I like the move ARIAD Pharmaceuticals (Nasdaq: ARIA) just made. I'm not sure it was worthy of the nearly 4% increase that investors assigned to it, but maybe that was more noise than anything else.
Yesterday the development-stage drugmaker announced that it was extending its partnership with MolecularMD to develop a companion diagnostic test for its cancer drug ponatinib. ARIAD is testing ponatinib in patients that have failed other treatments for chronic myeloid leukemia and acute lymphoblastic leukemia or patients that might fail because of mutation in T315I mutation. It's the latter group that MolecularMD will develop a test to identify.
Teaming up makes a lot more sense than developing the diagnostic test on its own. Even big drugmakers such as Pfizer (NYSE: PFE) and GlaxoSmithKline (NYSE: GSK) have signed up Abbott Labs (NYSE: ABT) as a partner rather than developing companion diagnostics on their own.
But it's not like this is going to bring ARIAD any cash. In fact it'll cost the company money as it's responsible for reimbursing expenses that MolecularMD incurs and ARIAD owes the company milestone payments for successfully developing a test.
The payback will come when more patients use the drug down the line. Keep in mind though, ponatinib is only in phase 2 development; the payback is years away.
Most of ARIAD's value is tied up in its phase 3 compound ridaforolimus. The company recently exercised its rights to co-promote the drug with partner Merck (NYSE: MRK), so it'll have a sales force ready to market ponatinib when it finally makes it to market.
At a market cap approaching $1 billion, ARIAD isn't particularly cheap, but the risk of ridaforolimus not being approved by the Food and Drug Administration is fairly low given the stellar phase 3 data. Let's just hope that's what investors were thinking when they bid up the stock yesterday.
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