What: Shares of Ariad Pharmaceuticals (NASDAQ:ARIA), a biopharmaceutical company focused on developing therapies to treat cancer, surged by 19% in November according to data from S&P Capital IQ after reporting market-topping third-quarter earnings results and seeing its lead drug approved in an important overseas market.
So what: Although both events provided a nice spark for Ariad, the more important of the two was the Nov. 24 announcement by Ariad that the Therapeutic Goods Administration (the Australian equivalent of the Food and Drug Administration) had given marketing approval to cancer drug Iclusig. The initial new drug application was submitted to the TGA in Q3 of 2013, and the expected launch of Iclusig for chronic, accelerate, or blast phase chronic myeloid leukemia (CML), or Philadelphia-chromosome positive acute lymphoblastic leukemia, will happen in the first quarter of 2015. Ariad notes in its press release that CML is diagnosed in about 330 Australians each year.
Also providing a boost was Ariad's third-quarter earnings results. Total revenue leaped 21% to $14.7 million from the sequential second quarter and was comprised almost entirely of Iclusig sales. Net loss for the quarter also shrank year-over-year to $50.1 million, or $0.27 per share, from $66.3 million, or $0.36 per share. By comparison, Wall Street was expecting more in sales ($16.2 million), but a wider loss of $0.29 per share.
Most importantly, Ariad reduced its research and development expense forecast to a new range of $125 million to $130 million and lowered its 2014 cash burn to a range of $150 million to $155 million. Less cash being used in operations means its existing cash may last longer than expected.
Now what: It was a good month for Ariad, but I'm nowhere near ready to break out the champagne. Though Iclusig sales continue to ramp back up, and the company looks poised to pick up a few dozen Australian patients in early 2015, the fact still stands that while Iclusig is effective in treating CML and other blood cancers when other therapies have failed, it also comes with some potentially serious side effects. Because of the potential for thrombotic events, it's really difficult to see Iclusig moving beyond a last-in-line use status regardless of indication.
Why's this a problem? Practically Ariad's entire pipeline revolves around Iclusig, with the drug being tested in more than a half-dozen other indications. There's definitely revenue to be made as a third-line and fourth-line treatment, but being relegated to that status is going to seriously cap its sales potential and make it a struggle to ever reach profitability. Based on Wall Street's expectations, it could be 2018 or 2019 before Ariad even has a shot at being profitable on an annual basis.
I believe this problem also removes any potential Ariad may have had of being bought out by a larger pharmaceutical company. Altogether I think this severely caps Ariad's potential to tack on additional share price gains and would suggest investors consider locking in some or all of their gains here.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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