Overreliance on its blood cancer drug Iclusig (ponatinib) continues to make Ariad Pharmaceuticals (NASDAQ:ARIA) an incredibly risky biotech play, despite the mature company's relatively low market cap of $1.1 billion.

After a dramatic FDA recall in 2013 based on a handful of serious adverse events and patient deaths related to an Iclusig clinical trial, it appears that the drug is back on the market – but with a very tarnished reputation in the medical community that could prevent it from ever becoming a blockbuster.

As Ariad attempts to bring Iclusig into new cancer indications, investors are attempting to weigh the potential benefits of this drug against the possibility of failure in clinical trials –whether its due to adverse events and patient deaths or lack of efficacy against cancer.

Iclusig's current commercial prospects are dim
There are roughly 3,000-5,000 people who develop Chronic Myeloid Leukemia (CML) each year in the United States. At a price of $115,000 per patient, this means that Iclusig could have anywhere between $345-575 million in maximum potential revenues from the CML indication alone.

These figures sound good on paper, but the reality is that Iclusig will only be able to capture a small fraction of this patient population given its current status as a "drug of last resort" for patients with CML or Ph+ ALL.

Although Iclusig succeeded in proving its patient response benefit during its phase 3 development, its lack of proven survival benefit in CML patients – and its ominous black box warning – will continue to deter its use.

Other tyrosine kinase inhibitors (TKIs), like Gleevec (imatinib), will also threaten Iclusig directly in the CML indication with a superior reputation and cheaper pricing. And because there are only a few CML patients who cannot be prescribed competing TKIs, Iclusig is a last-ditch option for just a few select patients who could end up choosing palliative care instead.

It's hard to say how many total patients Iclusig could realistically target given its current prescription label, but based on recent sales figures it seems that the drug will only be used in a few hundred US patients per year. This really isn't enough to justify the company's current valuation.

Can Iclusig expand its prospects?
Ariad was making an attempt to turn Iclusig into a first-line CML drug with the infamous phase 3 EPIC trial, which was terminated in 2013 due to patient deaths and severe adverse events related to administration of Iclusig.

Because this was the trial that was supposed to make Iclusig into a blockbuster, it was a huge blow to investor morale when the trial (which was representative of Iclusig's chances in CML) fell apart last year.

But as discouraging as it may have been, Ariad management is still keen on turning Iclusig into a viable option in other indications.

Knowing that its opportunities in CML are limited, Ariad is now developing Iclusig/ponatinib in a number of alternative oncology indications, including gastrointestinal stromal tumors, lung cancer, acute myeloid leukemia (AML) and medullary thyroid cancer (MTC). These programs are all in phase 2, and it's impossible to say whether or not they succeed given what little we know right now.

What we do know is that future trials for these alternative programs will hit Ariad's bottom line pretty hard throughout the next few years, since thousands of patients will have to be enrolled into upcoming phase 2/3 trials.

This aggressive effort to expand Iclusig/ponatinib increases the risk of Ariad as an investment, but it is necessary to give Ariad a chance at recovering lost ground.

What could go wrong? Plenty.
If Ariad continued to see high rates of Iclusig-induced serious adverse events and/or deaths among cancer patients in its new trials, the stock could be in serious trouble. Even if the FDA allowed Iclusig to stay on the market as a third-line CML drug with its current black box warning, we know that the company' wouldn't be able to generate enough money to sustain a financial valuation anywhere near $1 billion.

So basically, Iclusig needs to be developed for a myriad of new indications while simultaneously fixing its reputation as a dangerous drug. That won't be easy, and there is simply too much that could go wrong -- I'd prefer to stay away.

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