Ariad: A Very Interesting Biotech With An Even More Promising Pipeline

| About: ARIAD Pharmaceuticals, (ARIA)

When it comes to the biotech sector there are three catalysts that can determine the behavior of a stock. In order of importance these catalysts are: FDA decisions, EPS announcements, and Analyst coverage. In the past week the company I've chosen to focus on has announced fourth quarter earnings, a PDUFA date, and had its coverage initiated by Guggenheim.

Ariad Pharmaceuticals (ARIA) had its coverage initiated with a 'Buy' rating and a $30/share price target by the analyst firm Guggenheim on Friday. The Cambridge, Mass.-based company "is an oncology company, focused on the discovery, development, and commercialization of medicines for cancer patients". In my opinion Ariad has one of the strongest oncology-driven pipelines in the biotech sector for companies currently possessing a market cap of $3 to $4 billion.

Current Pipeline

The driving force behind Ariad Pharma's success is clearly the company's pipeline. The pipeline currently includes three drugs which are all geared toward certain types of cancer. The first of these drugs is "Ponatinib", which is an investigational BCR-ABL inhibitor, which is being studied in Phase I and II clinical trials in patients with hematologic cancers, including chronic myeloid leukemia and Philadelphia positive acute lymphoblastic leukemia. The second drug is called 'AP26113' which is an investigational dual inhibitor of anaplastic lymphoma kinase, which is being studied in a Phase I/II clinical trial in patients with advanced solid tumors comprising non-small cell lung cancer. Lastly, the third drug which is a joint development between Merck (NYSE:MRK) and Ariad is called 'Ridaforolimus'. Ridaforolimus is an investigational mTOR inhibitor that is being studied in multiple clinical trials comprising of patients with various types of cancer".

Of the three oncological drugs in Ariad's pipeline, Ponatinib seems the most promising. What's my reasoning behind that theory? The answer is simple. If anyone had listened to the company's most recent conference call discussing quarterly results, they would have noticed a very clear focus on the marketing and sales strategies of Ponatinib both here in the US and across the pond in Europe.

According to Jake King, "Pending Ponatinib`s approval for treatment of resistant or intolerant chronic myeloid leukemia, or CML. The company believes they are fully prepared for a U.S. commercialization (PDUFA slated for March 27, 2013), and efforts are already underway in the E.U. to assemble a similar sales force. Management expects European approval and launch in the third quarter of next year, and is committed to being launch-ready by July 1, 2013". If such an approval is granted, potential investors could see shares pop in the short-term and from a long-term perspective gradually gain upward momentum as both sales and revenue results are reported during the first and second quarters of 2013.

Fourth Quarter Earnings

Before investors get ahead of themselves and begin to analyze the myriad of possibilities in the quarters to come, I think it's best to examine the company's most recent results. Ariad posted a net loss for the fourth quarter of $53.2 million, or -$0.32/share, which was in-line with consensus estimates despite a miss in terms of revenue expectations. Revenue for the quarter came in at $0.85 million vs. estimates of roughly $0.94 million. Last year the company reported a 3Q net income of $13.9 million, or $0.10/share, and comparative decreases are due to the growth of such variables as R&D and SG&A expenses, not to mention higher licensing revenue in the previous year`s quarter. Ariad also reported cash, cash equivalents, and investments totaling $206.7 million.

Competitor Awareness

Will the progress of such companies as Galena Biopharrna (NASDAQ:GALE) and Dendreon (NASDAQ:DNDN) hinder the growth of Aria within the oncology space? Although it has been reported that Galena has made some very impressive strides in terms of Neuvax and Dendreon may in fact be initiating new clinical trials of Provenge to help boost sales after hitting a rough patch in February, I think that Ariad actually outpaces both given the diversity of the company's current pipeline. Not only is Ariad making strides in terms of hematologic cancers but the company is also developing solutions for various other types of cancer.

Final Analysis

For potential investors looking to establish a position in Ariad, I'd take a closer look at the company and keep in mind that the FDA is going play a key role moving forward. As is the case with any speculative biotech play, the slightest hint or indication of negative news with regard to earnings or the FDA, could send shares of this stock plummeting. If potential investors are looking to scoop up shares based on value, in the wake of a dismal quarter, I'd do so with a small to medium sized position and sit on it for at least another 90 days.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.