Shares of Ariad Pharmaceuticals (NASDAQ:ARIA) fell nearly 5% on May 7 after the company reported its first-quarter earnings. The stock has fallen more than 60% over the past 12 months due to safety concerns about its only marketed drug, the leukemia treatment Iclusig.

ARIA Chart

Source: Ycharts.

For the quarter, Ariad's revenue rose 82% year over year to $11.8 million, topping the consensus estimate of $10.4 million. Sales of the leukemia drug Iclusig climbed 25% year over year to $8 million, with $4.7 million sales coming from the U.S. and $3.3 million from Europe. The remaining $3.8 million in revenues came from licensing revenues, primarily from a partnership in drug-eluting stents with Medinol.

Ariad's net loss narrowed to $0.27 per share, or $49.8 million, bettering a loss of $0.36 per share, or $64.7 million, in the prior-year quarter. Analysts had expected a wider net loss of $0.32.

Ariad attributed its narrower loss to a decline in research and development expenses, which fell 31% to $12.7 million due to decreased clinical trial and manufacturing costs, primarily caused by a partial clinical hold on certain trials by the Food and Drug Administration and the discontinuation of its late-stage EPIC trial last October.

Selling, general, and administrative expenses climbed 7% to $2.1 million, mainly due to the commercial relaunch of Iclusig in the U.S. and the expansion of Iclusig commercialization in Europe. Ariad's cash and equivalents fell 23% year over year to $183 million.

Can Ariad get back on track?
Ariad started to tumble last October due to concerns about arterial thrombotic events in patients using Iclusig. The FDA started probing Iclusig's safety issues in early October, leading to the discontinuation of Ariad's phase 3 EPIC trial, which was testing the drug on patients with newly diagnosed chronic myeloid leukemia (CML). Marketing and sales of Iclusig in the U.S. were suspended on October 31.

The FDA allowed Iclusig back onto the market in late December with a new warning label, but the negative publicity and discontinued late-stage trial had taken their toll. Analysts originally expected Iclusig to generate peak sales of $425 million (William Blair & Co.) to $1.44 billion (Kantor). Those estimates are now significantly lower, ranging from $100 million (RBC Capital Markets) to $276 million (Stifel Nicolaus).

Unfortunately, $8 million in quarterly sales for the first quarter -- half of 3rd quarter 2013 sales before the safety concerns -- indicates that Iclusig has a long way to go to hit even the lowest of those analyst estimates. Ariad reported $45.2 million in Iclusig sales in fiscal 2013, its first full year on the market.

Not many near-term catalysts
The big problem with Ariad is that investors don't have anything to look forward to.

Iclusig is approved for CML and refractory Philadelphia-positive acute lymphoblastic leukemia (Ph+ ALL) in the U.S. and the EU, but all of its other potential indications -- including lung cancer, medullary thyroid cancer, and gastrointestinal stromal tumors -- remain in phase 2 trials. The same applies to its only other pipeline candidate, a potential treatment for non-small cell lung cancer (NSCLC) called AP26113.

The best case scenario for Ariad right now is a buyout, which was suggested earlier this year by reports from the Daily Mail. Eli Lilly (NYSE:LLY) and Jazz Pharmaceuticals (NASDAQ:JAZZ) were named as potential suitors, although neither bid materialized.

Lilly, which is struggling with the patent expirations of several top drugs like Cymbalta, would hardly benefit from buying a treatment already marred by safety concerns. Moreover, Lilly is probably more interested in investments with guaranteed returns, especially after building a costly Alzheimer's pipeline which has disappointed to date.

Jazz, which started a three-month long slide after missing analyst estimates in the fourth quarter in February, could benefit from diversifying its portfolio away from Xyrem, its leading narcolepsy drug, but there are safer options than Iclusig. Jazz finished last quarter with $636.5 million in cash and $550 million in debt -- which doesn't put Ariad, with its $1.3 billion market cap out of reach, but it would significantly change Jazz's capital structure for unclear returns. 

The Foolish takeaway
In conclusion, it's encouraging that Ariad is gradually moving on from its safety issues from last year.

Unfortunately, sales of Iclusig indicate that analyst estimates could still be too high, and Ariad's narrower loss this quarter was really only due to the discontinuation of its clinical trials. As clinical trials for Iclusig resume, expenses will rise again, losses could widen, and its cash position could decline at a faster rate -- all pointing to further downside in the future.

Leo Sun has no position in any stocks mentioned, and neither does The Motley Fool. 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.