If you'd like to quickly understand the promises and perils of the biotechnology sector, have a quick look at Ariad Pharmaceuticals' (NASDAQ: ARIA) chart over the past six months, which features a nauseating 90% drop and a roughly 300% pop since its lows.
Ariad Pharmaceuticals has taken investors for a wild ride thanks to a two-year follow-up study, released in October, on its only FDA-approved therapy, Iclusig. The drug, which is approved to treat Philadelphia chromosome-positive acute lymphoblastic leukemia, or Ph+-ALL, was shown to increase the chance of serious vaso-occlusive events (i.e., blood clots) at the 24-month mark compared to its prior adverse events readings at the 11-month mark.
This potentially serious toxicity issue caused a spiraling of negative events, including the discontinuation of the Epic trial in October which would have expanded Iclusig's usage to treatment-naïve chronic myeloid leukemia patients (drastically broadening the scope of Iclusig's application), and also led to the temporary sales ban of Iclusig in the U.S.
Fast-forwarding a bit, Iclusig has returned to U.S. pharmacy shelves with a more expansive warning label. It will remain on the market in Europe as well with the expectation that doctors will closely monitor the cardiovascular health of patients receiving the medication.
In the U.S., Iclusig is viewed as something of a last-resort treatment for Ph+-ALL. Yet Ariad CEO Harvey Berger indicated in a presentation last month at the JPMorgan Healthcare Conference that Iclusig is statistically the most effective therapy available in chronic myeloid leukemia patients who have tried and failed two lines of tyrosine kinase inhibitors.
Source: Ariad Pharmaceuticals, Lipton et al, ASH 2013.
As Berger pointed out, the percentage of patients who achieved a complete cytogenic response was close to 60% with Iclusig, while Pfizer's Bosulif and Novartis' Tasigna delivered complete cytogenic response rates closer to 30%.
In other words, the therapy appears to work, but its toxicity is still a concern; so how does the company approach this to maximize shareholder value and Iclusig's long-term potential?
I believe the company has three options, though the likelihood of some pathways is clearly better than others.
Pathway No. 1: Seek a partner
No biotech company shares revenue if it doesn't have to -- it's a knock on its pride and pocketbook -- but I see no better way for Ariad to rebuild the brand value of Iclusig than through a partnership.
Ariad would be smart to look at ways of licensing the marketing rights of Iclusig in Europe and the rest of the world. The reasoning is that U.S. insurers tend to be pretty straightforward about what they will and won't cover. That's not always the case in Europe, where each country handles marketing and pricing on a step-by-step basis. Ariad understands the U.S. market well because it operates here, but it could certainly use a company with better overseas marketing knowledge.
Two possibilities here are cancer-focused European juggernaut Roche (RHHBY 1.20%) or Merck's (MRK 0.44%) rest of world operations, known as MSD outside of North America.
Roche makes sense for obvious reasons. The company has a few dozen ongoing cancer trials, it's based in Europe, and it has a mammoth marketing force and countless relationships with physicians. What's more, though the two companies dance around many of the same treatment aspects, neither would be stepping on the other's toes through direct competition -- Roche's focus is on chronic lymphocytic leukemia, while Ariad's Iclusig targets select types of chronic myeloid leukemia.
MSD would be an interesting fit only because Ariad and Merck (in the U.S.) have partnered up once previously in the development of sarcoma drug ridaforolimus, which extended progression-free survival by three weeks but couldn't get a nod of approval from either the FDA or the European Medicines Agency. Their failure on that project does not mean the companies could not resume a working relationship.
This pathway, though, might be a tough sell as Berger has made it pretty clear he'd like Ariad to go it alone. In an interview with PharmExec in August, before the Iclusig follow-up data was available, Berger addressed why his company hadn't sought a partner,
It's the foundation of why we think we're a sustainable, long-term, successful global oncology business. It goes back to two corporate values we have: scientific excellence, and clinical scholarship. The second one, clinical scholarship, we view as a critical part of our core values, and as a key distinguishing feature.
In other words, he believes licensing out drugs to companies that won't know how to use those drugs isn't the best practice for the future of the biotech industry. This makes a partnership here possible, but perhaps difficult for Ariad's upper management to swallow.
Pathway No. 2: Test combination therapies
Iclusig is now brandishing a bruised reputation thanks to its beefed up warning label, and it's unlikely that sales will pick up dramatically, or that its indications will expand meaningfully, unless its toxicity can be reduced. This leads to the next possible pathway to rebuilding Iclusig: testing a number of combination therapies.
Source: Ariad Pharmaceuticals.
Berger said at the JPMorgan Healthcare Conference that Ariad plans to test different dosing options of Iclusig in the second half of the year to determine if lower dosing can be just as effective as current dosing options. If so, then the potential for serious adverse events should drop.
Berger also announced the potential for Iclusig to be combined with an anti-coagulant therapy in a study later this year. This idea has me intrigued as it would, on paper at least, reduce the risk of thrombosis. However, drug-to-drug interactions can be far different on paper than how they actually behave in the human body.
The point being that Ariad has dosing and combination therapy options. The question is whether Ariad will step up and spend the money to conduct these studies. I believe, based on the market potential for Iclusig if its toxicity were even halved, that it is in Ariad's best interests to spend heavily on these combo drug studies to see if there is a pharmacologic solution to its toxicity issue.
Pathway No. 3: Seek a full or partial buyout
Lastly, Ariad's management could always throw up the white flag and put a for-sale sign out on its front lawn (for the drug or the entire company) if marketing Iclusig proves too taxing, or if it finds little luck in combining Iclusig with other therapies.
I personally consider this pathway to be the least likely, but it's not 100% out of the question, either.
From a buyer's standpoint, Iclusig has limited current market potential and serious side-effect precursors that will keep it in a "last-in-line" position in its only approved indication for the near future. This is going to keep most offers for the company relative low -- if there are any buyout offers in the first place.
Source: Ariad Pharmaceuticals.
Then again, Ariad does offer some tangible and intangible benefits, such as highly valuable carryover tax-loss benefits and $218 million in net cash. Furthermore, though toxicity again may limit its marketability, early results from a gastrointestinal stromal tumor study confirmed the positive effects of Iclusig on previously unresponsive tumors. This means the potential for new indications isn't out of the question.
Given these pluses and minuses, Ariad could sell the rights to Iclusig in order to build up cash value to be used on development of its ALK-positive non-small cell lung cancer drug API26113, as well as start new research and development projects, or it can look to sell the entire company and dangle its tax-loss benefits as the carrot to draw in a prospective bidder.
Reporting last month from the London Daily Mail had pegged Eli Lilly as a prospective buyer given the company's struggling pipeline -- about three-quarters of Lilly's pipeline will come off patent in the 2010-2017 range -- but I've pretty much thrown that rumor into the ridiculous pile.
A more suitable buyer would be a cash-rich pharmaceutical company that also fully understands blood-borne cancers. If there is to be an Ariad buyout -- which I'd remind you I find very unlikely -- I would point my finger toward Celgene (CELG) as the most likely candidate. Celgene targets a number of leukemia types with blockbuster Revlimid, and it could certainly benefit from the tax-loss carryover from Ariad, as well as Iclusig's third-line sales potential in Ph+-ALL and a CML indication further down the road.
A long road
Ariad remains a work in progress, but it does have options to improve shareholder value and rebuild the Iclusig brand. Will Ariad be successful if it embarks on any of these pathways? That's a question that only time will answer.
