What: Shares of Ariad Pharmaceuticals (NASDAQ:ARIA), a biopharmaceutical company primarily focused on discovering therapies to treat cancer, catapulted higher by 26% in February, based on data from S&P Capital IQ, following the release of its fourth-quarter earnings results and the ongoing actions of an activist hedge fund.
So what: Released on Feb. 19, Ariad's earnings statement announced product revenue from cancer drug Iclusig of $21.4 million, a 47% increase from the sequential third quarter, and $55.7 million for the entire year. Looking ahead, Ariad is forecast to have $130 million-$140 million in full-year Iclusig sales for 2015. Net loss for the fourth-quarter shrank dramatically to just $5.7 million, or $0.03 per share, from $74.2 million, or $0.40 per share in the year-ago quarter.
Cumulatively, the company's $66.8 million in quarterly revenue (which includes licensing and other revenue) was well ahead of the $46.3 million consensus expectation, while its $0.03 per share loss was $0.11 per share narrower than Wall Street was anticipating.
The other factor at play here is activist hedge fund Sarissa Capital, which owns 6.87% of Ariad's outstanding shares. To put it mildly, Sarissa doesn't agree with the board of directors' decision to renew CEO Harvey Berger's employment, and the hedge fund is seeking his ouster. Normally, CEO change can create uncertainty which is bad for investors, but considering Ariad's recent poor performance and Sarissa's large stake in the company, shareholders can feel fairly confident that Sarissa's interests are tied in with their own.
Now what: On one hand, there's a lot to like with Iclusig's growth finally getting on track. With the potential for new label indications, including certain mutations of lung cancer and gastrointestinal stromal tumors, it's possible the drug could top $300 million in sales by 2018, at least based on Wall Street's estimates. Being that Iclusig is already approved to treat chronic myeloid leukemia and Philadelphia chromosome-positive acute lymphoblastic leukemia, some of the concern of "will it work?" is off the table. Ariad believes Iclusig can top $300 million in sales even without any additional labels.
On the other hand, Ariad is still dealing with the safety issue overhang concerning Iclusig. In follow-up studies after two years, Ariad discovered that Iclusig led to an increase in vaso-occlusive events, or blood clots. While Iclusig has demonstrated superior efficacy after second generation tyrosine kinase inhibitors have failed for CML patients, its safety pretty much regulates Iclusig to last-resort status. It's reasonable to assume that it may never escape that stigma, even in other indications.
Additionally, with the exception of brigatinib for ALK mutation-positive non-small cell lung cancer and a single preclinical study, Ariad is wholly reliant on Iclusig for its success. That's a lot of weight on one product -- especially one with safety concerns overhanging.
Personally, I don't see any value in waiting three or more years for Ariad to turn profitable with the company already valued at $1.5 billion. Even though Sarissa's activism is a nice gesture and a near-term catalyst, I still don't foresee Iclusig being a drug that can justify a $1.5 billion valuation for Ariad.