After getting its drug pulled off the market for a few months, the relaunch of ARIAD Pharmaceuticals' (NASDAQ: ARIA) Iclusig is going about as good as could be expected.

When Iclusig was pulled off the market, there were 640 leukemia patients on the drug. During the five weeks since it's been back on the market, 180 patients have come off the temporary free drug program that was available while the drug was off the market. ARIAD thinks there's another 50 or so patients that will transition to the commercial product once they finish their free supply. And more than 100 additional prescriptions for patients not in the free program have been written.

Source: ARIAD Pharmaceuticals.

Going from those 330 patients to get back to 640 and beyond will be an uphill battle. Iclusig has safety issues that will likely make it a treatment of last resort for most leukemia patients. Instead of competing directly with Novartis' (NYSE:NVS) Gleevec and Bristol-Myers Squibb's (NYSE:BMY) Sprycel, ARIAD will be getting Novartis' and Bristol-Myers' castoffs that either fail their drugs or can't take them. Because they're likely to be sicker, the patients will stay on Iclusig for a shorter time, reducing the commercial opportunity.

Management didn't give sales guidance for Iclusig, but we can do some math to figure out what they're expecting based on the guidance they did give.

  • R&D expenses of $140 million to $150 million
  • SG&A expenses of $135 million to $145 million
  • Noncash expenses included in the two categories above of $35 million to $45 million
  • Cash used in operations of $155 million to $175 million

To get the expected cash generated by sales of Iclusig, you just add up the other expenses, back out the noncash expenses, and subtract the amount of cash Ariad plans to use. At the midpoint of the estimate ranges, you get around $80 million.

That's not exactly the blockbuster potential that investors thought Iclusig had a few months ago. And it's a little scary that Ariad could stop all of its research and development and the company still wouldn't be cash flow positive this year.

You've got to spend money to make money
Iclusig is approved in the EU, but it takes awhile to get reimbursement set up in each individual country. In the fourth quarter, sales came from just five of the 15 E.U. countries ARIAD plans to enter in 2014. Presumably the SG&A expenses as a percent of revenue will decrease substantially as those additional EU countries and Switzerland get up and running.

On the R&D front, about 75% of the expenses are for trials on Iclusig. ARIAD is running a trial to test lower concentrations of the drug, which might be efficacious enough but have reduced side effects. It's also running trials in solid tumors where side effects might be less of an issue because patients might not have to stay on the drug as long.

ARIAD's other drug, AP26113, will start a pivotal clinical trial testing the drug in lung cancer patients resistant to Pfizer's (NYSE:PFE) Xalkori by the end of the first quarter. Like Iclusig, testing it on late-stage patients will reduce the market opportunity, but will increase the likelihood of approval since it can be tested against placebo and not directly against Pfizer's drug.

ARIAD can always go back and do a head-to-head comparison with AP26113 and Xalkori. Of course, that was the plan for Iclusig against Novartis' Gleevec, and that didn't exactly turn out as planned.

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