Last Friday we saw a bearish move in shares of Ariad Pharmaceuticals (NASDAQ: ARIA) on news that its drug Iclusig (ponatinib) was approved early by the FDA.
The original PDUFA action date was in March 2013, but this early approval implies that the FDA saw quite a bit of potential for the leukemia treatment and was eager to bring it to the market. ARIA managed to drop by over 20% before the closing bell on fairly heavy volume. As a result of this, YTD gains on ARIA were whittled down to 54% - still great for anyone who has been loyal to ARIA but much lower than gains held earlier last week.
The reasoning behind this paradoxical move to the downside was probably due to profit-taking from investors who have been holding ARIA for some time in anticipation of an FDA approval for ponatinib, although there is also some skepticism over the company's valuation at this point. Ariad is still worth $3.2 billion after its drop, with only two independent cancer drugs, one that is partnered with Merck (ridaforolimus) and the graft-vs-host disease compound that was licensed to Bellicum. While there is revenue potential in the rest of its pipeline, investors (including myself) generally consider ponatinib to be the company's flagship product and key driver of value.
Ponatinib is a BCR-ABL inhibitor that specifically targets abnormal tyrosine kinase receptors found in chronic myeloid leukemia ((CML)) and Philadelphia-chromosome positive acute lymphoblastic leukemia ((ALL)). CML is an orphan disease, making ponatinib an orphan drug (remember that this gives the drug a whopping seven years of exclusivity on the market). Also note that ponatinib was approved last week for CML and ALL patients that are Philadelphia-chromosome positives, but only after they proved resistant or intolerant to prior tyrosine kinase inhibitor therapies. This means that a portion of the 5,000 new cases of CML every year are cut off from ponatinib's target population until its indication can be expanded.
The real victory for Ariad will come when ponatinib is approved as a front-line treatment for newly-diagnosed CML patients. The timing on this isn't set in stone as far as the market knows, but we will certainly keep an eye on Ariad's phase III "EPIC" trial which puts ponatinib into a randomized, pivotal study against imatinib. Imatinib, more commonly known as "Gleevec," is a blockbuster CML drug for Philadelphia Chromosome positive (Ph+) patients.
The estimated study completion date, according to the NIH, is in 2021 although the FDA will be able to make the decision on ponatinib with incomplete data due to something known as "accelerated approval." Ponatinib has already received accelerated approval as a second-line treatment for CML, and there is no reason to expect the drug to be denied this privilege given that the EPIC trial actually produces strong results for the drug. What the market (and the FDA) wants to see in particular is demonstrated superiority over Gleevec as a first-line therapy for this type of leukemia.
Since it should take some time before the FDA receives enough data to make a final decision, ARIA traders and investors should really be keeping tabs on these four things carefully as we head into 2013:
- Obviously, the EPIC trial. This trial has the potential to lead to an accelerated approval for ponatinib as a first-line treatment for CML - a significant upgrade from its current position and a positive catalyst that is waiting on the horizon.
- Ponatinib's performance once it hits the market, which could bring revenue to alleviate the company's steep operating losses in time.
- The company's non-small cell lung carcinoma drug, AP26113, which has been largely overshadowed by ponatinib.
- Alternative revenue streams from the company's partnership with Merck for Ridaforolimus and AP1903 which was licensed to Bellicum.
ARIA's outcome is going to be quite interesting, because "sell the news" reactions (like the one we saw last Friday) have very different outcomes. For instance, we could either see the stock pressured by market cap skeptics or we could see restorative movement into the green as excitement builds over the EPIC trial and the potential for this new orphan drug. I think the odds of the bullish scenario have increased due to the sell-the-news reaction we saw last Friday, although the unpredictable timing of ponatinib's possible approval as a first-line CML treatment makes trading very difficult.