It's Hard to Make Money When FDA Approvals Are Priced In

ARIAD Pharmaceuticals (NASDAQ: ARIA  ) got its leukemia drug ponatinib approved by the Food and Drug Administration today. Shares are down 14% as I write this .

Why? It's tempting to blame it on the new brand name Iclusig. My stomach turns just saying it. I realize a lot of the powerful sounding names -- Novartis' (NYSE: NVS  ) Afinitor and Dendreon's (NASDAQ: DNDN  ) Provenge, for instance -- have been taken, but the brand names seem to be getting worse lately.

Alas, I doubt investors care about the name that much. Instead, my guess is this is simply a sell-the-news event. The approval was no surprise. The data was solid. Even an early approval wasn't all that surprising, especially after announcing it wouldn't have to wait for a companion diagnostic to be approved. The company used the FDA's fast track rolling submission to get some of the data in front of FDA reviewers early. And the FDA has been making quick decisions about oncology drugs recently. Approvals for Medivation's (NASDAQ: MDVN  ) Xtandi and Bayer and Onyx Pharmaceuticals' (UNKNOWN: ONXX.DL  ) Stivarga both came in a month or more before the PDUFA date.

With the binary event out of the way, investors have to wait to see how well Iclusig will sell. The drug will be used after Otsuka and Bristol-Myers Squibb's (NYSE: BMY  ) Sprycel, or Novartis' Tasigna, or by patients with a mutation that doesn't allow them to take those drugs.

Investors could be fretting about the boxed warning on the label, pointing out the potential for blood clots and liver toxicity , but I don't see it as a major issue. The drug is patients' last resort; side effects are a secondary concern when death is inevitable.

At a market cap of $3.3 billion, much of the early sales of the drug are already built into ARIAD's share price. ARIAD's CEO Harvey Berger told Bloomberg that it was targeting annual sales of $600 million to $800 million in the 2017 to 2018 time frame. Assuming a multiple of five times sales, that would value the company at $3 billion to $4 billion.

If ARIAD is going to grow from here, it'll have to do it with its other drugs. Ridaforolimus, which is partnered with Merck (NYSE: MRK  ) , might not be dead yet, despite being turned down by the FDA as a treatment for sarcoma. And ARIA has two other drugs in clinical development.

Success of any of those programs should have the usual effect of sending shares upwards.

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  • Report this Comment On December 14, 2012, at 10:47 PM, paulrocker wrote:

    I wish that you don't create an article with no substance. There are several investors hit hard today. This is not sell on the news story. This company was $25+ with no drugs thus far. There are other potential drugs on the pipe, and this could be approved as first line medicine down the line. So the market is big. There are scientists from Oregon university and this company working hard on science to make some thing. You, with your power, write something not responsible to destroy every thing. We don't have the power like you to post a news blog on yahoo finance page. Wish we all have that power.

  • Report this Comment On December 15, 2012, at 12:15 AM, paulrocker wrote:

    Citigroup noted, "We believe ARIA's ponatinib is "best in class" in the ~$5bn WW leukemia (CML) market and our outlook is higher than consensus. Initial FDA/EU ponatinib approvals are widely expected by 1Q:13 and 2H:13 respectively, but a potential broader drug label would be upside to consensus, in our view. We expect ponatinib's Ph3 1st-line CML trial will stop early (2014) adding an additional ~$400M in 1st-line sales by 2018. We believe ARIA's lung cancer drug AP26113 is superior to PFE's Xalkori (crizotinib). Its dual mechanism also targets other lung cancer populations 3X crizotinib's market. With crizotinib `15 consensus estimates reaching ~$700M, our 2017 risk-adjusted AP26113 sales estimate of $240M is not a stretch."

    Citi price target $31

  • Report this Comment On December 16, 2012, at 1:10 PM, jdollarGenerator wrote:

    Lawsuits, and more lawsuits

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