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Bash My Stock: Ariad Pharmaceuticals

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The concept here is simple: Take a well-liked company on Motley Fool CAPS and completely debunk the notion that it's worth buying. Does this mean that after I put a company through the wringer, it's worth selling? Maybe, maybe not -- that's up to you to decide. The point of "Bash My Stock" is to expose the fact that there's another side to every trade, and this series will attempt to look at the bearish view of why a stock might not be such a great value after all. Today I suggest we take a closer look at Ariad Pharmaceuticals (Nasdaq: ARIA  ) .

Don't be fooled by Ariad's two-star Motley Fool CAPS rating (out of a possible five stars). This tiny biotechnology company has garnered 343 picks from our CAPS community, with an overwhelming 308 rating the stock as an outperform.

As indicated by the bullish support in our own community, there are definite positives to be excited about if you're an Ariad shareholder. For starters, in late September, the company presented positive data on ponatinib, the company's experimental treatment for patients with resistant and refractory chronic myeloid leukemia. The data showed that in the long-term phase 1 study, 72% of patients achieved a major cytogenetic response.

In addition, the company, in partnership with Merck (NYSE: MRK  ) , is developing ridaforolimus, an experimental drug targeting patients with bone and soft tissue cancers. It is currently in stage 3 clinical trials.

Still, not everything is as cut-and-dried as it may appear in the biotech sector. Ariad shareholders, it's time for me to bash your stock!

First up is ponatinib, which seems to be the "bee's knees" of the company's portfolio, despite the fact that it just now began phase 2 clinical trials. This means that, at best, Ariad is a couple of years from bringing ponatinib to market -- and that's if there are no setbacks. It's not uncommon for biotech companies to perform well in phase 1 and 2 clinical trials only to fail to impress the FDA with phase 3 clinical data. Shareholders would be counting their chickens well before they're hatched if they bought into the ponatinib hype. Shareholders might also be jumping the gun with ridaforolimus. The drug, which did show a 28% reduction in cancer progression relative to the placebo in phase 3 trials, isn't a lock yet.

Finally, there are the cash constraints of putting three major drugs through clinical trials (ridaforolimus, ponatinib, and AP26113) while still trying to develop an additional pipeline. Ariad has been burning cash nearly every year since inception, and it's very likely that even if these drugs were approved, the company would not be anywhere near profitable until many years from now. With only $81 million in cash remaining on its books and the company generally burning $50 million each year in cash, it's only a matter of time before Ariad brings a large and dilutive share offering to market.

Foolish roundup
I think shareholders have wrung every last drop of speculation out of the stock. At 190 times book value and with many years of losses still looming, this looks like a potentially dangerous investment.

Now it's your turn to weigh in by voting in the poll below on whether you think Ariad Pharmaceuticals is the next big blockbuster or perhaps the next portfolio popper. Also consider adding Ariad Pharmaceuticals to your free and personalized watchlist to keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that doesn't cost an arm and a leg.


Read/Post Comments (7) | Recommend This Article (5)

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 November 03, 2011, at 3:55 PM, nobiology wrote:

    Do some research- expecting approval EOY 2012. It's a pivotal P2 = P3, duh

    Where's Brian?

  • Report this Comment On November 03, 2011, at 4:05 PM, bata1 wrote:

    Where "Crammer" here, and assuming he knew anything at all, he would, in regard to your literally "FOOLISH" roundup, again,(and quite appropriately),exclaim,

    "They know nothing!!!"

    You "Sir" have, once again, demonstrated your lack of qualifications.

    Have they(MFs) no shame???

  • Report this Comment On November 03, 2011, at 4:26 PM, tennstud46 wrote:

    Unbelievable lack of research. NDAs for RIDA have already been filed in U.S. and Europe for Sarcoma.

    The trial for ponatinib is a pivotal trial which mean a NDA could be filed in 2012. SHEESH

  • Report this Comment On November 03, 2011, at 4:48 PM, DividendDude wrote:

    Well, Sean, you found a way to bash the stocks that you don't like. I think I'll skip any further articles you write in this series.

  • Report this Comment On November 03, 2011, at 4:49 PM, tktom wrote:

    Amazing lack of understanding of Ariad. Ariad does not have to spend another nickel on the developement of Ridaforolimus. All development cost are the responsibility of Merck. For now on Ariad receives royalties if Rida is approved, and they can co-promote it..

  • Report this Comment On November 03, 2011, at 4:51 PM, tktom wrote:

    Your article is a perfect example of why I do not read Motley Fool any more. Lack of knowledge..

  • Report this Comment On November 03, 2011, at 7:19 PM, Jeffbahr wrote:


    Everyone is entitled to their opinion and that includes you. But your article is factually inaccurate and that is unfortunate. It would appear you do not have an understanding the path ARIAD is taking to approval for ponatanib. The PII trial for PONA is a pivotal trial with results and NDA filing expected in 2012. Currently the company is projecting possible approval at the end of 2012 or early 2013. Your comments that approval is in a couple years at the earliest is clearly wrong. While approval is not guaranteed the timeframe has been established. Also, you fail to demonstrate a knowledge of the amazing efficacy of the drug in the T315 mutation. One can debate whether the drug will go to first or 2nd line but there is no debating its efficacy with respect to this specific mutation and that is the target they will use to initial approval.

    Its sad that you can write an article without knowing the facts. You may generate money by attracting readers but you are doing them a disservice. I hope you can take the high road and acknowledge your factual inaccuracies.

    Shame on you and your lack of effort.

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