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Why Ariad Pharmaceuticals Shares Jumped 12.5% Today

By Todd Campbell – Jul 28, 2016 at 5:23PM

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Solid second-quarter financials and an approaching catalyst in brigatinib are boosting investor optimism.

Image source: Ariad Pharmaceuticals.

What: After reporting second-quarter financials that outpaced industry watchers' predictions, shares in Ariad Pharmaceuticals (NASDAQ: ARIA) surged 12.5% higher today.

So what: Ariad Pharmaceuticals currently markets Iclusig, a $149,000 therapy for the treatment of chronic myeloid leukemia (CML) and Philadelphia chromosome positive acute lymphoblastic leukemia (Ph+ ALL), two rare blood and bone marrow diseases.

In the second quarter, Iclusig revenue was $65.3 million. Sales in the U.S. totaled $32.6 million, up 50% growth from last year, while sales overseas totaled $32.7 million, including a one-time $25 million payment from France tied to cumulative Iclusig shipments. 

Thanks to the French payment and a licensing deal -- more on that in a minute -- Ariad Pharmaceuticals reported GAAP EPS of $0.56. However, given the one-time nature of these payments, investors should probably take that figure with a grain of salt.

The company also made progress advancing its second drug toward commercialization in the quarter. The company filed a rolling application for approval of brigatinib, a drug for the treatment of ALK-positive non-small cell lung cancer, or ALK-NSCLC. In trials, response rates for patients whose disease remains or has returned following Xalkori therapy have been solid, and that has management hoping for accelerated approval and priority review. The rolling filing is expected to be completed this quarter. 

Now what: Iclusig sales are making progress, and the company is making headway in bulking up its balance sheet. Last quarter, the company sold its European Iclusig business, including a license to market Iclusig in the region, to Incyte Corporation (INCY 1.80%). In return, Ariad Pharmaceuticals received about $140 million, plus 32% to 50% tiered royalties on future European sales of the drug. The deal resulted in the company recording $128.7 million in gain in the quarter.

The deal lifted Ariad Pharmaceuticals' cash to $278.5 million from $168.3 million exiting March, and that's good news for investors given that cash, coupled with cost-cutting, should give the company enough flexibility to roll out brigatinib if it wins approval. 

Iclusig's growth and the chance to potentially launch brigatinib as soon as next year make Ariad Pharmaceuticals an intriguing company, but shares aren't cheap. The company's market cap is $1.8 billion, and that means if you back out the payment from France, it's trading at more than 10 times annualized Iclusig's sales. Also, despite the benefit of its cost-cutting measures, total operating expenses still represent 117% of sales last quarter.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter, where he goes by the handle @ebcapital, to see more articles like this. The Motley Fool has no position in any of the stocks mentioned. 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.

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