Why Ariad Pharmaceuticals' Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Buy the rumor, sell the news is in full effect today for Ariad Pharmaceuticals (NASDAQ: ARIA  ) which fell as much as 20%, after announcing that the Food and Drug Administration has approved Iclusig (formerly ponatinib) for the treatment of a rare blood borne and bone marrow cancer ... with a catch.

So what: The once-daily drug can now be used to treat chronic myeloid leukemia, or CML, and Philadelphia chromosome positive acute lymphoblastic leukemia. Both diseases are rare, which granted Iclusig orphan drug and accelerated review status. However, the FDA is also requiring a warning on the box for physicians and patients that Iclusig can cause blood clots and liver toxicity.

Now what: Congratulations are definitely in order for Ariad, which brings its first FDA-approved drug to market, although, as we can see from today's trading, very few investors expected a warning to be placed on the box. While I welcome any new drugs that improve the health-care landscape, I can't help but be pessimistic about its near-term outlook, considering that Ariad, even with today's drop, is still valued at around three times peak sales of Iclusig. I'm going to need a lot more evidence of success from Ariad if it's going to maintain this valuation!

Craving more input? Start by adding Ariad Pharmaceuticals to your free and personalized Watchlist so you can keep up on the latest news with the company.


Read/Post Comments (7) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On December 14, 2012, at 6:43 PM, paulrocker wrote:

    I would like to disagree with you article. This stock has a way more potential than your assumption. If this drug is approved as a first line medicine, the market is huge. A big pharma could buy this company. There are lot of other potentials as well.

  • Report this Comment On December 14, 2012, at 6:59 PM, TMFUltraLong wrote:

    Paulrocker,

    You are perfectly allowed to disagree with me... we just won't know what the final outcome is for a few years... it's watch and wait time.

    TMFUltraLong

  • Report this Comment On December 14, 2012, at 10:22 PM, lottaluck wrote:

    This drug is going to be massive for this company.Why?Well it works where other drugs simply don't work.Patients are going to change their treatment now to Iclusig and the drug is available in 2 weeks.5000 new patients are found to have this type of cancer,so the disease is not as rare as thought.The cost of the drug is $111,500 a year or $9500 a month.That's 47,500000.That's 47.5 million a month or $5.7 billion a year revenue just for new cases for this drug.Yes it has minor side effects that need to placed on the label but the side effects are minor and front line patients will survive if they take the drug.All will take the drug.The upside for ariad is unlimited.

  • Report this Comment On December 15, 2012, at 12:14 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."

  • Report this Comment On December 15, 2012, at 12:14 AM, paulrocker wrote:

    City price target $31

  • Report this Comment On December 15, 2012, at 7:36 PM, ravens9111 wrote:

    47.5 million a month does not equal 5.7 billion a year.

  • Report this Comment On December 19, 2012, at 2:06 AM, lottaluck wrote:

    All said, on Friday, the day the drug was approved, instead of rejoicing, Wall street cremated Ariad's stock. Why? They mention the side effects and a warning box that analysts didn't know about. These reasons are totally irrelevant. The adverse effects mentioned related to Ariad's Inclusig are inherent in all tyrosine kinase inhibitors. Indeed, all drugs that end with the suffix tinib, including imatinib (Gleevec) and all other targeted drugs approved for the same leukemias have the same side effects of Ariad's drug Inclusig. These include all hematologic side effects from cytopenia, to neutropenia, thrombocytopenia and anemia. They also have the same cardiovascular and liver side effects.

    The good news is that oncologists have become familiar with these side effects and are doing a great job with the help of the patients thanks to education in overcoming them. The warnings in the package inserts have always contributed to the cooperation between physicians and patients towards avoiding, or early managing drugs' adverse effects.

    We congratulate Ariad and we are confident that the drug will end up benefiting all patients with chronic myeloid leukemia (CML) and Philadelphia chromosome-positive acute lymphoblastic leukemia (Ph+ ALL), in addition to other cancers.

    Gleevec generated around $4.7 billion in sales. We believe Inclusig can generate the same.

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