ARIAD Slow Out of the Gate

ARIAD Pharmaceuticals (NASDAQ: ARIA) announced its fourth-quarter and full-year earnings results on Monday morning. The market, though, merely yawned at first with shares down slightly in early trading. However, it appears to have seen things more positively after more thought, with shares up around 1% later in the day. What did investors see that made up for the stock's slow out of the gate start? Let's take a look.

The results
Analysts were expecting ARIAD to post a loss for the fourth quarter of $0.35 per share. The company narrowly missed this average estimate with a net loss of $0.36 per share, or $60.5 million. This loss was higher than the $51.8 million reported in the fourth quarter of 2011. ARIAD attributed the difference to increased operating expenses related largely to commercialization plans for chronic myeloid leukemia, or CML, drug Iclusig. These increased expenses were offset partly by a decrease in a non-cash charge related to the revaluation of its warrant liability.

For all of 2012, ARIAD reported a net loss of $220.9 million, or $1.34 per share. That result compares to a net loss of $123.6 million, or $0.93 per share, for 2011. Expenses related to commercialization of Iclusig were a key factor in the greater loss, as were higher costs for on-going product development.

The company had $164.4 million in cash, cash equivalents, and short-term investments as of the end of 2012. However, that amount was bolstered in January 2013 with a secondary public offering that netted $310 million. ARIAD projects that it will have enough cash to carry it into fourth quarter of 2014.

Beyond the results
ARIAD's stock wasn't the only thing slow out of the gate. So far, the commercial launch of Iclusig hasn't gone quite as smoothly as the company would have liked. For one thing, the company estimated that only 45% of Iclusig prescriptions were captured during the first six weeks of the launch. That number is lower than the 70%-plus figure normally seen with new drug launches.

The company believes the lower capture rate is due partially to lower volumes of specialty pharmacies reporting data to IMS Health, the firm that analyzes and reports pharmaceutical data. Another major factor that could account for the lower capture rate is that relatively higher numbers of patients are having prescriptions filled through hospital pharmacies or specialty distributors, which do not report data to IMS. ARIAD anticipates that the capture rate will increase to 70% within the coming months.

Another issue is possible confusion in the marketplace about Iclusig and other new CML drugs. In particular, Marty Duvall, ARIAD's senior vice president of commercial operations, says that the company is working to reduce any confusion about the differences between Iclusig and Pfizer's (PFE 0.30%) Bosulif. Bosulif was approved as a treatment for CML in September, just a few months before Iclusig was approved. Duvall's comments indicated that ARIAD would try to highlight what it sees as Iclusig's better tolerance among patients.

Looking ahead
The next big milestone for ARIAD is a European regulatory decision for Iclusig. The company expects this decision to be announced in the third quarter of 2013. ARIAD plans to also file for approval in Canada, Switzerland, and Australia in the second half of this year.

ARIAD also has clinical studies under way that it hopes could broaden access for Iclusig. The company's EPIC phase 3 study compares Iclusig against Novartis' (NVS 2.87%) Gleevec. ARIAD is also collaborating with the U.K. National Cancer Research Institute on a phase 3 study known as SPIRIT 3 to evaluate the effects of patients switching from Novartis' Tasigna to Iclusig.

If we look at the current market size for CML drugs, there appears to be solid potential for ARIAD -- especially if Iclusig can ultimately gain approval for patients with newly diagnosed CML. 2011 sales for Gleevec were $3.26 billion (excluding non-CML indications). Bristol-Myers Squibb (BMY 0.30%) made over $800 million from Sprycel. Tasigna hauled in $716 million for Novartis. 

I look for ARIAD to gain ground against Bosulif as the company makes its case more effectively with the physician community. Over the longer run, Iclusig could be a real threat for Novartis and Bristol as well. My view is that ARIAD is one for investors to seriously consider. As with horse racing, starting slowly out of the gate doesn't mean that the horse isn't a winner.