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Why Ariad Pharmaceuticals Tumbled 14.8% Today

By Todd Campbell – Updated Oct 14, 2016 at 11:15AM

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Worry over mounting political scrutiny of its pricing of Iclusig led investors to head for the exits today.

Image source: Getty Images.

What happened

After reports that the company increased prices on its leukemia drug four times this year prompted former presidential hopeful Bernie Sanders to tweet negatively about the company, shares in Ariad Pharmaceuticals (NASDAQ: ARIA) fell 14.8% today.

So what

Biotech stocks market some of the world's most expensive medicine, and cancer drugs, including Ariad Pharmaceuticals' Iclusig, are among the priciest of them.

Iclusig is used to treat chronic myeloid leukemia (CML) and Philadelphia chromosome positive acute lymphoblastic leukemia (Ph+ ALL), two rare blood and bone marrow diseases. Following four price increases in 2016, Iclusig now costs an eye-popping $199,000 per year.

Ariad Pharmaceuticals' decision to increase prices multiple times this year appears somewhat tone-deaf given that runaway price increases have been in the political cross-hairs since last year, when revelations of triple-digit price increases on long-standing medicines resulted in Congressional inquiries, testimonies, and a steep sell-off in healthcare stocks.

Following news of Ariad Pharmaceuticals pricing behavior, Bernie Sanders tweeted:

Now what

Until recently, biopharma stocks had been regaining some of their momentum, but stocks have fallen sharply this week over fears that regulating drug prices could be in the cards following the elections in November.

If Washington's pushback against Ariad Pharmaceuticals leads to price concessions, it could put a big dent in the company's sales growth. Iclusig is Ariad Pharmaceuticals' only drug on the market, and in Q2, U.S. sales increased 50% year over year to $32.6 million. 

However, Ariad Pharmaceuticals' sell-off could create an opportunity for risk-tolerant investors. So far, drugs that target cancer and rare diseases have mostly escaped politicians' ire, and unlike those drugs that enraged Congress last year, Iclusig targets a pretty specific (and small) patient population with limited treatment options. 

While risk relating to scrutiny of Iclusig shouldn't be ignored, Ariad Pharmaceuticals could still see its top line expand next year, even if Iclusig's prices fall. That's because the FDA may soon approve the company's second drug: brigatinib. If approved, brigatinib could offer new hope to patients with ALK-positive non-small cell lung cancer who have seen their disease return following treatment with Xalkori.

Todd Campbell has no position in any stocks mentioned. 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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