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 June 30, 2009





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 has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes | 
 |  No  |   |





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  Check one:




Large
      accelerated filer [    ]
                      Accelerated
      filer [ X ]Non-accelerated
      filer [    ] (Do not check if a smaller
      reporting company)
                      Smaller
      reporting company
[   ]


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 August 7, 2009 was
108,807,889.










ARIAD
PHARMACEUTICALS, INC.





TABLE
OF CONTENTS




PagePART I.
                        FINANCIAL INFORMATION
                        
                        
                        1ITEM 1.
                        UNAUDITED FINANCIAL STATEMENTS
                        
                        
                        1Condensed Consolidated Balance Sheets – June 30, 2009
      andDecember 31, 2008
                        
                        
                        1Condensed Consolidated Statements of Operations for the
      ThreeMonths and Six Months Ended June 30, 2009 and
      2008
                        
                        
                        2Condensed Consolidated Statements of Cash Flows for
      theSix Months Ended June 30, 2009 and
    2008
                        
                        
                        3Notes to Unaudited Condensed Consolidated Financial
      Statements
                        
                        
                        4ITEM 2.
                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIALCONDITION AND RESULTS OF OPERATIONS
                        
                        
                        13ITEM 3.
                        QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUTMARKET RISK
                        
                        
                        26ITEM 4.
                        CONTROLS AND PROCEDURES
                        
                        
                        27PART II.
                        OTHER INFORMATION
                        
                        
                        28ITEM 1.
                        LEGAL PROCEEDINGS
                        
                        
                        28ITEM 1A.
                        RISK
      FACTORS
                        
                        
                        28ITEM 4.
                        SUBMISSION OF MATTERS FOR VOTE OF SECURITY
      HOLDERS
                        
                        
                        27ITEM 5.
                        OTHER INFORMATION
                        
                        
                        29ITEM 6.
                        EXHIBITS
                        
                        
                        29SIGNATURES
                        
                        
                        30EXHIBIT INDEX
                        
                        
                        31







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
                            
                            June
      30,
                              2009
                            
                            
                            December
      31,
                              2008(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            32,235
                            
                            
                            $
                            24,243Marketable
      securities
                            
                            
                            7,300
                            
                            
                            
                            14,825Amounts
      due under collaboration agreement
                            
                            
                            5,615
                            
                            
                            
                            5,580Inventory
      and other current assets
                            
                            
                            3,028
                            
                            
                            
                            4,055Total
      current assets
                            
                            
                            48,178
                            
                            
                            
                            48,703Property
      and equipment:Leasehold
      improvements
                            
                            
                            22,022
                            
                            
                            
                            22,004Equipment
      and furniture
                            
                            
                            17,075
                            
                            
                            
                            14,991Total
                            
                            
                            39,097
                            
                            
                            
                            36,995Less
      accumulated depreciation and amortization
                            
                            
                            (28,977
                            )
                            
                            
                            (27,402
                            )Property
      and equipment, net
                            
                            
                            10,120
                            
                            
                            
                            9,593Intangible
      and other assets, net
                            
                            
                            9,862
                            
                            
                            
                            9,892Total
      assets
                            
                            $
                            68,160
                            
                            
                            $
                            68,188LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Current
      portion of long-term debt
                            
                            $
                            1,575
                            
                            
                            $
                            1,400Accounts
      payable
                            
                            
                            7,614
                            
                            
                            
                            9,370Accrued
      compensation and benefits
                            
                            
                            954
                            
                            
                            
                            817Accrued
      product development expenses
                            
                            
                            7,821
                            
                            
                            
                            9,936Other
      accrued expenses
                            
                            
                            3,101
                            
                            
                            
                            3,990Current
      portion of deferred revenue
                            
                            
                            8,517
                            
                            
                            
                            6,982Current
      portion of deferred executive compensation
                            
                            
                            825
                            
                            
                            
                            941Other
      current liabilities
                            
                            
                            207
                            
                            
                            
                            70Accrued
      merger consideration
                            
                            
                            ---
                            
                            
                            
                            1,023Total
      current liabilities
                            
                            
                            30,614
                            
                            
                            
                            34,529Long-term
      debt
                            
                            
                            10,675
                            
                            
                            
                            11,550Deferred
      revenue
                            
                            
                            107,252
                            
                            
                            
                            90,282Deferred
      executive compensation
                            
                            
                            1,175
                            
                            
                            
                            953Other
      long-term liabilities
                            
                            
                            579
                            
                            
                            
                            72Warrant
      liability
                            
                            
                            6,157
                            
                            
                            
                            ---Stockholders’
      deficit:Preferred
      stock, $.01 par value; authorized 10,000,000 shares, none issued and
      outstandingCommon
      stock, $.001 par value; authorized, 145,000,000 shares,
issued
                              and outstanding, 86,850,616
      shares in 2009 and 71,365,339 shares in 2008
                            
                            
                            87
                            
                            
                            
                            71Additional
      paid-in capital
                            
                            
                            391,409
                            
                            
                            
                            369,313Accumulated
      other comprehensive income
                            
                            
                            ---
                            
                            
                            
                            18Accumulated
      deficit
                            
                            
                            (479,788
                            )
                            
                            
                            (438,600
                            )Total
      stockholders’ deficit
                            
                            
                            (88,292
                            )
                            
                            
                            (69,198
                            )Total
      liabilities and stockholders’ deficit
                            
                            $
                            68,160
                            
                            
                            $
                            68,188





See notes
to unaudited condensed consolidated financial statements.


1
 
  ARIAD
      PHARMACEUTICALS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
      OPERATIONS(Unaudited)


Three
      Months Ended
                                                                                    
                                                                                    
                                                                                    Six
      Months EndedJune
      30,
                                                                                    
                                                                                    
                                                                                    June
      30,In
      thousands, except share and per share data
                                                                                    
                                                                                    2009
                                                                                    
                                                                                    
                                                                                    2008
                                                                                    
                                                                                    
                                                                                    2009
                                                                                    
                                                                                    
                                                                                    2008License
      and collaboration revenue
                                                                                    
                                                                                    $
                                                                                    2,094
                                                                                    
                                                                                    
                                                                                    $
                                                                                    1,450
                                                                                    
                                                                                    
                                                                                    $
                                                                                    3,993
                                                                                    
                                                                                    
                                                                                    $
                                                                                    2,945Operating
      expenses:Research
      and development
                                                                                    
                                                                                    
                                                                                    15,807
                                                                                    
                                                                                    
                                                                                    
                                                                                    11,827
                                                                                    
                                                                                    
                                                                                    
                                                                                    33,555
                                                                                    
                                                                                    
                                                                                    
                                                                                    22,702General
      and administrative
                                                                                    
                                                                                    
                                                                                    4,814
                                                                                    
                                                                                    
                                                                                    
                                                                                    7,029
                                                                                    
                                                                                    
                                                                                    
                                                                                    8,940
                                                                                    
                                                                                    
                                                                                    
                                                                                    15,178Total operating expenses
                                                                                    
                                                                                    
                                                                                    20,621
                                                                                    
                                                                                    
                                                                                    
                                                                                    18,856
                                                                                    
                                                                                    
                                                                                    
                                                                                    42,495
                                                                                    
                                                                                    
                                                                                    
                                                                                    37,880Loss
      from operations
                                                                                    
                                                                                    
                                                                                    (18,527
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (17,406
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (38,502
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (34,935
                                                                                    )Other
      income (expense):Interest
      income
                                                                                    
                                                                                    
                                                                                    37
                                                                                    
                                                                                    
                                                                                    
                                                                                    331
                                                                                    
                                                                                    
                                                                                    
                                                                                    72
                                                                                    
                                                                                    
                                                                                    
                                                                                    928Interest
      expense
                                                                                    
                                                                                    
                                                                                    (82
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (192
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (160
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (271
                                                                                    )Revaluation of
      warrant liability
                                                                                    
                                                                                    
                                                                                    (2,382
                                                                                    )
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                                                                                    (2,598
                                                                                    )Total
      other income/(expense), net
                                                                                    
                                                                                    
                                                                                    (2,427
                                                                                    )
                                                                                    
                                                                                    
                                                                                    139
                                                                                    
                                                                                    
                                                                                    
                                                                                    (2,686
                                                                                    )
                                                                                    
                                                                                    
                                                                                    657Net
      loss
                                                                                    
                                                                                    $
                                                                                    (20,954
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (17,267
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (41,188
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (34,278
                                                                                    )Net
      loss per share – basic and diluted
                                                                                    
                                                                                    $
                                                                                    (.24
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (.25
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (.50
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (.49
                                                                                    )Weighted-average
      number of shares of common stock outstanding – basic and
      diluted
                                                                                    
                                                                                    
                                                                                    86,358,621
                                                                                    
                                                                                    
                                                                                    
                                                                                    69,363,731
                                                                                    
                                                                                    
                                                                                    
                                                                                    81,941,432
                                                                                    
                                                                                    
                                                                                    
                                                                                    69,339,484





See notes
to unaudited condensed consolidated financial statements.




2




ARIAD
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Months Ended
                    June
      30,In
      thousands
                  
                  2009
                  
                  
                  2008Cash
      flows from operating activities:Net
      loss
                  
                  $
                  (41,188
                  )
                  
                  $
                  (34,278
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation and
      amortization
                  
                  
                  2,062
                  
                  
                  
                  1,229Accretion of discount on
      marketable securities
                  
                  
                  (18
                  )
                  
                  
                  (243
                  )Stock-based
      compensation
                  
                  
                  2,143
                  
                  
                  
                  2,880Deferred executive
      compensation expense
                  
                  
                  521
                  
                  
                  
                  390Revaluation of warrant
      liability
                  
                  
                  2,598
                  
                  
                  
                  ---Increase (decrease)
      from:Inventory and other current
      assets
                  
                  
                  1,027
                  
                  
                  
                  (1,703
                  )Amounts due under
      collaboration agreement
                  
                  
                  (35
                  )
                  
                  
                  (1,756
                  )Other assets
                  
                  
                  (19
                  )
                  
                  
                  (3
                  )Accounts
    payable
                  
                  
                  (1,756
                  )
                  
                  
                  1,815Accrued compensation and
      benefits
                  
                  
                  137
                  
                  
                  
                  189Accrued product development
      expenses
                  
                  
                  (2,115
                  )
                  
                  
                  796Other accrued
      expenses
                  
                  
                  (889
                  )
                  
                  
                  2,137Other
    liabilities
                  
                  
                  529Deferred
    revenue
                  
                  
                  18,505
                  
                  
                  
                  (2,944
                  )Deferred executive
      compensation paid
                  
                  
                  (415
                  )
                  
                  
                  (225
                  )Net
      cash used in operating activities
                  
                  
                  (18,913
                  )
                  
                  
                  (31,716
                  )Cash
      flows from investing activities:Acquisitions
      of marketable securities
                  
                  
                  (7,599
                  )
                  
                  
                  (30,452
                  )Proceeds
      from maturities of marketable securities
                  
                  
                  15,126
                  
                  
                  
                  30,550Investment
      in property and equipment
                  
                  
                  (1,951
                  )
                  
                  
                  (3,278
                  )Investment
      in intangible assets
                  
                  
                  (988
                  )
                  
                  
                  (352
                  )Net cash provided by (used in)
      investing activities
                  
                  
                  4,588
                  
                  
                  
                  (3,532
                  )Cash
      flows from financing activities:Proceeds
      from long-term borrowings
                  
                  
                  ---
                  
                  
                  
                  10,505Repayment
      of long-term borrowings
                  
                  
                  (700
                  )
                  
                  
                  (670
                  )Principal
      payments under capital lease obligation
                  
                  
                  (36
                  )
                  
                  
                  (23
                  )Proceeds
      from issuance of common stock, net of issuance costs
                  
                  
                  22,819
                  
                  
                  
                  ---Proceeds
      from issuance of common stock pursuant to stockoption
      and purchase plans
                  
                  
                  234
                  
                  
                  
                  139Net
      cash provided by financing activities
                  
                  
                  22,317
                  
                  
                  
                  9,951Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  7,992
                  
                  
                  
                  (25,297
                  )Cash
      and cash equivalents, beginning of period
                  
                  
                  24,243
                  
                  
                  
                  67,864Cash
      and cash equivalents, end of period
                  
                  $
                  32,235
                  
                  
                  $
                  42,567Supplemental
      cash flow informationAssets acquired under capital
      lease
                  
                  $
                  150





See 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 June 30, 2009, and the results of operations for the three-month
and six-month periods ended June 30, 2009 and 2008 and cash flows for the
six-month periods ended June 30, 2009 and 2008.  The results of
operations for the six-month period ended June 30, 2009 are not necessarily
indicative of the results to be expected for the full year.  The
Company considers events or transactions that occur after the balance sheet date
but before the financial statements are issued to provide additional evidence
relative to certain estimates or to identify matters that require additional
disclosure.  Subsequent events have been evaluated through August 9,
2009, the date prior to the issuance of these financial
statements.  These financial statements should be read in conjunction
with the Company’s Annual Report on Form 10-K for the year ended December 31,
2008, which includes consolidated financial statements and notes thereto for the
years ended December 31, 2008, 2007 and 2006.





Since its
inception, the Company has incurred significant operating losses related to its
research and development programs and supporting activities.  The
Company has funded its losses through the sale of equity securities, debt and
cash received pursuant to collaboration agreements, including its collaboration
agreement with Merck & Co., Inc. (“Merck”) for the development and
commercialization of ridaforolimus, previously known as deforolimus (see Note
2).  At June 30, 2009, the Company had $39.5 million of cash, cash
equivalents and marketable securities.  On August 7, 2009, the Company
completed an underwritten public offering and sale of 21,850,000 shares of its
common stock at $1.75 per share.  Estimated net proceeds of this
offering, after underwriting discounts and commissions and expenses, are $35.6
million.  The net proceeds will be used to fund the Company’s ongoing
research and development activities and supporting general corporate
needs.





The
Company expects to continue to incur significant operating expenses and net
losses related to its research and development programs and supporting
activities through at least 2010.  There are numerous factors that
affect the Company’s level of spending on its research and development programs
and supporting activities, including the extent of clinical trials and other
development activities for ridaforolimus in collaboration with Merck, the timing
and amount of milestone payments to be received from Merck, the rate of
enrollment of patients in clinical trials for ridaforolimus and AP24534, the
progress of its discovery research and preclinical programs, including AP26113,
and the impact of business development activities, among other
factors.





The
Company is pursuing various potential sources of additional funding to further
support its development programs and related activities, including partnering of
its earlier stage product candidates, AP24534 and AP26113, and licensing of its
ARGENT technology for research and laboratory applications.  In
addition, the Company is currently engaged in its annual process with Merck of
updating the global development plan for ridaforolimus.  This updated
global development plan will establish the scope, timing and costs of ongoing
development, including which Phase 3 clinical trials will be pursued and when
they will likely be initiated, and the expected timing of related milestone
payments as defined in the collaboration agreement, including the timing of
anticipated milestone payments for filing for and obtaining regulatory approval
of ridaforolimus in patients with sarcomas.  As part of the annual
review of the global development plan with Merck, the partners are currently
working together to revise the clinical trial program in the global development
plan for ridaforolimus in cancer indications beyond sarcomas.  At this
time, the joint development committee of the partnership has not reached a
decision as to the optimal registration strategy for ridaforolimus in patients
with breast cancer. As such, the Company currently expects that milestone
payments related to the initiation of Phase 3 trials previously expected to
start in the first or second quarter of 2010 will be delayed beyond the first
half of 2010.  In connection with any revision to the global
development plan, the Company may consider revisions to the cost sharing and
funding provisions of the collaboration.





4


There can
be no assurance that the actions the Company may take to reduce spending or
provide additional funding will generate sufficient resources to fund operations
for at least twelve months.  If the Company is not successful in its
efforts to secure additional funding from these or other sources or otherwise
reduce spending to conserve cash and capital, its cash, cash equivalents and
marketable securities as of June 30, 2009, together with the net proceeds from
its August 2009 public offering of common stock, may not be sufficient to fund
operations for at least the next twelve months.





2.
            Collaboration
      Agreement with Merck & Co.,
Inc.





In July
2007, the Company entered into a collaboration agreement with Merck for the
joint global development and commercialization of ridaforolimus, the Company’s
lead product candidate, for use in cancer (the “Collaboration
Agreement”).





Under the
terms of the Collaboration Agreement, Merck and the Company will conduct a
broad-based development program in multiple types of cancer, pursuant to a
global development plan agreed upon by the parties.  Each party will
fund 50 percent of the global development costs, except that Merck will fund 100
percent of any cost of development that is specific to development or
commercialization of ridaforolimus outside the United States.  The
Collaboration Agreement provides that, in certain circumstances, either party
may opt out of conducting and funding certain late-stage clinical trials after
demonstration of clinical proof of concept, which would result in changes in
development and commercialization responsibilities and compensation
arrangements.  The Company is responsible for supplying the active
pharmaceutical ingredient used in the product and Merck is responsible for the
formulation of the finished product, all under a separate supply agreement
between the parties entered into in May 2008.





The
Collaboration Agreement provides that, in the United States, the Company and
Merck will co-promote the product, the Company will distribute and sell the
product for all cancer indications and record all sales, and each party will
receive 50 percent of the profit from such sales.  Outside the United
States, Merck will distribute, sell and promote the product and book all sales,
and Merck will pay the Company tiered double-digit royalties on such
sales.  Royalties are payable by Merck, on a country by country basis,
until the later of (i) the expiration of the last valid claim of any patent
rights owned by either the Company or Merck that cover the product, (ii) a
specified number of years from first commercial sale, or (iii) the last date
upon which the Company supplies the active pharmaceutical ingredient to Merck
under the supply agreement, subject to partial reduction in certain
circumstances.





Under the
terms of the Collaboration Agreement, Merck paid the Company an initial up-front
payment of $75 million in July 2007, and has agreed to pay up to $452 million in
milestone payments based on the successful development of ridaforolimus in
multiple potential cancer indications, and up to $200 million in milestone
payments based on achievement of specified product sales
thresholds.  Merck has also agreed to provide the Company with up to
$200 million in interest-bearing, repayable, development cost advances to cover
a portion of the Company’s share of global development costs, after the Company
has paid $150 million in global development costs and has obtained regulatory
approval to market ridaforolimus from the FDA in the United States or similar
regulatory authorities in Europe or Japan.  All amounts to be paid to
the Company by Merck, with the exception of any development cost advances, are
non-refundable.





Through
December 31, 2008, in addition to the up-front payment of $75 million, Merck had
paid the Company $31 million in milestone payments related to the start of Phase
2 and Phase 3 clinical trials.  In the six-month period ended June 30,
2009, Merck paid the Company an additional milestone payment of $12.5 million
related to the start of a Phase 2 clinical trial in patients with advanced
prostate cancer, and a milestone payment of $10 million related to the
initiation of a Phase 2 clinical trial in patients with metastatic
non-small–cell lung cancer.  Up-front and milestone payments are
deferred and are recognized as revenue on a straight-line basis through 2023,
the estimated expiration of the patents related to the underlying
technology.





5


Development
costs under the Collaboration Agreement are aggregated and split between the
Company and Merck in accordance with the terms of the agreement.  The
Company’s share of such development costs are reflected in operating expenses in
the Company’s statement of operations.  Any amounts due to or from
Merck in respect of such development costs and milestone payments earned but not
received are recorded as such on the Company’s balance sheet.  At June
30, 2009, the Company had recorded an amount due from Merck under the
Collaboration Agreement of $5.6 million.





3.
            Marketable
      Securities





The
Company has classified its marketable securities that are not included in cash
equivalents as available-for-sale and, accordingly, carries such securities at
fair value.  At June 30, 2009, all of the Company’s marketable
securities consisted of United States government or agency
securities.





At June
30, 2009, the aggregate fair value approximates the amortized cost of the
Company’s marketable securities.  Other comprehensive income includes
net loss and changes in unrealized gain or loss on marketable
securities.  Total other comprehensive income was $20.4 million and
$40.7 million for the three and six months ended 2009 and $17.3 million and
$34.3 million for the three and six months ended 2008.





4.
            Intangible
      and Other Assets, Net





Intangible
and other assets, net, were comprised of the following at June 30, 2009 and
December 31, 2008:





In
      thousands
                          
                          June
      30,
                            2009
                          
                          
                          December
      31,
                            2008Capitalized
      patent and license costs
                          
                          $
                          11,504
                          
                          
                          $
                          11,107Purchased
      technology
                          
                          
                          5,901
                          
                          
                          
                          5,90117,405
                          
                          
                          
                          17,008Less
      accumulated amortization
                          
                          
                          (7,589
                          )
                          
                          
                          (7,142
                          )9,816
                          
                          
                          
                          9,866Other
                          
                          
                          46
                          
                          
                          
                          26$
                          9,862
                          
                          
                          $
                          9,892





Amortization
expense for intangible assets amounted to $287,000 and $288,000 in 2009 and
2008, respectively.  The weighted average amortization period for
intangible assets was 15.3 years in 2009 and 14.8 years in 2008,
respectively.





6


5.
            Long-Term
      Debt





Long-term
debt was comprised of the following at June 30, 2009 and December 31,
2008:





In
      thousands
                    
                    June
      30,
                      2009
                    
                    
                    December
      31,
                      2008Bank
      term note
                    
                    $
                    12,250
                    
                    
                    $
                    12,950Less
      current portion
                    
                    
                    (1,575
                    )
                    
                    
                    (1,400
                    )$
                    10,675
                    
                    
                    $
                    11,550





The loan,
as amended, bears interest at LIBOR plus 1.25 to 2.25 percent, depending on the
percentage of the Company’s liquid assets on deposit with or invested through
the bank, or at the prime rate, as provided in the amendment.  The
effective interest rate on the loan was 2.24% and 3.65% at June 30, 2009 and
December 31, 2008, respectively.  The loan is secured by a lien on all
assets of the Company excluding intellectual property, which the Company has
agreed not to pledge to any other party.  The loan, as amended, also
requires the Company to maintain a minimum of $15.0 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 annual
aggregate future principal payments of the above loan, as amended, are $700,000
for the remainder of 2009, $1.9 million in 2010, $3.7 million in 2011, $4.7
million in 2012, and $1.2 million in 2013.





6.
            Stockholders’
      Equity





Sale
of Common Stock and Warrants





On
February 25, 2009, the Company sold 14,378,698 shares of its common stock in a
registered direct offering to institutional investors, at a purchase price of
$1.69 per share, resulting in net proceeds after fees and expenses of
approximately $22.8 million.  The investors also received warrants to
purchase an additional 10,784,024 shares of the Company’s common stock
exercisable at a price of $2.15 per share in cash or pursuant to the net
exercise provisions of the warrants.  At the election of the warrant
holder, upon certain transactions, including a merger, tender offer or sale of
all or substantially all of the assets of the Company, the holder may receive
cash in exchange for the warrant, in an amount determined by application of the
Black-Scholes option valuation model, if the consideration received by the
stockholders from such transaction is less than $2.15 per share.  The
warrants have a three-year term from the date of issuance and are exercisable
beginning six months after the date of issuance.  Following this
offering, and prior to the Company’s public offering in August 2009 described in
Note 13, the Company had approximately $40.0 million of securities remaining
available under its shelf registration statement.





The
warrants are classified as a derivative liability as the warrants do not qualify
to be classified as an equity instrument as a result of the potential cash
settlement of the warrants.  Accordingly, the fair value of the
warrants was recorded on the condensed consolidated balance sheet as a liability
upon issuance and is adjusted to its fair value at each financial reporting date
with the adjustment reflected in the consolidated statement of
operations.  The Company has classified the warrant obligation as a
long-term liability as it expires in greater than one year and there is no
indication that a merger, tender offer or similar transaction is
probable.





7.
            Fair
      Value of Financial Instruments





The
carrying amounts of cash, cash equivalents, accounts payable and accrued
liabilities approximate fair value because of their short-term
nature.  Marketable securities are recorded in the consolidated
financial statements at aggregate fair value.  The carrying amount of
the Company’s bank term note of $12.3 million at June 30, 2009 approximates fair
value due to its variable interest rate.  The Company’s obligation
under its executive compensation plans is based in part on the current fair
market value of underlying securities, which is therefore stated at its
estimated fair value.





7


The
Company provides disclosure of financial assets and financial liabilities that
are carried at fair value based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.  Fair value measurements may be
classified based on the inputs using the following three levels:





Level
1—Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities that the company has the ability to access at the measurement
date.





Level
2—Inputs include quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the
asset or liability (i.e., interest rates, yield curves, etc.) and inputs that
are derived principally from or corroborated by observable market data by
correlation or other means (market corroborated inputs).





Level
3—Unobservable inputs that reflect the Company's assumptions about the
assumptions that market participants would use in pricing the asset or
liability.  The Company develops these inputs based on the best
information available, including its own data.





The
Company’s warrant liability is carried at fair value and is classified as
level 3 in the fair value hierarchy due to the use of significant unobservable
inputs.  The fair value of the warrants on the date of their issuance
was determined to be $3.6 million using the Black-Scholes option valuation model
applying the following assumptions: (i) a risk-free rate of 1.5%, (ii) an
expected term of 3 years, (iii) no dividend yield, and (iv) a volatility of
66%.  As of June 30, 2009, the fair value of the warrants was
determined to be $6.2 million using the Black-Scholes option valuation model
applying the following assumptions: (i) a risk-free rate of 1.46%, (ii) an
expected term of 2.7 years, (iii) no dividend yield and (iv) a volatility of
69%.  The increase in the fair value of the warrants was recognized in
other income (expense).  The change in the fair value of the warrant
liability since its initial measurement was as follows (in
thousands):





Initial
      measurement
                    
                    $
                    3,559Revaluation
      of warrant liability
                    
                    
                    2,598Balance
      at June 30, 2009
                    
                    $
                    6,157





8.
            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 compensation cost from share-based payments for the three and six-month
periods ended June 30, 2009 and 2008 as follows:





Three
      Months Ended
                  June
      30,
                
                
                Six
      Months Ended
                  June
      30,In
      thousands
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Compensation
      cost from:Stock options
                
                $
                784
                
                
                $
                1,223
                
                
                $
                1,537
                
                
                $
                2,485Stock and stock
      units
                
                
                296
                
                
                
                291
                
                
                
                486
                
                
                
                359Purchases of common stock at a
      discount
                
                
                47
                
                
                
                18
                
                
                
                120
                
                
                
                36$
                1,127
                
                
                $
                1,532
                
                
                $
                2,143
                
                
                $
                2,880





8


Three
      Months Ended
                                June
      30,
                              
                              
                              Six
      Months Ended
                                June
      30,In
      thousands
                              
                              2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Compensation
      cost included in:Research and development
      expenses
                              
                              $
                              558
                              
                              
                              $
                              835
                              
                              
                              $
                              1,083
                              
                              
                              $
                              1,640General and administrative
      expenses
                              
                              
                              569
                              
                              
                              
                              697
                              
                              
                              
                              1,060
                              
                              
                              
                              1,240$
                              1,127
                              
                              
                              $
                              1,532
                              
                              
                              $
                              2,143
                              
                              
                              $
                              2,880





During the
six-month period ended June 30, 2009, the 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, as follows:





Underlying
                                            Shares
                                          
                                          
                                          Weighted-Average
                                            Grant-Date
                                            Fair
      Value
                                          
                                          
                                          Total
                                            Fair
      Value(Per
      Share)
                                          
                                          
                                          (in
      000’s)Stock
      options
                                          
                                          
                                          1,200,140
                                          
                                          
                                          $
                                          0.93
                                          
                                          
                                          $
                                          1,117Stock
      and stock units
                                          
                                          
                                          1,123,000
                                          
                                          
                                          
                                          1.33
                                          
                                          
                                          
                                          1,496Purchases
      of common stock at a discount
                                          
                                          
                                          242,108
                                          
                                          
                                          
                                          0.50
                                          
                                          
                                          
                                          1202,565,248





Stock
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 six-month period ended June 30,
2009 were as follows:





Expected
      life of options granted (in years)
                    
                    
                    7.04Expected
      volatility
                    
                    
                    70.9
                    %Risk
      free interest rate
                    
                    
                    2.73
                    %Expected
      annual dividends
                    
                    
                    0
                    %





Stock 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 period or 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 grant.





9.
            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 awards were recognized as expense ratably 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.  These awards generally vest over four years and the
Company accrues a liability over the vesting period.  The liability is
increased or decreased based on changes in the fair value of the underlying
securities designated in the awards.  The plan is not
funded.  In March 2009 and April 2008, the Company made awards in the
aggregate amount of $1,121,000 and $908,000 to fifteen and to thirteen officers,
respectively.  Total expense related to these plans amounted to
$521,000 and $437,000 for the six-month periods ended June 30, 2009 and 2008,
respectively.





9


10.
            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 net loss per share amounts are the
same.  For the three and six months ended June 30, 2009 and 2008, the
following potentially dilutive securities were not included in the computation
of net loss per share because the effect would be anti-dilutive:





2009
                    
                    
                    2008Outstanding
      stock options, restricted stock and restricted stock units
                    
                    
                    9,100,922
                    
                    
                    
                    7,996,942Warrants
      to purchase common stock
                    
                    
                    10,784,024
                    
                    
                    
                    ---





11.
            Legal
      Proceedings





NF-κB
Patent Infringement Litigation and Reexamination





Lilly
Litigation





In 2002,
the Company, together with Massachusetts Institute of Technology (“MIT”), The
Whitehead Institute for Biomedical Research (“Whitehead”) and Harvard University
(“Harvard”) (collectively, the “Plaintiffs”) filed a lawsuit in the United
States District Court for the District of Massachusetts (the “District Court“)
against Eli Lilly and Company (“Lilly”) alleging infringement of four claims of
the Plaintiffs’ U.S. Patent No. 6,410,516 (the “‘516 Patent”).  Those
claimscover methods
of treating human disease by regulating NF-κB cell-signaling activityand
were alleged to be infringed through sales of Lilly’s drugs, Evista® and
Xigris®. In
2006, a jury rendered a verdict in favor of the Plaintiffs and awarded damages
of $65.2 million to the Plaintiffs, plus further damages equal to 2.3 percent of
U.S. sales of Evista and Xigris from February 28, 2006 through the year 2019,
when the patent expires.





Lilly
appealed several of the District Court’s rulings to the U.S. Court of
Appeals for the Federal Circuit (the “CAFC”) and, on April 3, 2009, the CAFC
ruled in Lilly’s favor, finding that the four claims of the ‘516 Patent asserted
in this lawsuit are not supported by adequate written description and are
therefore invalid.  The CAFC did not rule on other validity issues
raised by Lilly or on the findings of infringement.  In addition, the
CAFC affirmed the District Court’s ruling that the patent’s enforceability is
not impaired by inequitable conduct during its prosecution.  The
Plaintiffs filed a petition on June 2, 2009 requesting en banc rehearing of this
matter before the full CAFC. Lilly filed an opposition to Plaintiffs’ petition
on July 2, 2009 and a decision on the petition is awaited.





Amgen
Litigation





In April
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 is 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®.  In
April 2007, the Company, together with MIT, Whitehead, and Harvard, filed a
counterclaim against Amgen, alleged infringement of the ‘516 Patent based on
activities related to Enbrel and Kineret, as well as the Company’s answer to
Amgen’s complaint, counter-claim and demand for jury trial.





10


On
September 19, 2008, the Delaware Court issued a series of rulings that, among
other things: (i) granted Amgen’s motion for summary judgment of
non-infringement of the asserted seven (7) claims of the ‘516 Patent based on
the Delaware Court’s interpretation of these claims to exclude extracellular
methods of reducing NF-κB activity,
(ii) granted the Company’s motion seeking to dismiss for lack of jurisdiction
under the Declaratory Judgment Act Amgen’s challenges to the validity of claims
of the ‘516 Patent that are not being asserted against Enbrel, and (iii) granted
in part and denied in part the Company’s motion for partial summary judgment
with respect to Amgen’s inequitable conduct defense.





On June 1,
2009, the CAFC affirmed the Delaware Court’s claim interpretation and summary
judgment of non-infringement with respect to Enbrel. Plaintiffs did not file a
petition for rehearing in this case.





PTO
Reexamination





A
reexamination at the United States Patent and Trademark Office (“PTO”) of
aspects of patentability of the ‘516 Patent had been initiated by Lilly in April
2005.  On October 16, 2008, the PTO issued a final office action
confirming that 53 claims of the ‘516 patent are patentable, while rejecting 45
of the remaining  claims, including claims relating to the Lilly
litigation and claims relating to the Amgen litigation.  The Company
has appealed that decision to the Patent Office Board of Appeals and
Interferences and filed its appeal brief on May 18, 2009.





Shareholder
Derivative Suit





On
February 13, 2009, a shareholder derivative complaint alleging breaches of
fiduciary duties was filed in the Delaware Court of Chancery, naming each member
of the Company's board of directors at that time as a defendant and the Company
as a nominal defendant.  The complaint, filed by a stockholder of the
Company, alleges breaches of fiduciary duties by the defendants related to the
merger of AGTI with and into ARIAD, the departure of the Company’s former chief
legal officer and changes in the by-laws of the Company and roles and
responsibilities of members of the Board of Directors, and seeks unspecified
damages plus reimbursement of the legal and other costs of the
plaintiffs.  The Company believes that the claims are without merit
and that the complaint constitutes a frivolous lawsuit and has filed a motion to
dismiss the complaint which is pending.  The Company and
its directors intend to vigorously oppose the lawsuit.





The timing
and ultimate outcome of the legal proceedings described above cannot be
determined at this time.





12.
            Recent
      Accounting Pronouncements





In April
2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which requires disclosures about fair value of
financial instruments in interim reporting periods as well as in annual
financial statements.  The effective date for FSP No. FAS 107-1 and
APB 28-1 is June 15, 2009 and accordingly the Company has adopted the provisions
of this FSP as of June 30, 2009.  Although the adoption of FSP FAS
107-1 and APB 28-1 did not materially impact its financial condition, results of
operations, or cash flow, the Company is now required to provide additional
disclosures, which are included in Note 7.





Also in
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments.  This FSP amends
other-than-temporary impairment guidance for debt securities for evaluation when
an other-than-temporary impairment has occurred and the related presentation and
disclosure of such presentation in the financial statements.  FSP No.
FAS 115-2 and FAS 124-2 are effective for periods ending after June 15,
2009.  The adoption of this FSP did not have a material impact on the
Company’s financial statements.





11


In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS
No. 165”), Subsequent
Events.  SFAS No. 165 defines the subsequent events or
transactions period, circumstances under which such events or transactions
should be recognized, and disclosures regarding subsequent events or
transactions.  SFAS No. 165 is effective for interim or annual periods
ending after June 15, 2009.  The Company has adopted the provisions of
SFAS No. 165 as of June 30, 2009.  Although the adoption of SFAS No.
165 did not materially impact its financial condition, results of operations, or
cash flow, the Company is now required to provide additional disclosures, which
are included in Note 1.





13.
            Subsequent
      Event





On August
7, 2009, the Company sold 21,850,000 shares of its common stock in an
underwritten public offering at a purchase price of $1.75 per
share.  Estimated net proceeds of this offering, after underwriting
discounts and commissions and expenses, are $35.6 million.  The total
number of shares sold in this offering included the exercise by the underwriters
of an option to purchase an additional 2,850,000 shares of common stock to cover
over-allotments.  Following this offering, the Company has
approximately $1.8 million of securities remaining available under its shelf
registration statement.





Harvey J.
Berger, M.D., the Company’s chairman and chief executive officer, purchased
1,714,286 shares of common stock for $3 million in this offering.





12




ITEM 2.       MANAGEMENTS’
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS 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 unless the context requires otherwise.





Overview





Our vision
is to transform the lives of cancer patients with breakthrough
medicines.  Our mission is to discover, develop and commercialize
small-molecule drugs to treat cancer in patients with the greatest and most
urgent unmet medical need – aggressive cancers where current therapies are
inadequate.  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, ridaforolimus, previously known as deforolimus, is
being studied in multiple clinical trials in patients with various types of
cancers.  In July 2007, we entered into a global collaboration with
Merck & Co., Inc., or Merck, to jointly develop and commercialize
ridaforolimus for use in cancer.  We initiated patient enrollment in
our initial Phase 3 clinical trial of ridaforolimus in patients with metastatic
sarcoma in the third quarter of 2007.  In addition, in 2008 and 2009
we and Merck initiated patient enrollment in Phase 2 clinical trials in patients
with metastatic breast cancer, metastatic endometrial cancer, metastatic
non-small-cell lung cancer and advanced prostate cancer, and Phase 1 clinical
trials of ridaforolimus in combination with other agents, all as part of our
joint global development plan with Merck.





Our
collaboration with Merck for the global development and commercialization of
ridaforolimus anticipates that we together with Merck will conduct a broad-based
development program in multiple potential indications.  The
collaboration agreement provides that each party will fund 50 percent of global
development costs, except for certain specific costs to be funded 100 percent by
Merck.  The collaboration agreement establishes responsibilities for
supply of the product for development and commercial purposes, promotion,
distribution and sales of the product, governance of the collaboration,
termination provisions and other matters.





In
addition to cost-sharing provisions, the collaboration agreement provides for an
up-front payment by Merck of $75 million, which was paid to us in July 2007, up
to $452 million in milestone payments based on the successful development of
ridaforolimus in multiple potential cancer indications, of which $53.5 million
has been paid to us through June 30, 2009, and up to $200 million in milestone
payments based on achievement of specified product sales
thresholds.  The upfront payment and milestone payments, when earned
by us and paid by Merck, are non-refundable.  Merck has also agreed to
provide us with up to $200 million in interest-bearing, repayable, development
cost advances to cover a portion of our share of global development costs, after
we have paid $150 million in global development costs and have obtained
regulatory approval to market ridaforolimus from the FDA in the United States or
similar regulatory authorities in Europe or Japan.  The collaboration
agreement provides that each party will receive 50 percent of the profit from
the sales of ridaforolimus in the United States, and Merck will pay us tiered
double-digit royalties on sales of ridaforolimus outside the United
States.





Our second
product candidate, AP24534, is an investigational multi-targeted kinase
inhibitor for which we initiated a Phase 1 clinical trial in the second quarter
of 2008 in patients with chronic myeloid leukemia, or CML, acute myeloid
leukemia, or AML, and other hematologic cancers, which is on-going at this
time.  In the second quarter of 2009, we designated our third product
candidate, AP26113, an investigational anaplastic lymphoma kinase, or ALK,
inhibitor, as a development candidate.  We have commenced preclinical
testing and investigational new drug, or IND, enabling studies of this product
candidate.





13


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 United States 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 with
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.  We receive no revenue from the
sale of pharmaceutical products, and most of our revenue to date has been
received in connection with a joint venture we had with a major pharmaceutical
company from 1997 to 1999 and under our collaboration agreement with Merck
signed in July 2007.  Except for the gain on the sale of our 50
percent interest in that joint venture in December 1999, which resulted in net
income for the year ended December 31, 1999, we have not been profitable since
inception.  Under our collaboration with Merck for the development and
commercialization of ridaforolimus, we have received up-front and milestone
payments since July 2007 in the aggregate of $128.5 million and we expect that
our license and collaboration revenue will increase in future
periods.  However, 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, pre-commercial activities, personnel
and our intellectual property.  We expect such costs and operating
losses will be offset in part by development cost-sharing provisions and license
revenue from our collaboration with Merck for the development and
commercialization of ridaforolimus.  We expect that losses will
fluctuate from quarter to quarter and that these fluctuations may be
substantial.  Each of our potential sources of funding is subject to
numerous risks and uncertainties, and there is no assurance that such funding
will become available in 2009 or 2010, or at all, as discussed further in the
“Risk Factors” incorporated by reference into Part II, Item 1A of this Quarterly
Report on Form 10-Q under the heading “Risks Related to Our Business —
Insufficient funding may jeopardize our research and development programs and
may require us to reduce our operations or prevent commercialization of our
products and technologies.”





As of June
30, 2009, we had cash, cash equivalents and marketable securities of $39.5
million, working capital of $17.6 million, deferred revenue of $115.8 million
related to non-refundable up-front and milestone payments from Merck, and total
stockholders’ deficit of $88.3 million.  On August 7, 2009, we
completed an underwritten public offering and sale of 21,850,000 shares of our
common stock at $1.75 per share.  Estimated net proceeds of this
offering, after underwriting discounts and commissions and expenses, are $35.6
million.





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.  We also incur costs related to planning for potential
regulatory approval and commercial launch of products, including market research
and assessment.  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,
including our on-going patent litigation.





14


Historically,
we have relied primarily on the capital markets as our source of
funding.  We may also obtain funding from collaborations with
pharmaceutical, biotechnology and/or medical device companies for development
and commercialization of our product candidates, such as our collaboration with
Merck for the global development and commercialization of
ridaforolimus.  These collaborations can take the form of licensing
arrangements, co-development or joint venture arrangements or other
structures.  In addition, we utilize long-term debt and leases to
supplement our funding, particularly as a means of funding investment in
property and equipment and infrastructure needs.  If funding from
these various sources is unavailable on reasonable terms, we may be required to
reduce our operations in order to conserve cash and capital by delaying, scaling
back or eliminating one or more of our product development programs or enter
into licenses or other arrangements with third parties on terms that may be
unfavorable to us.  Please see additional information under the
caption “Liquidity and Capital Resources” below.





Critical
Accounting Policies and Estimates





Our
financial position and results of operations are affected by subjective and
complex judgments, particularly in the areas of revenue recognition, the
carrying value of intangible assets, stock-based compensation and the fair value
of warrants to purchase our common stock.





For the
six-month period ended June 30, 2009, we reported license and collaboration
revenue of $4.0 million.  License and collaboration revenue is
recorded based on up-front payments, periodic license payments and milestone
payments received or deemed probable of receipt, spread over the estimated
performance period of the license or collaboration
agreement.  Regarding our collaboration with Merck for the development
and commercialization of ridaforolimus, as of June 30, 2009, we have received an
up-front payment of $75 million and milestone payments of $53.5 million related
to the start of Phase 2 and Phase 3 clinical trials of
ridaforolimus.  We are recognizing revenues related to such payments
on a straight-line basis through 2023, the estimated patent life of the
underlying technology.  Changes in development plans could impact the
probability of receipt of future milestone payments on which revenue recognition
is based.  In addition, changes in estimated performance periods,
including changes in patent lives of underlying technology, could impact the
rate of revenue recognition in any period.  Such changes in revenue
could have a material impact on our statement of operations.





At June
30, 2009, we reported $9.9 million of intangible assets, consisting of the
recorded value of the technology associated with our acquisition in September
2008 of the 20-percent minority interest of ARIAD Gene Therapeutics, Inc. that
we did not previously own, as well as 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 technology, 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 ongoing development of
the underlying product candidates or 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 June 30, 2009 of intangible assets related to our NF-κB technology is
$358,000.  If the patentability of our NF-κB patents, one
of which is currently the subject of litigation and reexamination 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.





In
determining expense related to stock-based compensation, we utilize the
Black-Scholes option 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 volatility of our common stock, or
the expected life of stock options granted during the six-month period ended
June 30, 2009 were 10% higher or lower than used in the valuation of such stock
options, our valuation of, and total stock-based compensation expense to be
recognized for, such awards would have increased or decreased by up to $74,000,
or $43,000 respectively.





15


Warrants
to purchase 10,784,024 shares of our common stock, issued on February 25, 2009
in connection with a registered direct offering of 14,378,698 shares of our
common stock, are classified as a derivative liability pursuant to SFAS No.
133.  Accordingly, the fair value of the warrants is recorded on our
consolidated balance sheet as a liability, and such fair value is adjusted at
each financial reporting date with the adjustment to fair value reflected in our
consolidated statement of operations.  The fair value of the warrants
is determined using the Black-Scholes option valuation
model.  Fluctuations in the assumptions and factors used in the
Black-Scholes model can result in adjustments to the fair value of the warrants
reflected on our balance sheet and, therefore, our statement of
operations.  If, for example, the volatility of our common stock at
June 30, 2009 were 10% higher or lower than used in the valuation of such
warrants, our valuation of the warrants would have increased or decreased by up
to $746,000 with such difference reflected in our statement of
operations.





Results
of Operations





For
the three months ended June 30, 2009 and 2008





Revenue





We
recognized license and collaboration revenue of $2.1 million in the three-month
period ended June 30, 2009, compared to $1.5 million in the corresponding period
in 2008.  The increase in license and collaboration revenue was due
primarily to the increase in revenue recognized from the Merck collaboration of
$644,000, based on the non-refundable up-front and milestone payments totaling
$128.5 million received from Merck to date, in accordance with our revenue
recognition policy.  We expect that our license and collaboration
revenue will remain relatively unchanged for the remainder of 2009.





Operating
Expenses





Research
and Development Expenses





Research
and development expenses increased by $4.0 million, or 34%, to $15.8 million in
the three-month period ended June 30, 2009, compared to $11.8 million in the
corresponding period in 2008, as described in further detail below.





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 U.S. Food
      and Drug Administration, or FDA, in an Investigational New Drug
      application, or IND (or similar filings with regulatory agencies outside
      the United States);





16


·
            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).





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 product candidates,
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 lease, operate
and 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 have not been 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
R&D expenses for the three-month period ended June 30, 2009, as compared to
the corresponding period in 2008, were as follows:





Three
      months ended June 30,
                          
                          
                          Increase/In
      thousands
                          
                          2009
                          
                          
                          2008
                          
                          
                          (decrease)Direct
      external expenses:Clinical
      programs
                          
                          $
                          8,795
                          
                          
                          $
                          5,172
                          
                          
                          $
                          3,623Preclinical
      programs
                          
                          
                          61
                          
                          
                          
                          0
                          
                          
                          
                          61All
      other R&D expenses
                          
                          
                          6,951
                          
                          
                          
                          6,655
                          
                          
                          
                          296$
                          15,807
                          
                          
                          $
                          11,827
                          
                          
                          $
                          3,980





Our
clinical programs consist of ridaforolimus, our lead product candidate, and
AP24534, our kinase inhibitor program.  The direct external expenses
for ridaforolimus reflect our share of such expenses pursuant to the
cost-sharing arrangements of our collaboration with Merck.  Direct
external expenses for ridaforolimus were $7.5 million in the three-month period
ended June 30, 2009, an increase of $3.3 million, as compared to the
corresponding period in 2008.  This increase is due to an increase in
clinical costs of $3.1 million and contract manufacturing costs of $1.1 million,
offset in part by a decrease in supporting non-clinical costs of $523,000, and
an increase in Merck’s share of expenses of $2.9 million in the three-month
period ended June 30, 2009, as compared to the corresponding period in
2008.  In addition, costs for Merck’s services provided to the
collaboration increased by $1.3 million in the three-month period ended June 30,
2009, as compared to the corresponding period in 2008 as a result of an increase
in Merck’s activities under the global development plan.  Clinical
trial costs and contract manufacturing costs increased due primarily to
increasing enrollment in our Phase 3 clinical trial of ridaforolimus in patients
with metastatic sarcomas and the initiation of enrollment in Phase 2 clinical
trials of ridaforolimus in patients with breast cancer, endometrial cancer,
prostate cancer and non-small cell lung cancer.  Costs of non-clinical
studies decreased due to the completion of toxicology studies of ridaforolimus
required to support regulatory filings with the FDA.  We expect that
our direct external costs for ridaforolimus, net of Merck’s share of such costs,
will decrease slightly during the remainder of 2009 as no additional Phase 2 or
Phase 3 clinical trials are expected to be initiated this year, impacting
clinical trial costs as well as the related manufacturing costs for drug product
for clinical trial purposes.





17


Direct
external expenses for our second clinical program, AP24534, were $1.3 million
for the three-month period ended June 30, 2009, an increase of $360,000 as
compared to the corresponding period in 2008.  The increase is due to
an increase in clinical costs of $160,000 and toxicology costs of $810,000,
offset in part by a decrease in contract manufacturing costs of
$587,000.  Clinical costs increased due to increasing enrollment in
our Phase 1 clinical trial in patients with hematologic
malignancies.  Toxicology costs increased due to the conduct of
long-term toxicology studies necessary to support development of this product
candidate.  Manufacturing costs decreased due primarily to a decrease
in product and process development activities in 2009 relative to
2008.  We expect that our direct external costs for AP24534 will
decrease during the remainder of 2009, based on reductions in spending we have
implemented in 2009 as discussed in Note 1 and under the caption “Liquidity and
Capital Resources - Liquidity,” below, as we near completion of our current
Phase 1 clinical trial.





We
designated our third development candidate, AP26113, an anaplastic lymphoma
kinase, or ALK, inhibitor and progressed it into preclinical testing and IND
enabling studies during the second quarter of 2009.  The direct
external expenses for our preclinical program relate to toxicology studies we
are conducting for AP26113.  We incurred no direct external expenses
for preclinical programs in the corresponding period in 2008.  Prior
to the nomination of AP26113 as our third development candidate in the second
quarter of 2009, all programs other than clinical programs were designated as
discovery research and are included in “all other R&D expenses” in the table
above.





All other
R&D expenses increased by $296,000 in the three-month period ended June 30,
2009 as compared to the corresponding period in 2008.  This increase
is due to an increase in 2009 in personnel expenses of $899,000 related to the
hiring of additional R&D personnel, and an increase in overhead and other
expenses of $483,000, offset in part by an increase in Merck’s allocated share
of such expenses under the terms of the collaboration agreement of $708,000 and
a decrease in professional services of $304,000.  We expect that all
other R&D expenses will remain relatively unchanged during the remainder of
2009.





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”
incorporated by reference into Part II, Item 1A of this Quarterly Report on Form
10-Q for the fiscal year ended December 31, 2008 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.





18




General
and Administrative Expenses





General
and administrative expenses decreased by $2.2 million, or 32%, to $4.8 million
in the three-month period ended June 30, 2009, compared to $7.0 million in the
corresponding period in 2008.  Professional fees decreased by $2.4
million to $2.3 million in the three-month period ended June 30, 2009, compared
to $4.7 million in the corresponding period in 2008, due primarily to reduction
in activities and costs related to corporate and commercial development
initiatives, and to our patent infringement litigation against Eli Lilly and
Company, or Lilly, and Amgen Inc., or Amgen.  We expect that our
general and administrative expenses will decrease slightly over the remainder of
the year, reflecting a decrease in activity related to our patent infringement
litigation and certain corporate consulting initiatives.





We expect
that our operating expenses in total, net of Merck’s share of development costs
of ridaforolimus will decrease during the remainder of 2009 for the reasons
described above and based on reductions in spending we have implemented in 2009
as noted in Note 1 and under the caption “Liquidity and Capital Resources –
Liquidity”, below.  Operating expenses may fluctuate from quarter to
quarter.  The actual amount of any change in operating expenses will
depend on, among other things, the progress of our product development programs,
including the planned increase in clinical trials and other studies related to
ridaforolimus pursuant to our collaboration with Merck and the conduct of our
clinical trial and the required manufacturing for AP24534.





Other
Income (Expense)





Interest
Income/Expense





Interest
income decreased to $37,000 in the three-month period ended June 30, 2009 from
$331,000 in the corresponding period in 2008, as a result of a lower average
balance of funds invested in 2009 and lower interest yields from our
investments.





Interest
expense decreased to $82,000 in the three-month period ended June 30, 2009 and
$192,000 in the corresponding period in 2008, as a result of lower average loan
balances in 2009 and lower interest rates on our long-term debt.





Revaluation
of Warrant Liability





The fair
value at June 30, 2009 of our warrant liability was $2.4 million higher than its
fair value at March 31, 2009, resulting in a charge of $2.4 million for the
three-month period ended June 30, 2009.  The increase in value of the
warrant liability is primarily due to the impact of the increase in the market
price of our common stock during the three months ended June 30, 2009 on
valuation of the warrants.  Potential future increases or decreases in
our stock price, or other changes in the factors that impact the valuation of
the warrant liability, will result in charges or credits, respectively, being
recognized in our consolidated statement of operations in future periods. Such
charges or credits will not have any impact on our cash balances, liquidity or
cash flows from operations.





Operating
Results





We
reported a loss from operations of $18.5 million in the three-month period ended
June 30, 2009 compared to a loss from operations of $17.4 million in the
corresponding period in 2008, an increase of $1.1 million, or 6%.  We
also reported a net loss of $21.0 million in the three-month period ended June
30, 2009, compared to a net loss of $17.3 million in the corresponding period in
2008, an increase in net loss of $3.7 million or 21%, and a net loss per share
of $0.24 and $0.25, respectively.  We expect that our loss from
operations and our net loss will decrease during the remainder of 2009 due to
the various factors discussed under “Revenue” and “Operating Expenses” above,
including reductions in spending we have implemented in 2009, as noted in Note 1
and under the caption “Liquidity and Capital Resources – Liquidity”,
below.  Actual losses will depend on the progress of our product
development programs, the progress of our discovery research programs, the
impact of commercial and business development activities and developments in our
legal proceedings, among other factors.  The extent of such losses
will also depend on the sufficiency of funds on hand or available from time to
time, which will influence the amount we will spend on R&D and the
development timelines for our product candidates.





19


Results
of Operations





For
the six months ended June 30, 2009 and 2008





Revenue





We
recognized license and collaboration revenue of $4.0 million in the six-month
period ended June 30, 2009, compared to $2.9 million in the corresponding period
in 2008.  The increase in license and collaboration revenue was due
primarily to the increase in revenue recognized from the Merck collaboration of
$1.1 million, based on the non-refundable up-front and milestone payments
totaling $128.5 million received from Merck to date, in accordance with our
revenue recognition policy.





Operating
Expenses





Research
and Development Expenses





Research
and development expenses increased by $10.9 million, or 48%, to $33.6 million in
the six-month period ended June 30, 2009, compared to $22.7 million in the
corresponding period in 2008.





Our
R&D expenses for the six-month period ended June 30, 2009, as compared to
the corresponding period in 2008, were as follows:





Six
      months ended June 30,
                        
                        
                        Increase/In
      thousands
                        
                        2009
                        
                        
                        2008
                        
                        
                        (decrease)Direct
      external expenses:Clinical
      programs
                        
                        $
                        19,683
                        
                        
                        $
                        9,787
                        
                        
                        $
                        9,896Preclinical
      programs
                        
                        
                        61
                        
                        
                        
                        0
                        
                        
                        
                        61All
      other R&D expenses
                        
                        
                        13,811
                        
                        
                        
                        12,915
                        
                        
                        
                        896$
                        33,555
                        
                        
                        $
                        22,702
                        
                        
                        $
                        10,853





Direct
external expenses for ridaforolimus were $16.4 million in the six-month period
ended June 30, 2009, an increase of $8.2 million, as compared to the
corresponding period in 2008.  This increase is due to an increase in
clinical costs of $8.2 million and contract manufacturing costs of $1.7 million,
offset in part by an increase in Merck’s share of expenses of $5.4 million in
the six-month period ended June 30, 2009, as compared to the corresponding
period in 2008.  In addition, costs for Merck’s services provided to
the collaboration increased by $1.9 million in the six-month period ended June
30, 2009, as compared to the corresponding period in 2008 as a result of an
increase in Merck’s activities under the global development
plan.  Clinical trial costs and contract manufacturing costs increased
due primarily to increasing enrollment in our Phase 3 clinical trial of
ridaforolimus in patients with metastatic sarcomas and the initiation of
enrollment in Phase 2 clinical trials of ridaforolimus in patients with breast
cancer, endometrial cancer, prostate cancer and non-small cell lung
cancer.





Direct
external expenses for our second clinical program, AP24534, were $3.3 million
for the six-month period ended June 30, 2009, an increase of $1.7 million as
compared to the corresponding period in 2008.  The increase is due to
an increase in clinical costs of $340,000 and toxicology costs of $1.9 million
offset by a decrease in contract manufacturing costs of
$603,000.  Clinical costs increased due to increasing enrollment in
our Phase 1 clinical trial in patients with hematologic
malignancies.  Toxicology costs increased due to the conduct of
long-term toxicology studies necessary to support development of this product
candidate.  Manufacturing costs decreased due primarily to a decrease
in product and process development activities in 2009 relative to
2008.





20


The direct
external expenses incurred from our preclinical program relate to toxicology
costs we are conducting for our third clinical candidate, AP26113.  We
incurred no direct external expenses for preclinical programs in the
corresponding period in 2008.  Prior to the designation of our third
clinical candidate, all programs other than clinical programs are designated as
discovery research and are included in “all other R&D expenses” in the above
table.





All other
R&D expenses increased by $896,000 in the six-month period ended June 30,
2009 as compared to the corresponding period in 2008.  This increase
is due to an increase in 2009 in personnel expenses of $1.5 million related to
the hiring of additional R&D personnel, and an increase in overhead and
general expenses of $937,000, offset in part by an increase in Merck’s allocated
share of such expenses under the terms of the collaboration agreement of $1.4
million.





General
and Administrative Expenses





General
and administrative expenses decreased by $6.2 million, or 41%, to $8.9 million
in the six-month period ended June 30, 2009, compared to $15.2 million in the
corresponding period in 2008.  Professional fees decreased by $6.3
million to $4.4 million in the six-month period ended June 30, 2009, compared to
$10.7 million in the corresponding period in 2008, due primarily to reduction in
activities and costs related to corporate and commercial development
initiatives, and to our patent infringement litigation against Lilly and
Amgen.





Other
Income (Expense)





Interest
Income/Expense





Interest
income decreased to $72,000 in the six-month period ended June 30, 2009 from
$928,000 in the corresponding period in 2008, as a result of a lower average
balance of funds invested in 2009 and lower interest yields from our
investments.





Interest
expense decreased to $160,000 in the six-month period ended June 30, 2009 from
$271,000 in the corresponding period in 2008, as a result of lower average loan
balances in 2009 and lower interest rates on our long-term debt.





Revaluation
of Warrant Liability





The fair
value at June 30, 2009 of our warrant liability was $2.6 million higher than its
fair value at inception, resulting in a loss of $2.6 million for the six-month
period ended June 30, 2009.  The increase in the value of the warrant
liability is primarily due to the impact of the increase in the market price of
our common stock since inception of the warrant in February 2009.





Operating
Results





We
reported a loss from operations of $38.5 million in the six-month period ended
June 30, 2009 compared to a loss from operations of $34.9 million in the
corresponding period in 2008, an increase of $3.6 million, or 10%.  We
also reported a net loss of $41.2 million in the six-month period ended June 30,
2009, compared to a net loss of $34.3 million in the corresponding period in
2008, an increase in net loss of $6.9 million or 20%, and a net loss per share
of $0.50 and $0.49, respectively.





21


Liquidity
and Capital Resources





We have
financed our operations and investments to date primarily through sales of our
common stock to institutional investors and through funding from research and
development collaboration agreements 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.  Our collaboration with Merck for the development and
commercialization of ridaforolimus provides for additional funding in the form
of up-front and potential milestone payments, as well as the sharing of
development costs for ridaforolimus.  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 and six months ended June 30, 2009 and 2008, our sources of funds
were as follows:





Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,In
      thousands
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Sales/issuances
      of common stock:In
      common stock offerings, net of issuance costs
                        
                        $
                        
                        
                        
                        $
                        
                        
                        
                        $
                        22,819
                        
                        
                        $Pursuant
      to stock option and purchase plans
                        
                        
                        97
                        
                        
                        
                        62
                        
                        
                        
                        234
                        
                        
                        
                        139Proceeds
      from long-term borrowings
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        10,505Maturities
      of marketable securities, net of purchases
                        
                        
                        300
                        
                        
                        
                        (1,237
                        )
                        
                        
                        7,527
                        
                        
                        
                        98$
                        397
                        
                        
                        $
                        (1,175
                        )
                        
                        $
                        30,580
                        
                        
                        $
                        10,742





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 U.S. Securities and Exchange
Commission (“SEC”), from time to time, to register shares of our common stock or
other securities 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 for the issuance of common
stock, preferred stock, various series of debt securities and/or warrants to
purchase any of such securities, either individually or in units, with a total
value of up to $100 million, from time to time 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 25, 2009, we raised net proceeds of $22.8 million from the sale of
14,378,698 shares of our common stock and warrants to purchase 10,784,024 shares
of our common stock from our existing shelf registration
statement.  On August 7, 2009, we raised net proceeds of approximately
$35.6 million from the sale of 21,850,000 shares of our common stock in an
underwritten public offering under our existing shelf registration
statement.  Following this offering, we have approximately $1.8
million of securities remaining available for issuance under our existing shelf
registration statement.





In March
2008, we amended our existing term loan with a bank.  The amendment
provided for an increase of $10.5 million in our loan balance to $14.0 million,
the extension of the maturity date from March 31, 2008 to March 31, 2013 and
changes to the repayment provisions.  The amended terms of the loan
require us to maintain at least $15.0 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.





22


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 and six-month periods ended June 30, 2009
and 2008, 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:





Three
      Months Ended
                    June
      30,
                  
                  
                  Six
      Months Ended
                    June
      30,In
      thousands
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Purchases
      of marketable securities
                  
                  $
                  —
                  
                  
                  $
                  (17,432
                  )
                  
                  $
                  (7,599
                  )
                  
                  $
                  (30,452
                  )Proceeds
      from sales and maturities of marketable securities
                  
                  
                  300
                  
                  
                  
                  16,195
                  
                  
                  
                  15,126
                  
                  
                  
                  30,550$
                  300
                  
                  
                  $
                  (1,237
                  )
                  
                  $
                  7,527
                  
                  
                  $
                  98





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 and six months ended June 30, 2009
and 2008, our uses of funds were as follows:





Three
      Months Ended
                    June
      30,
                  
                  
                  Six
      Months Ended
                    June
      30,In
      thousands
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      cash used in operating activities
                  
                  $
                  8,803
                  
                  
                  $
                  18,442
                  
                  
                  $
                  18,913
                  
                  
                  $
                  31,716Repayment
      of borrowings
                  
                  
                  350
                  
                  
                  
                  350
                  
                  
                  
                  700
                  
                  
                  
                  670Investment
      in intangible assets
                  
                  
                  649
                  
                  
                  
                  123
                  
                  
                  
                  988
                  
                  
                  
                  352Investment
      in property and equipment
                  
                  
                  880
                  
                  
                  
                  1,399
                  
                  
                  
                  1,951
                  
                  
                  
                  3,278$
                  10,682
                  
                  
                  $
                  20,314
                  
                  
                  $
                  22,552
                  
                  
                  $
                  36,016





The net
cash used in operating activities is comprised of our net losses, adjusted for
non-cash expenses, deferred revenue, including deferrals of the up-front and
milestone payments received from Merck, and working capital
changes.  As noted above, our net loss for the six months ended June
30, 2009 increased by $6.9 million, as compared to the corresponding period in
2008, due primarily to increased operating expenses.  As a result of
the receipt of $22.5 million milestone payments from Merck, offset in part by
other changes in our working capital, our net cash used in operations decreased
by $12.8 million in the six-month period ended June 30, 2009 as compared to the
corresponding period in 2008.  As noted above, we expect that our net
loss will decrease over the remainder of 2009 due to the various factors
discussed above.  We also expect that our investments in intangible
assets, consisting of our intellectual property, and property and equipment will
decrease over the remainder of 2009.





Off-Balance
Sheet Arrangements





As part of
our ongoing business, we do not participate in transactions that generate
relationships with unconsolidated entities for financial partnerships, such as
entities often referred to as structured finance or special purpose entities
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited
purposes.  As of June 30, 2009, we maintained an outstanding letter of
credit of $699,000 in accordance with the terms of our long-term lease for our
office and laboratory facility.




23


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 June 30, 2009:





Payments
      Due By PeriodIn
      thousands
                  
                  Total
                  
                  
                  In
                    2009
                  
                  
                  2010
                    through
                    2012
                  
                  
                  2013
                    through
                    2014
                  
                  
                  After
                    2014Long-term
      debt
                  
                  $
                  12,250
                  
                  
                  $
                  700
                  
                  
                  $
                  10,325
                  
                  
                  $
                  1,225
                  
                  
                  $
                  —Leases
                  
                  
                  6,725
                  
                  
                  
                  1,096
                  
                  
                  
                  5,614
                  
                  
                  
                  15
                  
                  
                  
                  —Employment
      agreements
                  
                  
                  12,825
                  
                  
                  
                  3,188
                  
                  
                  
                  9,029
                  
                  
                  
                  608
                  
                  
                  
                  —Other
      long-term obligations
                  
                  
                  5,111
                  
                  
                  
                  559
                  
                  
                  
                  2,351
                  
                  
                  
                  1,806
                  
                  
                  
                  395Total
      fixed contractual obligations
                  
                  $
                  36,911
                  
                  
                  $
                  5,543
                  
                  
                  $
                  27,319
                  
                  
                  $
                  3,654
                  
                  
                  $
                  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 2.24%, our average interest rate on our debt at June
30, 2009, over the remaining term of the debt, our interest expense would total
approximately $133,000 for the remainder of 2009, $521,000 in the period 2010
through 2012, and $7,000 in 2013.





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.





Liquidity





At June
30, 2009, we had cash, cash equivalents and marketable securities totaling $39.5
million and working capital of $17.6 million, compared to cash, cash equivalents
and marketable securities totaling $39.1 million and working capital of $14.2
million at December 31, 2008.





On
February 25, 2009, we raised net proceeds of $22.8 million from the sale of
14,378,698 shares of our common stock and warrants to purchase 10,784,024 shares
of our common stock from our existing shelf registration statement at a price of
$1.69 per unit.  On August 7, 2009, we completed an underwritten
public offering and sale of 21,850,000 shares of our common stock, including
2,850,000 shares of common stock from the exercise by the underwriters of their
over-allotment option, at $1.75 per share.  Estimated net proceeds of
this offering, after underwriting discounts and commissions and expenses, are
$35.6 million.  Following these transactions, we have approximately
$1.8 million of securities remaining available for issuance under our existing
shelf registration statement which can be sold prior to February 6, 2010,
subject to extension under the rules and regulations applicable to shelf
registration statements promulgated by the SEC.





24


In the
first six months of 2009, we incurred a loss of $41.2 million and reported cash
used in operating activities of $18.9 million which reflects the favorable
impact of $22.5 million in milestone payments received from Merck related to the
start of Phase 2 clinical trials of ridaforolimus in patients with advanced
prostate cancer and metastatic non-small-cell lung cancer.  We
announced in July 2009 that we have implemented measures to reduce our
previously projected operating expenses by approximately $7.5 million during the
second half of 2009.  However, we expect to continue to incur
significant operating expenses and net losses through at least 2010 as we
advance our product development programs through clinical trials and
non-clinical studies.  There are numerous factors that are likely to
affect our spending levels, including the extent of clinical trials and other
development activities for ridaforolimus in collaboration with Merck, the timing
and amount of milestone payments to be received from Merck, the rate of
enrollment of patients in clinical trials for ridaforolimus and AP24534, the
progress of our discovery research and preclinical programs, including
activities related to AP26113, and the impact of potential business development
activities, among other factors.  We are pursuing various potential
sources of additional funding to further support our development programs and
related activities.  These include partnering of our earlier stage
product candidates, AP24534 and AP26113, which could generate up-front and
milestone payments, as well as funding of on-going development costs, and
licensing of our ARGENT technology for research and laboratory
applications.  In addition, we are currently engaged in our annual
process with Merck of updating the global development plan for
ridaforolimus.  This updated global development plan will establish
the scope, timing and costs of ongoing development, including which Phase 3
clinical trials will be pursued and when they will likely be initiated, and the
expected timing of related milestone payments as defined in the collaboration
agreement, including the timing of anticipated milestone payments for filing for
and obtaining regulatory approval of ridaforolimus in patients with
sarcomas.





As part of
our annual review of the global development plan with Merck, we are currently
working together to revise the clinical trial program in the global development
plan for ridaforolimus in cancer indications beyond sarcomas.  At this
time, the joint development committee of the partnership has not reached a
decision as to the optimal registration strategy for ridaforolimus in patients
with breast cancer.  Merck has advised us that it does not intend to
recommend that the partners conduct a Phase 3 clinical trial of ridaforolimus in
combination with trastuzumab in patients with metastatic breast cancer based on
Merck’s evaluation of the expected future market environment.  As a
result, we currently expect that milestone payments related to the initiation of
Phase 3 trials previously expected to start in the first or second quarter of
2010 will be delayed beyond the first half of 2010, and the timing of receipt of
any Phase 3 related milestones and the future cost of the ridaforolimus program
will depend upon revisions to the global development plan currently under
discussion with Merck.  In connection with any revision to the global
development plan, we may consider revisions to the cost sharing and funding
provisions of the collaboration.





There can
be no assurance that we will receive any payments under our collaboration
agreement with Merck or through other business development activities in the
timeframes we have identified, or at all.  If we are not successful in
our efforts to secure additional funding from these or other sources or
otherwise reduce spending to conserve cash and capital, our cash, cash
equivalents and marketable securities as of June 30, 2009, together with the net
proceeds from our August 2009 public offering of common stock, may not be
sufficient to fund operations for at least the next twelve months.





In any
event, we will require substantial additional funding for our R&D programs,
including preclinical 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 our securities through public or private offerings as market conditions
permit, (2) enter into new long-term debt or other credit agreements, (3) enter
into or amend partnership agreements for development and commercialization of
our product candidates, and/or (4) license our ARGENT cell-signaling
technologies.





To the
extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our existing stockholders
will be diluted, and the terms may include liquidation or other preferences that
adversely affect the rights of our stockholders.  Debt financing, if
available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring debt, making capital
expenditures or declaring dividends.  If we raise additional funds through
collaborations, strategic alliances and licensing arrangements with third
parties, we may have to relinquish valuable rights to our technologies or
product candidates, or grant licenses on terms that are not favorable to
us.


25


There can
be no assurance that additional funds will be available when we need them on
terms that are acceptable to us, or at all.  If adequate funds are not
available to us on a timely basis, we may be required to: (1) delay, limit,
reduce or terminate preclinical studies, clinical trials or other clinical
development activities for one or more of our product candidates; (2) delay,
limit, reduce or terminate our discovery research or preclinical development
activities; or (3) delay, limit, reduce or terminate our establishment of
sales and marketing capabilities or other activities that may be necessary to
commercialize our product candidates.





Securities
Litigation Reform Act





Safe harbor statement under the
Private Securities Litigation Reform Act of 1995:  This
Quarterly Report on Form 10-Q, contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.  Such
statements in connection with any discussion of future operations or financial
performance 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.  Such statements are based on
management’s 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
statements.  These risks and uncertainties include, but are not
limited to, the costs associated with our research, development, manufacturing
and other activities, the conduct and results of pre-clinical and clinical
studies of our product candidates, difficulties or delays in obtaining
regulatory approvals to market products resulting from our development efforts,
our reliance on strategic partners and licensees and other key parties for the
successful development, manufacturing and commercialization of products, the
adequacy of our capital resources and the availability of additional funding,
patent protection and third-party intellectual property claims relating to our
and any partner's product candidates, the timing, scope, cost and outcome of
legal proceedings, future capital needs, risks related to key employees,
markets, economic conditions, prices, reimbursement rates, competition and other
factors detailed under the heading “Risk Factors” incorporated by reference in
Part II, Item 1A of this Quarterly Report on Form 10-Q as updated from time to
time in our subsequent periodic reports and current reports filed with the
SEC.  The information contained in this document is believed to be
current as of the date of original issue.  We do not intend to update
any of the forward-looking statements after the date of this document to conform
these statements to actual results or to changes in our expectations, except as
required by law.





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 value with unrealized gains or losses reported as a
separate component of stockholders’ equity (accumulated other comprehensive
income).  Realized gains and losses on marketable security
transactions are reported using the specific-identification
method.  Interest income is recognized when earned.  A
decline in the fair 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.





26


Our
investments are sensitive to interest rate risk.  We believe, however,
that the effect of reasonably possible near-term changes in interest rates on
our financial position, results of operations and cash flows would not be
material due to the short-term nature of these investments.  In
particular, at June 30, 2009, 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 record
as a liability the fair value of warrants to purchase 10,784,024 shares of our
common stock issued to investors in connection with a registered direct offering
of our common stock on February 25, 2009.  The fair value of this
warrant liability is determined using the Black-Scholes option valuation model
and is therefore sensitive to changes in the market price and volatility of our
common stock.  In the event of a hypothetical 10% increase in the
market price ($0.16 based on the market price of our stock at June 30, 2009) of
our common stock on which the June 30, 2009 valuation was based, the value would
have increased by $1.1 million.  Such increase would have been
reflected as additional loss on revaluation of the warrant liability in our
statement of operations.





At June
30, 2009, we had $12.3 million outstanding under a bank term note which bears
interest at prime or, alternatively, LIBOR + 1.25% to 2.25%.  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 (22.4
basis points at June 30, 2009), we would incur approximately $26,000 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.




27


PART II.     OTHER
INFORMATION





ITEM 1.       LEGAL
PROCEEDINGS





The
information contained in Note 11 to the Notes to our Unaudited Condensed
Consolidated Financial Statements found elsewhere in this Quarterly Report on
Form 10-Q is incorporated herein by reference.





ITEM 1A.    RISK FACTORS





In
connection with the Company’s underwritten public offering completed on August
7, 2009, the Company filed a prospectus supplement and a Current Report on Form
8-K on August 3, 2009 with the SEC that contained updated risk factors relating
to the Company’s business.  These updated risk factors are
incorporated by reference into Item 1A of this Quarterly Report on Form 10-Q
from the section captioned “Risk Factors” in Exhibit 99.2 to the Company’s
Current Report on Form 8-K filed with the SEC on August 3, 2009.





ITEM 4.       SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS





Our Annual
Meeting of Stockholders was held on June 19, 2009.  Of 86,850,616
shares of common stock issued and outstanding and eligible to vote as of the
record date of April 24, 2009, a quorum of 72,848,385 shares, or 84% of the
eligible shares, was present in person or represented by proxy.  The
following actions were taken at such meeting.





(a)
            Reelection
      of the following Class 3 Directors of the
  Company.




Voted
      For
                          
                          
                          Withheld
                            AuthorityHarvey
      J, Berger, M.D.
                          
                          
                          53,508,710
                          
                          
                          
                          19,339,675Wayne
      Wilson
                          
                          
                          64,661,626
                          
                          
                          
                          8,186,759


After the
meeting, Athanase Lavidas, Ph.D. and Massimo Radaelli, Ph.D., continued to serve
as our Class 1 Directors for terms which expire in 2010 and until their
successors are duly elected and qualified, and Jay R. LaMarche and A. Collier
Smyth, M.D. continued to serve as our Class 2 Directors for terms which expire
in 2011 and until their successors are duly elected and qualified.





(b)
            Approval
      of an amendment to the ARIAD Pharmaceuticals, Inc. 2006 Long-Term
      Incentive Plan and reservation of an additional 7,000,000 shares of common
      stock for issuance pursuant to this Plan.  The voting results
      were 28,506,557 votes for, 15,224,237 votes against, 226,787 votes
      abstaining, with 28,890,804 broker
non-votes.





(c)
            Approval
      of an amendment to the ARIAD Pharmaceuticals, Inc. 1997 Employee Stock
      Purchase Plan and reservation of an additional 750,000 shares of common
      stock for issuance pursuant to this Plan.  The voting results
      were 31,109,549 votes for, 12,630,644 votes against, and 217,388 votes
      abstaining, with 28,890,804 broker
non-votes.





(d)
            Ratification
      of the selection by the Audit Committee of the Board of Directors of
      Deloitte & Touche LLP as our independent registered public accounting
      firm for the year ending December 31, 2009.  The voting results
      were 58,187,203 votes for, 14,373,775 votes against, and 287,407 votes
      abstaining.





28


ITEM 5.       OTHER
INFORMATION





On August
7, 2009, we announced the completion of our public offering of 19,000,000 shares
of our common stock at a price of $1.75 per share.  We also announced
that the underwriters had exercised in full their over-allotment option for the
purchase of an additional 2,850,000 shares.  Net proceeds of the
public offering and the over-allotment option, a total of 21,850,000 shares, are
approximately $35.6 million after underwriting discounts and commissions and
estimated expenses.  Oppenheimer & Co. Inc. acted as the sole
bookrunner and lead manager for the offering.  Lazard Capital Markets
LLC acted as the co-manager of the offering.





ITEM
6.       EXHIBITS




10.1+
              ARIAD
      Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan, as amended (filed as
      Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A
      (File No. 000-21696) filed with the Securities and Exchange Commission on
      April 30, 2009 and incorporated herein by reference).10.2+
              Amended
      and Restated ARIAD Pharmaceuticals, Inc. 1997 Employee Stock Purchase Plan
      (filed as Appendix B to the Registrant's Definitive Proxy Statement on
      Schedule 14A (File No. 000-21696) filed with the Securities and Exchange
      Commission on April 30, 2009 and incorporated herein by
      reference).10.3
              Waiver
      and Amendment No. 4 to Credit Agreement, dated as of June 19, 2009, by and
      among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and RBS Citizens,
      National Association.





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.





(+)  Management
contract or compensatory plan or arrangement.








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.





29





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. FitzgeraldSenior
      Vice President,Chief
      Financial Officer(Principal
      financial officerDate:  August
      10, 2009
                          
                          and
      chief accounting officer)
 
 30
  EXHIBIT INDEX





Exhibit
                  No.
                Title


10.1+
              ARIAD
      Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan, as amended (filed as
      Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A
      (File No. 000-21696) filed with the Securities and Exchange Commission on
      April 30, 2009 and incorporated herein by reference).10.2+
              Amended
      and Restated ARIAD Pharmaceuticals, Inc. 1997 Employee Stock Purchase Plan
      (filed as Appendix B to the Registrant's Definitive Proxy Statement on
      Schedule 14A (File No. 000-21696) filed with the Securities and Exchange
      Commission on April 30, 2009 and incorporated herein by
      reference).10.3
              Waiver
      and Amendment No. 4 to Credit Agreement, dated as of June 19, 2009, by and
      among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and RBS Citizens,
      National Association.





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.





(+)  Management
contract or compensatory plan or arrangement.






31