What: Shares of Ariad Pharmaceuticals Inc. (NASDAQ:ARIA) gained 23.3% last month, according to data from S&P Global Market Intelligence. A new partnership with Incyte Corporation (NASDAQ:INCY), a strong first-quarter earnings report, and good news from France kept the stock climbing.
So what: Although Ariad's first product, Iclusig, for the treatment of a subset of chronic myeloid leukemia patients, won FDA approval in 2012, the company's operations have yet to post an annual profit. Incyte's acquisition of Ariad's European operations and licensing of Iclusig in the region, could go help Ariad finally turn the profitability corner. The acquisition, which closed early this month, put $140 million upfront into Ariad's coffers, and Incyte will pay royalties of between 32% and 50% on sales of the drug.
Ariad announced first-quarter results the day after the Incyte deal, and net product sales of Iclusig rose 41% over the same period last year to $33.6 million. Extensive R&D expenses of $44.1 million grew 12% over the same period last year, but at least they're rising at a slower rate than the top line. The company finished March with cash, cash equivalents, and securities of $168.3 million. Add in the $140 million upfront payment from Incyte, and Ariad might be able to turn the profitability corner without raising more equity, or adding to it's $445.5 million long-term debt pile remaining at the end of March.
More good news followed with the conclusion of pricing and reimbursement negotiations in France. As a result, Ariad expects to record another $25 million in net product revenue in the next quarter. All in all, not a bad month.
Now what: Over the years, Ariad has been playing a dangerous game, financing development of its pipeline with debt. Last July, Ariad entered a complex deal with PDL BioPharma that basically allowed Ariad to receive up to $200 million from PDL in separate tranches and repay the debt with royalties from sales of Iclusig. Ariad finished March with about $46.9 million in royalty financing debt, and PDL will fork over another $50 million this July. The last tranche of $100 million, to be paid next July, however has been reduced to $40 million, following the deal with Incyte.
Outside of Iclusig, Arid's next biggest asset, brigatinib for the treatment of a small subset of lung cancer patients, is still in development. Results announced recently are encouraging, and the company expects to file an application with the FDA in the third quarter.
If Iclusig sales don't continue climbing, and brigatinib's launch (assuming it wins approval) isn't a success, the company could be in trouble. Ariad also has about $166.6 million in convertible notes (a form of debt that can be exchanged for stock, diluting present shareholders' slice of any potential profits) due in 2019.
May was indeed a great month, but there's plenty for Ariad shareholders to be nervous about over the near and long term.
Cory Renauer has no position in any stocks mentioned. You can follow Cory on Twitter @TMFang4apples or connect with him on LinkedIn for more healthcare industry insight. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.