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Why Ariad Pharmaceuticals Shares Jumped 11.2% In February

By Todd Campbell - Mar 10, 2016 at 4:41PM

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Strong sales growth for Iclusig and a potential second commercial drug on the horizon sparked a rally.


What: Optimism for sales growth for its cancer drug Iclusig and the eventual FDA approval of brigatinib helped lift shares in Ariad Pharmaceuticals (NASDAQ: ARIA) 11.2% last month, according to S&P Global Market Intelligence.

So what: The maker of the $149,000 therapy for the treatment chronic myeloid leukemia (CML) and Philadelphia chromosome positive acute lymphoblastic leukemia (Ph+ ALL), two rare blood and bone marrow diseases, reports that sales of Iclusig totaled $112.5 million last year and $33.3 million last quarter.

Despite being temporarily removed from the market in 2013 because of safety concerns, Iclusig's sales have been growing steadily since its relaunch. Last year, sales increased 102% from 2014, when the drug was allowed back onto the market.

Although Iclusig's growth is impressive, its revenue still failed to offset growing operating expenses. Those costs grew to $336 million in 2015, up from $266 million in 2014, and as a result, Ariad Pharmaceuticals lost $231 million last year.

One reason behind Ariad Pharmaceuticals soaring expenses is brigatinib, a drug its developing for the treatment of ALK-positive non-small cell lung cancer, or ALK-NSCLC. In early stage trials, brigatinib delivered a 70% average patient objective response rate, and that has management thinking it may be able to put the drug in front of regulators for approval by the end of this year.

Now what: A risk of dangerous blood clots means that Iclusig use will likely remain limited to higher risk patients, crimping its peak sales potential. While the $112.5 million in sales last year is good, I'm a bit concerned that Iclusig sales annualized out at a $133.2 million pace last quarter. That could indicate that Iclusig's growth is decelerating. That worry is amplified by the fact that full year sales of Iclusig were shy of management's $130 million forecast last summer.

Obviously, a brigatinib approval would give the company a welcome source of new revenue that could accelerate it toward profitability (I'm sure a good deal of the pop in Ariad Pharmaceuticals' share price last month is tied to that potential), but investors may not want to get the proverbial cart too far in front of the horse. After all, cancer drugs can -- and often do -- fizzle out during clinical trials.

Overall, Ariad Pharmaceuticals is projecting Iclusig sales of $190 million this year, but that still won't be enough to cover its expenses. Therefore, given brigatinib success is uncertain and the company already has a market cap of $1.2 billion, I think shares are pretty fully valued here and because of that, investors might want to focus their attention elsewhere until we get more insight on brigatinib's efficacy. 

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