Can Ariad Survive on 2 Drugs?

Ariad Pharmaceuticals' (Nasdaq: ARIA  ) recently reported $0.32-per-share loss shouldn't surprise investors since the company doesn't have products currently for sale. But Ariad could soon release two new weapons for treatment-resistant conditions in the $6 billion leukemia market. If they succeed, the company's current bad news could lead you to a stellar buy in the near future.

Ariad has partnership projects, but has also developed two lead drugs independently. These compounds are potential competitors for market leader products from Norvartis (NYSE: NVS  ) , Bristol-Myers Squibb (NYSE: BMY  ) , and Genentech, a Roche subsidiary. But the road to market is a rocky one. Will Ariad be able to survive on its own two drugs?

The leader: Ponatinib
Ariad's ponatinib is an oral leukemia treatment that has received priority review status from the Food and Drug Administration; the agency is expected to rule on the drug's application in March. Ariad is entering this market at a good time, as the current decades-old dominant treatment prepares to fall off the patent cliff. Ariad's entry has proven to be more effective at treating two particularly treatment-resistant strains of leukemia: acute lymphoblastic leukemia and chronic myeloid leukemia.

ALL is a rapid onset condition that accounts for 80% of childhood leukemia cases. There were 60,000 patients reported in the U.S. in 2009, but ponatinib targets a chromosomally abnormal version that makes up less than 30% of those patients. CML has a slower progression and later onset; the U.S. had 5,400 new cases of CML and more than 600 deaths related to the condition in this year alone.

Novartis has long ruled the leukemia treatment market with Gleevec, the first targeted drug to market, which brought in $4.7 billion worldwide last year. But this blockbuster drug loses patent protection in 2014. In addition, approximately 20% of patients become resistant to Gleevec over time, requiring treatment alternatives. Novartis is trying to steer patients  toward its own Tasigna, a drug with a longer patent that brought in $716 million in 2011. Otherwise, the company might lose market share to generics and Bristol-Myers Squibb's Sprycel.

One to watch: AP26113
Ariad's next drug in line is AP26113, a phase 1/2 compound for treatment-resistant forms of advanced non-small-cell lung cancer. The United States had more than 226,000  new cases of lung cancer in 2012 and more than 160,000 deaths. NSCLC accounts for approximately 85% of lung cancer cases.

Initial clinical results released in September showed AP26113 promoting anti-tumor activity in cases where the advanced tumors hadn't responded to previous treatments or had no sufficient treatment available. The patients from the former group had taken Genentech's Tarceva and Avastin to no success, but had promising results from Ariad's drug. 

AP26113 has a long road ahead, as its lack of name suggests, but the early promising data should quell investors worried about ponatinib being the only drug in Ariad's pocket.

Foolish bottom line
Ariad has potential, but Avastin and Gleevec became blockbusters in part due to expanded indications -- market-widening, revenue-growing FDA approvals to treat further conditions. Ponatinib is currently in phase 2 trials for acute myeloid leukemia and in preclinical trials for solid tumors.

For all its potential, Ariad is at a risky entry point right now, trading near its 52-week highs in the run-up to approval. Ponatinib might not take off to Gleevec levels, leaving the company's partnered drug with Merck as its next chronological contender. If that soft cell sarcoma treatment ever makes it past the FDA, Merck has most of the rights. Ariad's next catalyst wouldn't come for years, assuming AP26113 even makes it all the way through the pipes. For now, it's time for curious investors to play the waiting game.

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