
        any partner’s product candidates, risks and uncertainties related to the
        potential acquisition of or other strategic transaction regarding the minority
        stockholders’ interests in AGTI, and risks and uncertainties relating to
        regulatory oversight, the timing, scope, cost and outcome of legal and patent
        office proceedings, litigation, prosecution and reexamination proceedings
        concerning our NF- k B
        patent
        portfolio, future capital needs, key employees, dependence on collaborators
        and
        manufacturers, markets, economic conditions, products, services, prices,
        reimbursement rates, competition and other risks detailed under the heading
        “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year
        ended December 31, 2006, as updated from time to time in our subsequent periodic
        and current reports filed with the SEC. As a result of these and other factors,
        actual events or results could differ materially from those described herein.
        We
        are not under any obligation, and we expressly disclaim any obligation, to
        update or alter any forward-looking statements, whether as a result of new
        information, future events or otherwise.
 
 18
  **ITEM
        3.****QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 We
        invest
        our available funds in accordance with our investment policy to preserve
        principal, maintain proper liquidity to meet operating needs and maximize
        yields. Our investment policy specifies credit quality standards for our
        investments and limits the amount of credit exposure to any single issue,
        issuer
        or type of investment.
 
 We
        invest
        cash balances in excess of operating requirements first in short-term, highly
        liquid securities, with maturities of 90 days or less, and money market
        accounts. Depending on our level of available funds and our expected cash
        requirements, we may invest a portion of our funds in marketable securities,
        consisting generally of corporate debt and U.S. government and agency
        securities. Maturities of our marketable securities are generally limited
        to
        periods necessary to fund our liquidity needs and may not in any case exceed
        three years. These securities are classified as available-for-sale.
        Available-for-sale securities are recorded on the balance sheet at fair market
        value with unrealized gains or losses reported as a separate component of
        stockholders’ equity (accumulated other comprehensive income or loss). Realized
        gains and losses on marketable security transactions are reported on the
        specific-identification method. Interest income is recognized when earned.
        A
        decline in the market value of any available-for-sale security below cost
        that
        is deemed other than temporary results in a charge to earnings and establishes
        a
        new cost basis for the security.
 
 Our
        investments are sensitive to interest rate risk. We believe, however, that
        the
        effect, if any, of reasonable possible near-term changes in interest rates
        on
        our financial position, results of operations and cash flows generally would
        not
        be material due to the current short-term nature of these investments. In
        particular, at March 31, 2007, because our available funds are invested solely
        in short-term securities with remaining maturities of six months or less,
        our
        risk of loss due to changes in interest rates is not material.
 
 We
        have a
        deferred executive compensation program which provides participants with
        deferred compensation based on the value of certain designated mutual funds.
        The
        fair value of our obligations under this program is reflected as a liability
        on
        our balance sheet. In the event of a hypothetical 10% increase in the fair
        market value of the underlying mutual funds as of March 31, 2007, we would
        have
        incurred approximately $97,000 of additional compensation expense in the
        three-month period ended March 31, 2007.
 
 At
        March
        31, 2007, we had $5.3 million outstanding under a bank term note which bears
        interest at prime or, alternatively, LIBOR + 2%. This note is sensitive to
        interest rate risk. In the event of a hypothetical 10% increase in the interest
        rate on which the loan is based (73.7 basis points), we would incur
        approximately $19,000 of additional interest expense per year based on expected
        balances over the next twelve months.
 
 **ITEM
        4.****CONTROLS
        AND PROCEDURES**
 
 (a) *Evaluation
        of Disclosure Controls and Procedures.* Our
        principal executive officer and principal financial officer, after evaluating
        the effectiveness of our disclosure controls and procedures (as defined in
        paragraph (e) of Rules 13a-15 and 15d-15 under the Securities Exchange Act
        of
        1934) as of the end of the period covered by this Quarterly Report on Form
        10-Q,
        have concluded that, based on such evaluation, our disclosure controls and
        procedures were effective to ensure that information required to be disclosed
        by
        us in the reports that we file or submit under the Securities Exchange Act
        of
        1934 is recorded, processed, summarized and reported, within the time periods
        specified in the SEC’s rules and forms and is accumulated and communicated to
        management, including the Chief Executive Officer and Chief Financial Officer,
        or persons performing similar functions, as appropriate to allow timely
        decisions regarding required disclosure, particularly during the period in
        which
        this Quarterly Report on Form 10-Q was being prepared.
  In
        designing and evaluating our disclosure controls and procedures, our management
        recognizes that any controls and procedures, no matter how well designed
        and
        operated, can provide only reasonable assurance of achieving the desired
        control
        objectives, and our management necessarily is required to apply its judgment
        in
        evaluating the cost-benefit relationship of possible controls and
        procedures.
 
 (b) *Changes
        in Internal Controls.* There
        were no changes in our internal control over financial reporting, identified
        in
        connection with the evaluation of such internal control that occurred during
        our
        last fiscal quarter that have materially affected, or are reasonably likely
        to
        materially affect, our internal control over financial reporting.
   19
  **PART
        II.****OTHER
        INFORMATION**
 
 **ITEM
        1.****LEGAL
        PROCEEDINGS**
 
 **NF-**κ**B
        Patent Infringement Litigation and Reexamination**
  ***Lilly
        Litigation***
 
 In
        2002,
        we, together with Massachusetts Institute of Technology, The Whitehead Institute
        for Biomedical Research and Harvard University (collectively, the Plaintiffs)
        filed a lawsuit in the United States District Court for the District of
        Massachusetts, or the U.S. District Court, against Eli Lilly and Company,
        or Lilly,
        alleging infringement of certain claims, or the NF-κB ‘516 Claims, of the
        Plaintiffs’ U.S. Patent No. 6,410,516, or the ‘516 Patent, covering methods of
        treating human disease by regulating NF-κB cell-signaling activity through sales
        of Lilly’s osteoporosis drug, Evista ® ,
        and
        Lilly’s septic shock drug, Xigris ® ,
        and
        seeking monetary damages from Lilly.
 
 This
        case
        was tried
        before a jury in the U.S. District Court from April 10, 2006 through April
        28,
        2006. After deliberations, on May 4, 2006, the jury rendered a verdict in
        favor
        of the Plaintiffs by finding that the NF-κB ‘516 Claims asserted in the lawsuit
        are valid and
        infringed by Lilly through sales of Evista and Xigris in the United States.
        One
        defense regarding validity was not submitted to the jury and was instead
        the
        subject of a bench trial, as addressed below. The jury awarded damages to
        the
        Plaintiffs in the amount of approximately $65.2 million, based on the jury’s
        determination of a reasonable royalty rate of 2.3% to be paid by Lilly to
        the
        Plaintiffs based on U.S. sales of Evista and Xigris from the date of the
        filing
        of the lawsuit on June 25, 2002 through February 28, 2006. The jury awarded
        further damages on an ongoing basis, in amounts to be determined, equal to
        2.3%
        of U.S. sales of Evista and Xigris through the year 2019, when the patent
        expires. If the verdict is upheld, damages paid by Lilly will be applied
        first
        to reimburse us for any unreimbursed legal fees and expenses relating to
        the
        litigation. We will receive 91% of the remainder, and the co-plaintiffs will
        receive 9%.
 
 A
        separate
        trial, or bench trial, was held in the U.S. District Court from
        August 7, 2006 through August 9, 2006 on certain defenses asserted by Lilly
        relating to the enforceability of the NF-κB ‘516 Claims and one defense related
        to the validity of these claims. We
        are
        currently awaiting the judge’s ruling on the issues tried in the bench trial
        before a final judgment may be entered in this lawsuit. Lilly has the right
        to
        file motions challenging the jury’s verdict in this lawsuit, and, upon the entry
        of a final judgment by the U.S. District Court, to file an appeal of the
        jury’s
        verdict and other rulings by the U.S. District Court with the Court of Appeals
        for the Federal Circuit.
 
 ***Amgen
        Litigation***
 
 On
        April
        20, 2006, Amgen Inc. and certain affiliated entities, hereinafter referred
        to as
        Amgen, filed a lawsuit against us in the U.S. District Court for the District
        of
        Delaware, or the Delaware Court, seeking a declaratory judgment that each
        of the
        claims contained in the ‘516 Patent are invalid and that Amgen has not infringed
        any of the claims of the ‘516 Patent based on activities related to Amgen’s
        products, Enbrel ® and
        Kineret ® .
        We filed
        a motion to dismiss this case in the Delaware Court on June 14, 2006, which
        was,
        after a hearing held on September 11, 2006, denied in an order dated September
        13, 2006.
 
 On
        September 25, 2006, the Company filed a motion requesting the judge to certify
        the Delaware Court’s September 13, 2006 order denying our motion to dismiss for
        immediate appeal to the Court of Appeals for the Federal Circuit, or CAFC.
        On
        October 5, 2006, we also filed a renewed motion to dismiss the Amgen litigation
        for failure to name the university patentees as necessary and indispensable
        parties or, in the alternative, to transfer this case to the U.S. District
        Court
        for the District of Massachusetts, or the Massachusetts Court.
 
 20
  At
        a
        hearing on these motions held on November 3, 2006, the Delaware Court granted
        our motion certifying the Delaware Court’s September 13, 2006 order for
        immediate appeal and denied, as moot and without prejudice, our renewed motion
        to dismiss or transfer the case. The Delaware Court also stayed discovery
        in the
        case pending a ruling on our petition for permission to appeal the Delaware
        Court’s September 13, 2006 order, or the Petition, to be filed with the CAFC. We
        filed our Petition with the CAFC on November 16, 2006, which was denied by
        the
        CAFC on December 29, 2006. As a result of the CAFC’s denial of our Petition, the
        temporary stay issued by the Delaware Court expired.
 
 On
        February 20, 2007, a hearing was held before the Delaware Court on our renewed
        motion to dismiss the Amgen litigation, or in the alternative, to transfer
        this
        case to the Massachusetts Court. The Delaware Court issued an order on March
        27,
        2007 denying our renewed motion to dismiss or alternatively to transfer this
        case. In its Order, the Delaware Court found that the university patentees
        are
        necessary, but not indispensable, parties to the action, and ordered Amgen
        to
        join The Whitehead Institute for Biomedical Research as a party. In addition,
        the Delaware Court ordered ARIAD to inform the Delaware Court, by April 13,
        2007, whether Harvard University and Massachusetts Institute of Technology
        would
        voluntarily join the action.
 
 On
        April
        13, 2007, Amgen filed an Amended Complaint for Declaratory Judgment of Patent
        Invalidity and Non-Infringement against us and The Whitehead Institute and
        requested leave from the Delaware Court to file a Second Amended Complaint
        to
        add a claim for inequitable conduct. On the same day, we together with the
        university patentees filed a lawsuit against Amgen and Wyeth alleging
        infringement of the ‘516 Patent based on activities related to Enbrel and
        Kineret, as well as our Answer to Amended Complaint, Counter-claim and Demand
        for Jury Trial.
 
 A
        scheduling order pursuant to Rule 16 of the Federal Rules of Civil Procedure
        was
        entered by the Delaware Court on February 23, 2007. The technology tutorial
        was
        held before the Delaware Court on May 1, 2007 pursuant to that order. The
        claim
        construction hearing in this case is scheduled for January 7, 2008, with
        trial
        scheduled to commence on May 12, 2008.
 
 ***Re-examination
        Proceedings in PTO***
 
 On
        April
        4, 2005, Lilly filed a request in the United States Patent and Trademark
        Office,
        or PTO, to reexamine the patentability of certain claims of the ‘516 Patent. An
        unrelated third party filed a similar request in the PTO on December 2, 2005
        to
        reexamine the patentability of certain claims of the ‘516 Patent. These two
        requests have been granted and were merged by the PTO into a single
        reexamination proceeding. We petitioned the PTO to vacate or stay the grant
        of
        these requests, but our petitions were rejected. We (with the Plaintiffs)
        also
        filed a complaint in the U.S. District Court in the Eastern District of Virginia
        requesting that the court enjoin the PTO from continuing with the reexamination
        proceedings, along with a motion for summary judgment, both of which were
        denied
        by the Court in an order dated October 3, 2006 granting the PTO’s motion to
        dismiss this action. We filed a motion to dismiss our appeal in this case
        on
        November 8, 2006.
 
 The
        PTO
        issued its first office action on August 2, 2006. In this first office action,
        160 of the 203 claims of the ‘516 Patent were rejected by the PTO, including the
        claims asserted by us in the Lilly litigation and claims which may be asserted
        by us in the Amgen litigation. Our response to the first office action was
        filed
        on November 9, 2006, and we await receipt of a final office action from the
        PTO.
        Accordingly, we can provide no assurance that the PTO will not invalidate
        some
        of the claims of the ‘516 Patent in this reexamination process, including the
        claims which were asserted against Lilly or might be asserted against Amgen,
        or
        that we will ultimately prevail in either of these litigations.
 
 The
        timing
        and ultimate outcome of the Lilly litigation (including the pending bench
        trial
        and any appeal of the jury verdict and court’s ruling in the bench trial), the
        Amgen litigation (including pending motion to dismiss, or in the alternative,
        to
        transfer the case to the Massachusetts Court) and the reexamination proceedings
        cannot be determined at this time, and, as a result, no determination can
        be
        made with respect to allowance of the claims of the ‘516 Patent, nor can any
        final determination be made with respect to the validity or infringement
        of the
        claims of the ‘516 Patent in the Lilly litigation and the Amgen litigation, nor
        can we predict whether the damages awarded by the jury in the U.S. District
        Court in the Lilly litigation will be upheld, eliminated or limited. Although
        we
        have prevailed at jury trial in the Lilly litigation, the damages we were
        awarded by the jury may be eliminated or limited by an adverse finding in
        the
        bench trial, on post-trial motions, upon appeal or in the event that the
        claims
        of the ‘516 Patent are invalidated by the PTO.
 
 21
   **ITEM
        6.****EXHIBITS**
 
 10.1
              Common
                  Stock Purchase Agreement dated February 14, 2007, by and between
                  ARIAD
                  Pharmaceuticals, Inc. and Azimuth Opportunity Ltd. (incorporated
                  by
                  reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the U.S. Securities and Exchange Commission on February
                  15,
                  2007).
 
 10.2
              Executive
                  compensation arrangements (incorporated by reference to Exhibit
                  10.52 to
                  the Company’s Annual Report on Form 10-K for the year ended December 31,
                  2006).
 
 10.3
              Director
                  compensation arrangements (incorporated by reference to Exhibit
                  10.53 to
                  the Company’s Annual Report on Form 10-K for the year ended December 31,
                  2006).
 
 31.1
              Certification
                  of the Chief Executive Officer.
 
 31.2
              Certification
                  of the Chief Financial Officer.
 
 32.1
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
 
 ARIAD
        and
        the ARIAD logo are our registered trademarks and ARGENT is our trademark.
        The
        domain name and website address www.ariad.com, and all rights thereto, are
        registered in the name of, and owned by, ARIAD. The information in our website
        is not intended to be part of this Quarterly Report on Form 10-Q. We include
        our
        website address herein only as an inactive textual reference and do not intend
        it to be an active link to our website.
 
 
 22
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
   ARIAD
                Pharmaceuticals, Inc.By:
              /s/ Harvey
                J. Berger, M.D.Harvey
                J. Berger, M.D.Chairman
                and Chief Executive Officer
 By:
              /s/ Edward
                M. FitzgeraldEdward
                M. FitzgeraldDate:
                May 10, 2007
              Senior
                  Vice President,
                Finance
                  and Corporate Operations, and Chief Financial Officer
                (Principal
                  financial officer and chief accounting
                  officer)
 
  23
  **EXHIBIT
        INDEX**
 
 
  **Exhibit**
                **No.**
              **Title**
 
 10.1
              Common
                  Stock Purchase Agreement dated February 14, 2007, by and between
                  ARIAD
                  Pharmaceuticals, Inc. and Azimuth Opportunity Ltd. (incorporated
                  by
                  reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the U.S. Securities and Exchange Commission on February
                  15,
                  2007).
 
 10.2
              Executive
                  compensation arrangements (incorporated by reference to Exhibit
                  10.52 to
                  the Company’s Annual Report on Form 10-K for the year ended December 31,
                  2006).
 
 10.3
              Director
                  compensation arrangements (incorporated by reference to Exhibit
                  10.53 to
                  the Company’s Annual Report on Form 10-K for the year ended December 31,
                  2006).
 
 31.1
              Certification
                  of the Chief Executive Officer.
 
 31.2
              Certification
                  of the Chief Financial Officer.
 
 32.1
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.








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