JPMorgan Healthcare Conference Highlights: Ariad Pharmaceuticals

Earlier this week we kicked off the start of the 2014 JPMorgan Healthcare Conference, which is arguably the most important health-care conference of the year, bringing together pharmaceutical, biotechnology, and medical device makers under one roof.

Just like the recently concluded Consumer Electronics Show in Las Vegas, Nev., this annual event gives health care companies a chance to demonstrate to investors and Wall Street where they've been and where they're headed next. Because earnings guidance can be somewhat irrelevant for clinical-stage biotech and medical device companies, consider this event your chance to gain guidance from some 300 top health-care companies.

Today, we're going to take a closer look at Ariad Pharmaceuticals' (NASDAQ: ARIA  ) presentation, which was given on Tuesday by CEO Harvey Berger.

Some background on Ariad Pharmaceuticals' past year
I know those of you who are familiar with the Chinese Zodiac calendar are going to call me out for this, but I'd contend 2013 was the year of the ostrich for Ariad shareholders, because I can't think of anything I'd have rather done in the second-half of the year than bury my head in the sand.

Source: Ariad Pharmaceuticals.

The reason was a follow-up safety study released in October which showed that its leukemia drug, Iclusig, had caused an increasing number of arterial thrombotic events (i.e., blood clots) at the two-year mark (11% of patients) than at the 11-month mark (8%). This increase in serious vaso-occlusive events led to a temporary sales suspension of Iclusig in the U.S., a review of Iclusig in Europe, and the discontinuation of Ariad's treatment-naïve chronic myeloid leukemia trial known as Epic. About the only thing Epic was the greater-than-80% drop in share price witnessed over a matter of weeks.

Since then, however, a few things have worked in Ariad's favor. Iclusig has returned to market with more stringent warning labels in the U.S. as of last month, and it's been given the OK to continue selling its drug and filing for marketing applications in Europe.

Now that we have a better understanding of where Ariad Pharmaceuticals has been over the past year, let's have a closer look at its presentation at the JPMorgan Healthcare Conference to decipher where it may head next.

What Ariad Pharmaceuticals had to say
For those of you who aren't familiar with Ariad, keep in mind that while it has eight ongoing clinical studies, there is only one study currently ongoing that does not involve Iclusig. In other words, Ariad's value is based on Iclusig's success, so it really shouldn't be too surprising when CEO Harvey Berger spends 24 of his 27 minutes discussing Iclusig's efficacy, safety, and the many ways Ariad plans to squeeze value for shareholders out of this drug.

As you might suspect, Berger did his best to walk the line on admitting that damage has been done to the Iclusig brand, but also alluding to the bright future that Iclusig will hold for Ariad. One way he really tried to hammer this home is by focusing on Iclusig's efficacy in relation to other approved third-line or greater treatments in chronic myeloid leukemia (CML) patients.


Source: Ariad Pharmaceuticals, Lipton et al, ASH 2013. 

The slide pictured above, which was also presented at the American Society of Hematology's annual meeting, shows that Iclusig delivered a complete cytogenic response in close to 60% of treated patients, compared to Pfizer's Bosulif or Novartis' Tasigna, which delivered cytogenic response rates in about half as many patients as Iclusig.

Furthermore, this efficacy data led to comments from Berger that 89% of patients who exhibited a complete cytogenic response maintained that response after two years. The implication, based on data extrapolation, would presume a median treatment life of 10 years -- potentially fantastic news for disease sufferers and investors looking for recurring cash flow. In addition, Iclusig also works quickly, with a response often witnessed within three to four months.

Berger also shared some exciting, and disappointing, figures. At the time of Iclusig's temporary sales suspension in the U.S., Ariad had 640 commercial U.S. patients. Looking ahead, in just the two months that Iclusig was off the market, the FDA approved 370 single-patient INDs (emergency or compassionate use), a majority of which the company believes will become commercial customers. Ariad views its current U.S. market potential as roughly 1,300 people at an annual price point of $125,000. Therefore, optimally, Ariad's top-line revenue figure is around $162.5 million, which is likely not enough to make this company profitable without additional indications.

Finally, Berger spent a short time discussing the potential of API26113, its refractory ALK-positive non-small cell lung cancer drug, which has shown surprising efficacy in cases where brain metastases are involved and has demonstrated good tolerability in early studies.

Making sense of it all
As you might imagine, like most presentations at the JPMorgan Healthcare Conference this one was jam-packed with information, but not a lot that we weren't already aware of.

Despite the select efficacy charts and discussion, which favor Ariad's Iclusig in third-line Philadelphia chromosome-positive leukemias, I really didn't hear how the company planned to change its marketing strategy to rebuild the brand. In fact, we really didn't hear much at all about the relaunch other than that it's ongoing.

To some extent I won't fault Ariad too much for passing over this key point because it's marketable audience is only 1,300 patients in the U.S., and prior to its partial sales suspension it was already treating about half of them. Then again, in the back of my mind I have concerns that Ariad's toxicity warnings could come into play when physicians decide whether to prescribe Iclusig or a competing therapy.

What I'm most pleased to see from Ariad's presentation is that it's exploring a multitude of ways to mitigate the possibility of an adverse cardiovascular event while using Iclusig through multiple dosing level trials beginning in the second-half of this year, as well as potentially administering Iclusig with anti-coagulants which would theoretically help reduce thrombosis.

Ultimately, though, we're looking at a work in progress at best. Ariad has enough money, according to Berger, to make it through the midpoint of next year and perhaps even longer. However, it looks as if it could be years before any additional indications are approved for Iclusig, meaning the potential for ongoing losses is quite real. Everything is going to depend on how quickly Ariad can put Iclusig's issues in the rearview mirror, and frankly the timeline on that is an unknown to everyone.

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Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 16, 2014, at 12:33 PM, maxamillion wrote:

    wow you really are a fool, you say it will be years before Ariad makes any money ? and years for any other/ more approvals? wow! who paid you too write this article? B of A? lol please explain in DETAIL how this could happen sir.

  • Report this Comment On January 16, 2014, at 2:57 PM, CharlieMungers wrote:

    maxamillion - 100% agree with you!

    I think ARIA is undervalued!....

    Still 80% upside...at-least 80% if not more!

  • Report this Comment On January 16, 2014, at 4:21 PM, dontbeafool2 wrote:

    Great Article!! Thank you for breaking it down and showing the true numbers, not the inflated ones that are often thrown from emotional holding. I agree, they only have about 6 months of cash before, IMHO, they will need to issue more shares (dilution). I can see cash flow in a couple of years, maybe sooner if the other one in the pipeline pans out.

  • Report this Comment On January 16, 2014, at 5:36 PM, Zpower wrote:

    I am very surprised that there was no mention of the early results from the GIST trial of Iclusig. I saw a slide of a patient with golfball-sized tumors in their liver that had "melted away" after only 4 weeks on Iclusig! And this after failing four prior therapies. This is HUGE news for an approved drug.

    How could the writer have missed this? Did he leave the conference in the middle of the presentation? This result shows a high liklihood of another indication for Iclusig, treating an even larger patient population than for CML...

  • Report this Comment On January 23, 2014, at 4:20 PM, BioBat wrote:

    You miss the point that the marketable audience is 1,300 patients per year cumulative over a lifetime of therapy. The same erronous analysis was made for Gleevec years ago and today it's one of the most successful targeted therapies on the market.

    Let me simply it for you:

    1,300 patients in 2014 and many remain on drug. In 2015, another 1,300 patients go on drug. Now we're up to 2,600. In 2016, that's 3,900...With a median treatment life of up to 10 years all of a sudden, you're over 10,000 patients potentially on Iclusig at one time (in 2023). 162 million then turns into $1.6Billion. Clearly that's the most optimistic scenario (all patients take drug, survive, and remain on drug for 10 years) and not going to happen but you're underselling the market potential in the US many fold. Add in other markets like Europe and Asia and all of a sudden it's not far fetched that Iclusig is a billion dollar drug. Couple that with extended patent protection due to orpan drug status, its efficacy, and hematologists favorable view of it, and it's nearly impossible not to look at the drug as a long term winner.

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