UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended JuneSeptember 30, 2015

OR

For the transition periods from                    to                    

Commission File Number: 001-36172

ARIAD Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

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  x    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:

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 JulyOctober 31, 2015 was 188,896,380.189,293,493.

ARIAD PHARMACEUTICALS, INC.

TABLE OF CONTENTS

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to unaudited condensed consolidated financial statements.

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE LOSS

See notes to unaudited condensed consolidated financial statements.

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to unaudited condensed consolidated financial statements.

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. Business

Nature of Business

Unless the content requires otherwise, references to “ARIAD,” “Company,” “we,” “our,” and “us,” in this quarterly report refer to ARIAD Pharmaceuticals, Inc. and its subsidiaries. ARIAD is a global oncology company whose vision is to transformfocused on transforming the lives of cancer patients with breakthrough medicines. The Company’s mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest unmet medical need – aggressive cancers where current therapies are inadequate.

The Company is selling its cancer medicine, Iclusig^® (ponatinib), for the treatment of adult patients with chronic myeloid leukemia (“CML”) and Philadelphia chromosome positive acute lymphoblastic leukemia (“Ph+ ALL”). In addition to commercializing Iclusig in the United States, Europe and other territories, the Company is developing Iclusig for approval in additional countries and for additional cancer indications. The Company is also developing two product candidates, brigatinib (AP26113) and AP32788. Brigatinib is being studied in patients with advanced solid tumors, including non-small cell lung cancer. AP32788 is being developed for the treatment of non-small cell lung cancer and other solid tumors. Ridaforolimus, a compound that the Company discovered internally and subsequently out-licensed to Medinol, Ltd. (“Medinol”), is being developed by Medinol for use on drug-eluting stents and other medical devices. In addition to its clinical development programs, the Company has a focused drug discovery program centered on small-molecule therapies that are molecularly targeted to cell-signaling pathways implicated in cancer.

2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. The Company has prepared the condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2014. The condensed consolidated balance sheet as of December 31, 2014 was derived from the audited consolidated balance sheet included in the Annual Report onForm 10-K for the year ended December 31, 2014.

In the opinion of management, the Company has prepared the accompanying condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2015.

Principles of Consolidation

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

Accounting Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the consolidated financial statements and the reported amounts and disclosure of revenue and expenses during the reporting period. Significant estimates included in the Company’s financial statements include estimates associated with revenue recognition and the related adjustments, research and development accruals, inventory, leased buildings under construction and stock-based compensation. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents include short-term, highly liquid investments, with remaining maturities at the date of purchase of 90 days or less, and money market accounts.

Restricted Cash

Restricted cash consists of cash balances held as collateral for outstanding letters of credit related to the lease of the Company’s laboratory and office facilities, including those currently under construction in Cambridge, Massachusetts, and for other purposes.

Marketable Securities

Marketable securities consist of 687,139 shares of common stock of REGENXBIO, Inc. (“REGENXBIO”), which became a publicly traded company in September 2015. The Company obtained these shares in connection with a license agreement it entered into with REGENXBIO in November 2010 for certain gene expression regulation technology. The Company is restricted from trading these securities until March 2016 pursuant to an agreement it entered into with REGENXBIO. The Company has classified these shares as “available for sale” investments and recognized an unrealized gain of $15.1 million, using a Level 1 valuation input, which has been excluded from the determination of net loss and is recorded in accumulated other comprehensive income (loss), net of tax, a separate component of stockholders’ equity, in the three and nine month periods ended September 30, 2015. These shares had been accounted for using the equity method with a carrying value of zero due to losses incurred by REGENXBIO in previous years.

Intra-period tax allocation rules require the Company to allocate its provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, the Company must allocate the tax provision to the other categories of earnings. The Company then records a related tax benefit in continuing operations. The following table summarizes the fair value, accumulated other comprehensive income and intra-period tax allocation regarding the Company’s investment in REGENXBIO, at September 30, 2015.

Accounts Receivable

The Company extends credit to customers based on its evaluation of the customer’s financial condition. The Company records receivables for all billings when amounts are due under standard terms. Accounts receivable are stated at amounts due net of applicable prompt pay discounts and other contractual adjustments as well as an allowance for doubtful accounts. The Company assesses the need for an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the customer’s ability to pay its obligation and the condition of the general economy and the industry as a whole. The Company will write off accounts receivable when the Company determines that they are uncollectible.

Inventory

The Company outsources the manufacturing of Iclusig and uses contract manufacturers that produce the raw and intermediate materials used in the production of Iclusig as well as the finished product. The Company currently has one supplier qualified for each stepthe production of Iclusig raw materials and intermediate materials, but has qualified multiple suppliers for the remaining steps in the manufacturing process, and is in the process of qualifying additional suppliers for certain steps of the production process of Iclusig.including Iclusig finished drug product. Accordingly, the Company has concentration risk with certain steps associated with its manufacturing process and relies on its currently approved contract manufacturers for supply of its product.these product manufacturing steps.

Inventory is composed of raw materials, intermediate materials, which are classified as work-in-process, and finished goods, which are goods that are available for sale. The Company records inventory at the lower of cost or market. The Company determines the cost of its inventory on a specific identification basis. The Company evaluates its inventory balances quarterly and if the Company identifies excess, obsolete or unsalable inventory, it writes down its inventory to its net realizable value in the period it is identified. These adjustments are recorded based upon various factors, including the level of product manufactured by the Company, the level of product in the distribution channel, current and projected demand for the foreseeable future and the expected shelf-life of the inventory components. The Company recorded such adjustments of $245,000$217,000 and $3.2$360,000 for the three-month periods ended September 30, 2015 and 2014, respectively, and $462,000 and $3.5 million for the six-monthnine-month periods ended JuneSeptember 30, 2015 and 2014, respectively, which are recorded as a component of cost of product revenue in the accompanying condensed consolidated statements of operations. Inventory that is not expected to be used within one year is included in other assets, net, on the accompanying condensed consolidated balance sheet.

Shipping and handling costs for product shipments are recorded as incurred in cost of product revenue along with costs associated with manufacturing the product sold and any inventory reserves or write-downs.

Intangible Assets

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

Impairment of Long-Lived Assets

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

Foreign Currency

A subsidiary’s functional currency is the currency of the primary economic environment in which the subsidiary operates; normally, that is the currency of the environment in which a subsidiary primarily generates and expends cash. In making the determination of the appropriate functional currency for a subsidiary, the Company considers cash flow indicators, local market indicators, financing indicators and the subsidiary’s relationship with both the parent company and other subsidiaries. For subsidiaries that are primarily a direct and integral component or extension of the parent entity’s operations, the U.S. dollar is the functional currency.

For foreign subsidiaries that transact in functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign exchange rate for the period. Adjustments resulting from the translation of the financial statements into U.S. dollars in these circumstances are excluded from the determination of net loss and are recorded in accumulated other comprehensive loss,income (loss), a separate component of stockholders’ equity. For foreign subsidiaries where the functional currency is the U.S. dollar, monetary assets and liabilities are re-measured into

U.S. dollars at the current exchange rate on the balance sheet date. Nonmonetary assets and liabilities are re-measured into U.S. dollars at historical exchange rates. Revenue and expense items are translated at average rates of exchange prevailing during each period. Adjustments resulting from remeasurement of financial statements into U.S. dollars in these circumstances are recorded in the net loss as foreign currency gains or losses.

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. When the revenue recognition criteria are not met, we defer the recognition of revenue by recording deferred revenue until such time that all criteria are met.

Product Revenue, Net

The Company sells Iclusig in the United States to a single specialty pharmacy, Biologics, Inc. (“Biologics”). Biologics dispenses Iclusig directly to patients. In Europe, the Company sells Iclusig to retail pharmacies and hospital pharmacies, which dispense Iclusig directly to patients. These specialty pharmacies, retail pharmacies and hospital pharmacies are referred to as the Company’s customers. The Company provides the right of return to customers in the United States for unopened product for a limited time before and after its expiration date. European customers are provided the right to return product only in limited circumstances, such as damaged product. Revenue is generally recognized when risk of loss and title passes to the customer, provided all other revenue recognition criteria are met. Prior to 2015, with the Company’s limited sales history for Iclusig and the inherent uncertainties in estimating product returns, the Company had determined that the shipments of Iclusig to its United States customers did not meet the criteria for revenue recognition until it was disperseddispensed to the patient. Prior to 2015, the Company recognized revenue in the United States, assuming all revenue recognition criteria had been met, when Iclusig was sold by its customers to patients. As of January 1, 2015, the Company concluded that it now had sufficient experience to estimate returns in the United States, as a result of over two years of sales experience. Accordingly, since January 1, 2015, the Company now recognizeshas recognized revenue in the United States upon shipment of Iclusig to Biologics.

The Company has written contracts or standard terms of sale with each of its customers and delivery occurs when risk of loss and title passes to the customer. The Company evaluates the creditworthiness of each of its customers to determine whether collection is reasonably assured. In order to conclude that the price is fixed and determinable, the Company must be able to (i) calculate its gross product revenues from the sales to its customers and (ii) reasonably estimate its net product revenues. The Company calculates gross

product revenues based on the wholesale acquisition cost that the Company charges its customers for Iclusig. The Company estimates its net product revenues by deducting from its gross product revenues (i) trade allowances, such as invoice discounts for prompt payment and customer fees, (ii) estimated government and private payor rebates, chargebacks and discounts, such as Medicare and Medicaid reimbursements in the United States, (iii) estimated product returns and (iv) estimated costs of incentives offered to certain indirect customers including patients. These deductions from gross revenue to determine net revenue are also referred to as gross to net deductions.

Trade Allowances: The Company provides invoice discounts on Iclusig sales to certain of its customers for prompt payment and pays fees for certain distribution services, such as fees for certain data that its customers provide to the Company. The Company deducts the full amount of these discounts and fees from its gross product revenues at the time such discounts and fees are earned by such customers.

Rebates, Chargebacks and Discounts: In the United States, the Company contracts with Medicare, Medicaid, and other government agencies (collectively, “payers”) to make Iclusig eligible for purchase by, or for partial or full reimbursement from, such payers. The Company estimates the rebates, chargebacks and discounts it will provide to payers and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of rebates, chargebacks and discounts are based on (1) the contractual terms of agreements in place with payers, (2) thegovernment-mandated discounts applicable to government funded programs, and (3) the estimated payer mix. Government rebates that are invoiced directly to the Company are recorded in accrued liabilities on the condensed consolidated balance sheet. In Europe, the Company is subject to mandatory rebates and discounts in markets where government-sponsored healthcare systems are the primary payers for healthcare. Estimates relating to these rebates and discounts are deducted from gross product revenues at the time the revenues are recognized. These rebates and discounts are recorded in accrued expenses on the condensed consolidated balance sheet.

Other Adjustments: Other adjustments to gross revenue include co-pay assistance and product returns. The Company offersco-pay assistance rebates to commercially insured patients who have coverage for Iclusig and who reside in states that permitco-pay assistance programs. The Company’s co-pay assistance program is intended to reduce each participating patient’s portion of the financial responsibility for Iclusig’s purchase price to a specified dollar amount. In each period, the Company records the amount of co-pay assistance provided to eligible patients based on the terms of the program. The Company provides the right of return to customers in the United States for unopened product for a limited time before and after its expiration date. European

customers are provided the right to return product only in limited circumstances, such as damaged product. In addition, the Company is contractually obligated to ship product with specific remaining shelf lifeshelf-life prior to expiry per its distribution agreements.

The following table summarizes the activity in each of the above product revenue allowances and reserve categories for the six-monthnine-month period ended JuneSeptember 30, 2015:

In 2012, prior to the Company obtaining marketing authorization for Iclusig in Europe, the French regulatory authority granted anAutorisation Temporaire d’Utilisation (ATU), or Temporary Authorization for Use, for Iclusig for the treatment of patients with CML and Ph+ ALL under a nominative program on a patient-by-patient basis. Upon completion of this program, the Company became eligible to ship Iclusig directly to customers in France as of October 1, 2013. Shipments under these programs have not met the criteria for revenue recognition as the price for these shipments is not yet fixed or determinable.

The price of Iclusig in France will become fixed or determinable upon completion of pricing and reimbursement negotiations. At that time, the Company will record revenue related to cumulative shipments as of that date in France, net of amounts that will be refunded to the health authority based on the results of the pricing and reimbursement negotiations. The aggregate gross selling price of the shipments under these programs amounted to $20.8$23.3 million through JuneSeptember 30, 2015, of which $19.4$21.9 million was received as of JuneSeptember 30, 2015. Amounts received from shipments in France are carriedrecorded in other liabilities.liabilities in the condensed consolidated balance sheet.

The Company has entered into distributor arrangements for Iclusig in a number of countries including Australia, Canada, Israel, certain countries in central and eastern Europe, Turkey and Japan. The Company recognizes Iclusig net product revenue from these arrangements when all criteria for revenue recognition have been satisfied. Upfront fees are recognized over the remaining term of the agreement at the point at which all deliverables under the agreement have commenced, usually at the point when product is initially received by the distributor.

License Revenue

The Company generates revenue from license and collaboration agreements with third parties related to use of the Company’s technology and/or development and commercialization of products. Such agreements typically include payment to the Company of non-refundable upfront license fees, regulatory, clinical and commercial milestone payments, payment for services or supply of product and royalty payments on net sales. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price of each deliverable and the appropriate revenue recognition principles are applied to each unit. For arrangements with multiple elements, where the Company determines there is one unit of accounting, revenue associated with up-front payments will be recognized over the period beginning with the commencement of the final deliverable in the arrangement and over a period reflective of the Company’s longest obligation period within the arrangement on a straight-line-basis.

At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether:

In making this assessment, the Company evaluates factors such as the clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required, and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement. The Company recognizes revenues related to substantive milestones in full in the period in which the substantive milestone is achieved. If a milestone payment is not considered substantive, the Company recognizes the applicable milestone over the remaining period of performance.

The Company will recognize royalty revenue, if any, based upon actual and estimated net sales by the licensee of licensed products in licensed territories, and in the period the sales in the licensed territories occur.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of accounts receivable from customers and cash held at financial institutions. The Company believes that such customers and financial institutions are of high credit quality. As of JuneSeptember 30, 2015, a portion of the Company’s cash and cash equivalent accounts were concentrated at a single financial institution, which potentially exposes the Company to credit risks. The Company does not believe that there is significant risk of non-performance by the financial institution and the Company’s cash on deposit at this financial institution is fully liquid.

For the three-month and six-monthnine-month periods ended JuneSeptember 30, 2015, one individual customer accounted for 7874 percent and 7876 percent of net product revenue, respectively. As of JuneSeptember 30, 2015, one individual customer accounted for 6861 percent of accounts receivable. For the three-month and six-monthnine-month periods ended JuneSeptember 30, 2014, one individual customer accounted for 6772 percent and 6367 percent of net product revenue, respectively. As of JuneSeptember 30, 2014, one customer accounted for 6675 percent of accounts receivable. No other customer accounted for more than 10 percent of net product revenue for either 2015 or 2014 or accounts receivable as of either JuneSeptember 30, 2015 or 2014.

Segment Reporting and Geographic Information

The Company organizes itself into one operating segment reporting to the Chief Executive Officer. For the three-month periods ended JuneSeptember 30, 2015 and 2014, net product revenue from customers outside the United States totaled 2227 percent and 28 percent of the Company’s consolidated net product revenue, respectively, with 9 percent and 17 percent, respectively, representing product revenue from customers in Germany. For the nine-month periods ended September 30, 2015 and 2014, product revenue from customers outside the United States totaled 24 percent and 33 percent of the Company’s consolidated net product revenue respectively, with 8 percent and 22 percent, respectively, representing product revenue from customers in Germany. For the six-month periods ended June 30, 2015 and 2014, product revenue from customers outside the United States totaled 22 percent and 37 percent of the Company’s consolidated net product revenue respectively, with 9 percent and 265 percent, respectively, representing net product revenue from customers in Germany. Long lived assets outside the United States totaled $1.4 million at JuneSeptember 30, 2015 and $1.3$1.4 million at June 30,December 31, 2014.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance related to the presentation of debt issuance costs in the financial statements. This guidance requires an entity to present such costs in the balance sheet as a direct deduction from the related debt rather than as an asset. This amendment will be effective for theThe Company in the first quarter of fiscal 2017, withhas elected early adoption permitted.of this recent guidance as of September 30, 2015. Adoption of the guidance would reclassifyclassifies debt issuance costs from prepaid and other assets to long-term obligations, less current portion, within the condensed consolidated balance sheet. The Company does not expectsheet related to the adoption to have a material impact on its financial position or results of operations,$200 million convertible note offering in June 2014 and is currently evaluating the timing of adoption.$50 million royalty financing in July 2015.

In May 2014, the FASB issued amended accounting guidance related to revenue recognition. This guidance is based on the principle that revenue is recognized in an amount that reflects the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services to customers. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This amendment will be effective for the Company in the first quarter of fiscal 2018. The Company is continuing to evaluateevaluating the options for adoption and the impact on its financial position and results of operations.

3. License and Collaboration Agreements

Otsuka Pharmaceutical Co. Ltd

On December 22, 2014, the Company entered into a collaboration agreement (the “Collaboration Agreement”) with Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) pursuant to which Otsuka will commercialize and further develop Iclusig in Japan, China, South Korea, Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam (the “Territory”).

Key provisions of the Collaboration Agreement include the following:

Following approvals in each country, Otsuka will market and sell Iclusig and record sales. Otsuka is not allowed to manufacture bulk product, but must purchase its supply from the Company. Otsuka will be responsible for medical affairs activities, determining pricing and reimbursement and all commercial activities in the Territory. With respect to the JDCC, each party has ultimate decision making authority with respect to a specified limited set of issues, and for all other issues, the matter must be resolved by consensus or by an expedited arbitration process.

In consideration for the licenses and other rights contained in the Collaboration Agreement, Otsuka paid the Company a non-refundable

upfront payment of $77.5 million, less a refundable withholding tax in Japan of $15.8 million, and has agreed to pay the Company up to $80 million in future milestone payments upon obtaining further regulatory approvals in the Territory. Otsuka will pay royalties based on a percentage of net sales in each country until the later of (i) the expiry date of the composition patent in each country, (ii) the expiration of any orphan drug exclusivity period or other statutory designation that provides similar exclusivity, or (iii) 10 years after the date of first commercial sale in such country. Otsuka will also pay for the supply of Iclusig purchased from the Company at a price based on a percentage of net sales in each country.

The Collaboration Agreement continues until the later of (x) the expiration of all royalty obligations in the Territory, or (y) the last sale by Otsuka in the Territory, or the last to expire patent in the Territory which is currently expected to be 2029. Under certain conditions, the Collaboration Agreement may be terminated by either party, in which case the Company would receive all rights to the regulatory filings related to Iclusig at our request, and the licenses granted to Otsuka would be terminated.

For accounting purposes, because of Otsuka’s ability to access the value of the distribution rights in the license absent the delivery of the other elements of the arrangement, in particular the manufacturing deliverables which remain within the Company’s control, the Company has concluded that the licenses and other deliverables do not have standalone value, and have combined all deliverables into a single unit of accounting. The nonrefundable upfront cash payment has been recorded as deferred revenue on our balance sheet and is being recognized as revenue on a straight-line basis commencing in April 2015, the time at which the Company has commenced providing all elements included in the Collaboration Agreement. The Company has recognized as license revenue approximately $1.3 million and $2.6 million of the upfront fee for the three-month periodand nine month periods ending JuneSeptember 30, 2015.2015, respectively.

The upfront payment was subject to a Japan withholding tax of $15.8 million which was remitted by Otsuka to the Japanese tax authorities. The Company determined at December 31, 2014 that the release of those funds to the Company was probable and therefore recorded a receivable for such amounts, with an offsetting amount included in deferred revenue. The Company received the $15.8 million from the Japanese tax authorities in April 2015.

Medinol Ltd.

The Company entered into ana license agreement with Medinol in 2005 pursuant to which the Company granted to Medinol anon-exclusive, world-wide, royalty-bearing license, under its patents and technology, to develop, manufacture and sell stents and other medical devices to deliver the Company’s mTOR inhibitor, ridaforolimus, to prevent reblockage of injured vessels following stent-assisted angioplasty. The term of the license agreement extends to the later to occur of the expiration of the Company’s patents relating to the rights granted to Medinol under the license agreement or fifteen years after the first commercial sale of a product developed under the agreement.

Medinol is required under the license agreement to use commercially reasonable efforts to develop products. The Company is required under a related supply agreement to use commercially reasonable efforts to supply agreed-upon quantities of ridaforolimus to

Medinol, and Medinol shall purchase such supply of ridaforolimus from the Company, for the development, manufacture and sale of products. The supply agreement is coterminous with the license agreement. These agreements may be terminated by either party for breach after a 90-day cure period. In addition, Medinol may terminate the agreements upon 30-day notice to the Company upon certain events, including if it determines, in its reasonable business judgment, that it is not in its business interest to continue the development of any product, and the Company may terminate the agreements upon 30-day notice to Medinol, if it determines that it is not in its business interest to continue development and regulatory approval efforts with respect to ridaforolimus.

The license agreement provides for the payment by Medinol to the Company of an upfront license fee, payments based on achievement of development, regulatory and commercial milestones and royalties based on commercial sale of products developed under the agreement. In January 2014, Medinol initiated two registration trials of its NIRsupreme™ Ridaforolimus-Eluting Coronary Stent System. The commencement of enrollment in these clinical trials along with the submission of an investigational device exemption with the FDAU.S. Food and Drug Administration (“FDA”) triggered milestone payments to the Company of $3.75$3.8 million, which are recorded as license revenue in the accompanying consolidated statement of operations for the six monthnine-month period ended JuneSeptember 30, 2014. The Company is eligible to receive additional, regulatory, clinical and commercial milestone payments of up to $34.75$34.8 million under the agreement if two products are successfully developed and commercialized.

4. Inventory

All of the Company’s inventories relate to the manufacturing of Iclusig. The following table sets forth the Company’s inventories as of JuneSeptember 30, 2015 and December 31, 2014:

The Company has not capitalized inventory costs related to its other drug development programs. Non-current inventory consists of work-in-process inventory that was manufactured in order to provide adequate commercial supply of Iclusig in the United States and Europe and to support continued clinical development.

5. Property and Equipment, Net

Property and equipment, net, was comprised of the following at JuneSeptember 30, 2015 and December 31, 2014:

As of JuneSeptember 30, 2015 and December 31, 2014, the Company has recorded a facility lease obligation of $219.3$220.6 million and $196.0 million, respectively, related to a lease for a new facility under construction in Cambridge, Massachusetts. See Note 9 for further information.to the condensed consolidated financial statements included in this report.

Depreciation and amortization expense was $848,000$951,000 and $1.2$1.3 million for the three-month periods ended JuneSeptember 30, 2015 and 2014, respectively, and $1.7$2.7 million and $2.5$3.9 million for the six-monthnine-month periods ended JuneSeptember 30, 2015 and 2014, respectively.

6. Intangible and Other Assets, Net

Intangible and other assets, net, were comprised of the following at JuneSeptember 30, 2015 and December 31, 2014:

7. Other Current Liabilities

Other current liabilities consisted of the following at JuneSeptember 30, 2015 and December 31, 2014:

Amounts received in advance of revenue recognition consist of payments received from customers in France.France which do not currently qualify for revenue recognition.

8. Long-term Debt

Our long-term debt consisted of the following at September 30, 2015 and December 31, 2014:

3.625 percent Convertible Notes due 2019

On June 17, 2014, the Company issued $200.0 million aggregate principal amount of 3.625 percent convertible senior notes due 2019 (the “convertible notes”). The Company received net proceeds of $192.9 million from the sale of the convertible notes, after deducting fees of $6.0 million and expenses of $1.1 million. At the same time, in order to reduce the potential dilution to the Company’s common stockholders and/or offset any cash payments in excess of the principal amount due upon conversion of the convertible notes, the Company used $43.2 million of the net proceeds from the sale of the convertible notes to pay the cost of convertible bond hedges which cost was partially offset by $27.6 million in proceeds to the Company from the related sale of warrants to the counter-party in the convertible bond hedge transaction.

The outstanding convertible note balances as of JuneSeptember 30, 2015 and December 31, 2014 consisted of the following:

The Company determined the expected life of the debt was equal to the five-year term on the convertible notes. The effective interest rate on the liability component was 9.625 percent for the period from the date of issuance through JuneSeptember 30, 2015. Interest expense related to the convertible notes during for the three-month and six-monthnine-month periods ended JuneSeptember 30, 2015 consisted of the following:

Royalty Financing

On July 28, 2015, the Company entered into a royalty financing agreement with PDL BioPharma, Inc. (“PDL”) under which the Company received an initial payment of $50 million in exchange for a percentage of global net revenues from sales of Iclusig until PDL receives a fixed internal rate of return on the funds it advances the Company. The Company will receive an additional $50 million one year from the effective date of the agreement with the option to receive up to an additional $100 million in one or two tranches between the six-month and twelve-month anniversary dates of the agreement. The proceeds received from PDL are referred to as “advances”.

Under the agreement, the Company agreed to pay PDL a percentage of global Iclusig net product revenues subject to an annual maximum payment of $20 million per year through 2018. The rate is 2.5 percent during the first year and increases to 5 percent in the second year through the end of 2018 and 6.5 percent from 2019 until PDL receives a 10 percent internal rate of return. If the Company draws down in excess of $150 million, the 6.5 percent rate would increase to 7.5 percent until PDL receives 10 percent internal rate of return. Through September 30, 2015, the Company has paid a total of $313,000 to PDL under this agreement. Payments are deemed to be applied against advances. Interest expense related to the financing agreement was $1.3 million for the nine-month period ended September 30, 2015.

Beginning in 2019, if PDL does not receive specified minimum payments each year from sales of Iclusig, then it will also have the right to receive a certain percentage of net revenues from sales of brigatinib, subject to its approval by regulatory authorities. If PDL has not received total cumulative payments under this agreement that are at least equal to the amounts PDL has advanced to the Company by the fifth anniversary of each funding date, the Company is required to pay PDL an amount equal to the shortfall.

PDL retains the option to require the Company to repurchase the then outstanding net advances, together with additional payments representing return on investment as described below (the “put” option), in the event the Company experiences a change of control, undergoes certain bankruptcy events, transfers any of its interests in Iclusig (other than pursuant to a license agreement, development, commercialization, co-promotion, collaboration, partnering or similar agreement), transfers all or substantially all of its assets, or breaches certain of the covenants, representations or warranties made under the agreement. Similarly, the Company has the option to terminate the agreement at any time by payment of the then outstanding net advances, together with additional payments representing return on investment as described below (the “call” option). Both the put and call options can be exercised at a price which is equal to the greater of (a) the then outstanding net advances and an amount that would generate an internal rate of return to PDL of 10 percent after taking into account the amount and timing of all payments made to PDL by the Company or (b) a multiple of the then outstanding net advances of 1.15 if exercised on or prior to the first anniversary of the closing date, 1.20 if exercised after the first anniversary but on or prior to the second anniversary of the closing date or 1.30 if exercised after the second anniversary of the closing date.

In connection with the agreement, the Company also entered into a security agreement with PDL on the same date as the royalty financing agreement. Under the security agreement, the Company granted PDL a security interest in certain assets relating to Iclusig, including all of the Company’s revenues from sales of Iclusig covered by the royalty financing agreement, a certain segregated deposit account established under the royalty financing agreement, and certain intellectual property, license agreements, and regulatory approvals related to Iclusig. The collateral set forth in the security agreement secures the Company’s obligations under the royalty financing agreement, including its obligation to pay all amounts due thereunder.

For accounting purposes, the agreement has been classified as a debt financing as the Company will have significant continuing involvement in the sale of Iclusig and other products which might be covered by the agreement, the parties have the right to cancel the agreement as described above, PDL’s rate of return is implicitly limited by the terms of the transaction, volatility in the sale of Iclusig and other products would have no effect on PDL’s expected ultimate return, and PDL has certain rights in the event that product sales and related payments under this agreement are insufficient to pay down the Company’s obligations.

In connection with the transaction, the Company recorded the initial net proceeds as long-term debt. The Company will impute interest expense associated with this borrowing using the effective interest rate method and will record a corresponding accrued interest liability. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement, including the required 10 percent internal rate of return to PDL. Determining the effective interest rate requires judgment and is based on significant assumptions related to estimates of the amounts and timing of future revenue streams. Determination of these assumptions is highly subjective and different assumptions could lead to materially different outcomes.

The Company has evaluated the Company’s call option and PDL’s put option in accordance with ASC815 “Accounting for Derivative Instruments and Hedging Activities”, and determined that the put option is an embedded derivative. This item is being accounted for as a derivative and the estimated fair value of the put option is carried as part of the carrying value of the related liability, and was not material as of the date of the agreement or September 30, 2015.

Facility Lease Obligation

As of September 30, 2015 and December 31, 2014, the Company has recorded a facility lease obligation related to its lease for a new facility under construction in Cambridge, Massachusetts. See notes 5 and 9 to the condensed consolidated financial statements included in this report for information regarding the lease and related asset under construction. During the construction period the Company is capitalizing the costs as a component of construction in process with a corresponding credit to facility lease obligation.

The Company expects to complete construction and occupy the facility in the third quarter of 2016. Under terms of the lease, the Company commenced making lease payments in March 2015. During the construction period a portion of the lease payment is allocated to land lease expense with the remainder accounted for as a reduction of the obligation.

9. Leases Licensed Technology and Other Commitments

Facility Leases

The Company conducts the majority of its operations in a 100,000 square foot office and laboratory facility in Cambridge, Massachusetts under a non-cancelable operating lease that extends to July 2019 with two consecutive five-year renewal options. The Company maintains an outstanding letter of credit of $1.4 million in accordance with the terms of the amended lease. In May 2012, the Company entered into a lease

agreement for an additional 26,000 square feet of office space in Cambridge, Massachusetts which expires in August 2017. Future non-cancelable minimum annual rental payments through July 2019 under these leases are $3.1$1.9 million remaining in 2015, $5.9$7.5 million in 2016, $6.0$7.1 million in 2017, $6.1 million in 2018 and $3.6 million in 2019.

Binney Street, Cambridge, Massachusetts

In January 2013, the Company entered into a lease agreement for approximately 244,000 square feet of laboratory and office space in two adjacent, connected buildings which are under construction in Cambridge, Massachusetts. Under the terms of the original lease, the Company leased all of the rentable space in one of the two buildings and a portion of the available space in the second building. In September 2013, the Company entered into a lease amendment to lease all of the remaining space, approximately 142,000 square feet, in the second building, for an aggregate of 386,000 square feet in both buildings. The terms of the lease amendment were consistent with the terms of the original lease. Construction of the core and shell of the building was completed in March 2015, at which time, pursuant to a second amendment to the lease in March 2015, the Company commenced making lease payments. Construction of tenant improvements is in the building will commence now that the coreprocess and shell have been completed. Construction of the tenant improvements is expected to be completed in the third quarter of 2016.2016, at which time the Company expects to occupy the buildings.

In connection with this lease, the landlord is providing a tenant improvement allowance for the costs associated with the design, engineering, and construction of tenant improvements for the leased facility. The tenant improvements will be in accordance with the Company’s plans and include fit-out of the buildings to construct appropriate laboratory and office space, subject to approval by the landlord. To the extent the stipulated tenant allowance provided by the landlord is exceeded, the Company is obligated to fund all costs incurred in excess of the tenant allowance. The scope of the planned tenant improvements do not qualify as “normal tenant improvements” under the lease accounting guidance. Accordingly, for accounting purposes, the Company is the deemed owner of the buildings during the construction period.

As construction progresses, the Company records the project construction costs incurred as an asset, along with a corresponding facility lease obligation, on the consolidated balance sheet for the total amount of project costs incurred whether funded by the Company or the landlord. Upon completion of the buildings, the Company will determine if the asset and corresponding financing obligation should continue to be carried on its consolidated balance sheet under the appropriate accounting guidance. Based on the current terms of the lease, the Company expects to continue to be the deemed owner of the buildings upon completion of the construction period. As of JuneSeptember 30, 2015, the Company has recorded construction in progress and a facility lease obligation of $220.9$225.9 million and $219.3$220.6 million, respectively, including the current portion of the obligation of $7.1$4.0 million included in current liabilities.

The lease has an initial term of the lease is for 15 years from substantial completion of the buildings with options to renew for three terms of five years each at market-based rates. The base rent is subject to increases over the term of the lease. Based on the original and amended leased space, the non-cancelable minimum annual lease payments for the annual periodsby calendar year beginning upon commencement of the lease are $3.8$2.4 million in 2015, $8.7 million in 2016, $25.5 million in 2017, $31.0 million andin 2018, $31.5 million in the first five years of the lease2019 and $357.4357.4 million in total thereafter, plus the Company’s share of the facility operating expenses and other costs that are reimbursable to the landlord under the lease.

The Company maintains a letter of credit as security for the lease of $9.2 million, which is supported by restricted cash.

In August 2015, the Company entered into a sublease agreement for approximately 160,000 square feet of the total leased space in the Binney Street facility. The sublease has an initial term of 10 years from the rent commencement date which is expected to be in the third quarter of 2016 with an option to extend for the remainder of the initial term of the Company’s underlying lease. The sublease

rent is subject to increases over the term of the lease. Based on the agreement, during the initial term the non-cancelable minimum annual sublease payments by calendar year beginning upon the rent commencement date of the sublease are approximately $5.3 million in 2016, $10.7 million in 2017, $10.9 million in 2018, $11.1 million in 2019 and $11.3 million in 2020 and $65.6 million in total thereafter, plus the subtenant’s share of the facility operating expenses.

Lausanne, Switzerland

In January 2013, the Company entered into a lease agreement for approximately 22,000 square feet of office space in a building in Lausanne, Switzerland, which the Company occupied in 2014. The lease has an initial term of the lease is for ten years, with options for extension ofto extend the term and an early termination right at the Company’s option after five years. Future non-cancelable minimum annual lease payments under theirthe lease are expected to be approximately $0.5$0.3 million remaining in 2015, $1.1 million in 2016, $1.0 million in 2017, $1.1 million in 2018 and 2019 and $4.5$4.4 million in total thereafter.

Total rent expense for the leases described above as well as other Company leases was $2.8 million, and $1.9 million for thethree-month and six-month periods ended JuneSeptember 30, 2015 and 2014, was $2.6respectively, and $7.3 million and $1.9$5.7 million respectively,for the nine month-periods ended September 30, 2015 and $4.5 million and $3.8 million2014, respectively. Contingent rent for the three-month and six-month periods ended JuneSeptember 30, 2015 and 2014 was $327,000$191,000 and $158,000,$167,000 respectively, and $539,000for the nine-month periods ended September 30, 2015 and $338,0002014 was $574,000 and $519,000 respectively.

Total future non-cancelable minimum annual rental payments for the leases described above as well as other Company leases, for the next five years and thereafter are $7.7$4.7 million, $15.9$18.1 million, $32.7$33.7 million, $38.2$38.1 million, $36.2 million and $361.9$361.7 million, respectively.

Other Commitments

The Company has entered into employment agreements with each of the officers of the Company. The agreements for these officers have remaining terms as of JuneSeptember 30, 2015 extending through the end of 2016 or 2017, providing for aggregate base salaries of $4.5$2.3 million for the remainder of 2015, $12.1$13.3 million for 2016 and $7.9$8.3 million for 2017.

10. Stockholders’ Equity (Deficit)

The changes in stockholders’ equity (deficit) for the six-monthnine-month period ended JuneSeptember 30, 2015 were as follows:

11. Fair Value of Financial Instruments

At JuneSeptember 30, 2015 and December 31, 2014, the carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature. All such measurements are Level 2 measurements in the fair value hierarchy. Our marketable securities, consisting of shares of common stock of REGENXBIO, are classified as Level 1 assets as they have readily observable prices, and therefore a reliable fair market value as of September 30, 2015. The fair value of the convertible notes, which differs from their carrying value, is influenced by interest rates and stock price and stock price volatility and is determined by prices for the convertible notes observed in market trading. The market for trading of the convertible notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs. The estimated fair value of the convertible notes, face value of $200 million, was $231.5$196.9 million at JuneSeptember 30, 2015 and $203.4 million at December 31, 2014, respectively.

12. Stock Compensation

ARIAD Stock Option and Stock Plans

The Company’s 2001, 2006 and 2014 stock option and stock plans provide for the award of nonqualified and incentive stock options, stock grants, restricted stock units, performance share units and other equity-based awards to officers, directors, employees and consultants of the Company. Stock options become exercisable as specified in the related option certificate or option agreement, typically over a three or four-year period, and expire ten years from the date of grant. Stock grants, restricted stock units and performance share units provide the recipient with ownership of common stock subject to terms of vesting, any rights the Company may have to repurchase the shares granted or other restrictions. The 2001 and 2006 plans have no shares remaining available for grant, although existing stock options granted under these plans remain outstanding. As of JuneSeptember 30, 2015, there were 9,451,0099,473,048 shares available for awards under the 2014 plan. The Company generally issues new shares upon the exercise or vesting of stock plan awards.

Employee Stock Purchase Plan

In 1997, the Company adopted the 1997 Employee Stock Purchase Plan (“ESPP”) and reserved 500,000 shares of common stock for issuance under this plan. The ESPP was amended in June 2008 to reserve an additional 500,000 shares of common stock for issuance and the plan was further amended in 2009 and in June 2014 to reserve an additional 750,000 shares of common stock for issuance pursuant to each of those amendments. Under this plan, substantially all of the Company’s employees may, through payroll withholdings, purchase shares of the Company’s common stock at a price of 85 percent of the lesser of the fair market value at the beginning or end of each six-monththree-month withholding period. For the six-monthnine-month periods ended JuneSeptember 30, 2015 and 2014, 128,151193,178 and 118,644185,243 shares of common stock were issued under the plan, respectively. Compensation cost is equal to the fair value of the discount on the date of grant and is recognized as compensation in the period of purchase.

Stock-Based Compensation

The Company’s statements of operations included total compensation cost from awards under the plans and purchases under the ESPP for the three-month and six-monthnine-month periods ended JuneSeptember 30, 2015 and 2014, as follows:

Stock Options

Stock options are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. Stock options generally vest ratably over three or four years and have contractual terms of ten years. Stock options are valued using the Black-Scholes option valuation model and compensation cost is recognized based on such fair value over the period of vesting on a straight-line basis.

Stock option activity under the Company’s stock plans for the six-monthnine-month period ended JuneSeptember 30, 2015 was as follows:

Stock and Stock Unit Grants

Stock and stock unit grants carry restrictions as to resale for periods of time or vesting provisions over time as specified in the grant. Stock and stock unit grants are valued at the closing market price of the Company’s common stock on the date of grant and compensation expense is recognized over the requisite service period, vesting period or period during which restrictions remain on the common stock or stock units granted.

Stock and stock unit activity under the Company’s stock plans for the six-monthnine-month period ended JuneSeptember 30, 2015 was as follows:

The total fair value of stock and stock unit awards that vested as of JuneSeptember 30, 2015 and 2014 was $6.8$9.2 million and $4.1$4.9 million, for the period, respectively. The total unrecognized compensation expense for restricted shares or units that have been granted and are probable to become vested was $21.4$16.8 million at JuneSeptember 30, 2015 and will be recognized over 1.71.6 years on a weighted average basis.

Included in the table above are outstanding performance share units which were awarded from 2012 to 2015 as follows:noted below:

Years of Award		Number of Units				Description of Performance Metric
2013			158,000			Brigatinib clinical trial enrollment (100%) – achieved in 2015
2014			1,044,000			Iclusig clinical trial enrollment (50%); cumulative revenues from sales of Iclusig in 2014 and 2015 (50%)
2015			731,300			Iclusig clinical trial enrollment (315,000 units); 2015 revenues from sales of Iclusig (315,000 units); total relative return on common stock 2015-2017 (101,300 units)

The Company recognizes compensation expense for performance share units when the achievement of the performance metric is determined to be probable of occurrence. The total number of units earned, and related compensation cost, may be up to 60 percent higher depending on the level or timing of achievement of the metric as defined in the specific award agreement.

13. Net Loss Per Share

Basic net loss per share amounts have been computed based on the weighted-average number of common shares outstanding. Diluted net loss per share amounts have been computed based on the weighted-average number of common shares outstanding plus the dilutive effect, if any, of potential common shares. The computation of potential common shares has been performed using the treasury stock method. Because of the net loss reported in each period, diluted and basic net loss per share amounts are the same.

The calculation of net loss and the number of shares used to compute basic and diluted earnings per share for the three-month and six-monthnine-month periods ended JuneSeptember 30, 2015 and 2014 are as follows:

14. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) for three-month and six-monthnine-month periods ended JuneSeptember 30, 2015 were as follows:

15. Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized.

The Company’s tax provision reflects that the Company has an international corporate structure and certain subsidiaries are profitable on a stand-alone basis. Accordingly, a tax provision is reflected for the taxes incurred in such jurisdictions. In addition, the Company has recognized a prepaid tax related to the tax consequences arising from intercompany transactions and is amortizing such prepaid tax over the period that the assets transferred are being amortized. The total provision forbenefit from (provision for) income taxes was $5.8 million and $(154,000) for the three-month and six-month periods ended JuneSeptember 30, 2015 and 2014, was $300,000 and $106,000, respectively, and $514,000$5.3 million and $225,000,$(379,000) for the nine-month periods ended September 30, 2015 and 2014, respectively. The Company recorded a tax benefit of $6.1 million related to the $15.1 million unrealized gain associated with the change in market value of its marketable securities for the three and nine-month periods ended September 30, 2015.