Ariad Pharmaceuticals: Significant Catalysts Approaching

In the coming weeks, Ariad Pharmaceuticals (ARIA) is expected to announce the first interim analysis for the Phase 3 trial for ridaforolimus (rida), an mTOR inhibitor therapeutic indicated for soft tissue and bone sarcomas – aggressive, less common cancers that attack healthy connective tissue.

click to enlarge

Based on my analysis of past outcomes from other successful cancer drugs, I am willing to wager that the Phase 3 results will confirm that rida is a safe and effective oral cancer treatment.

From all existing data, there is a high probability that rida will obtain FDA approval after initial review.

Absent any regulatory delays, rida could be made available for underserved Americans suffering from soft tissue and bone sarcomas by the end of 2010. Fingers crossed.

ARIA HAS THE NECESSARY COMPONENTS IN PLACE TO SUCCEED

#1 Significant Phase 2 results derived from a meaningful patient pool.

The Phase 2 trial studied 212 patients with advanced sarcomas. About 90% of the patients in the trial were experiencing disease progression. Rida was shown to be both safe and effective, and the trial achieved its primary endpoint.

Treatment with ridaforolimus more than doubled progression-free survival.

At the 2007 annual meeting of the American Society of Clinical Oncology (ASCO), we announced that further analysis of the Phase 2 trial of ridaforolimus demonstrated that documented disease stabilization and/or tumor regression with single-agent ridaforolimus is a strong predictor of improved overall survival. Specifically, patients with a ridaforolimus CBR—tumor regression or disease stabilization for at least 16 weeks—had a median overall survival of approximately 17 months, nearly double that of the overall trial population (approximately 9 months).

Source: Ariad Pharmaceuticals

#2 Collaboration arrangement with a larger, well capitalized partner.

In July 2007, ARIA and Merck (MRK) partnered up to develop and commercialize rida. After reviewing some of the terms of the ARIA-MRK collaboration, it certainly appears the bright folks at MRK are betting rida will be a winner.

Both ARIAD and Merck share overall responsibility for global development and commercialization of ridaforolimus. In the United States, ARIAD will distribute and sell ridaforolimus for all cancer indications and book all sales, and ARIAD and Merck will co-promote ridaforolimus. ARIAD and Merck will each receive 50% of the income from such sales. Outside the United States, Merck will distribute, sell and promote ridaforolimus and book all sales. Merck will pay ARIAD tiered double-digit royalties on such end-market sales of ridaforolimus.
The collaboration provides ARIAD with up-front and milestone payments, sharing of development costs and other provisions that may be valued at approximately $1 billion based on successful development of ridaforolimus in multiple cancer indications and achievement of significant sales milestones, excluding potential commercial returns from profit-sharing in the U.S. or royalties paid by Merck for sales of ridaforolimus outside the United States.

Source: Ariad Pharmaceuticals

#3 Rida is demonstrable.

See Carolyn Boone’s story. In 2003, Carolyn was diagnosed with mullerian sarcoma. Prognosis, Carolyn had less than 12 months to live. Carolyn was the very first patient – numero uno – treated with rida in a clinical trial held in south Texas.

Today, Carolyn is a cancer survivor.

ITINERARY 2009-10

• By year-end 2009, ARIA expects to complete enrollment for the first Phase 3 rida trial.
• On or before March 31, 2010, ARIA plans to announce the second interim analysis from the trial.
• After the second interim analysis, the company intends to file for US approval – presuming the results are favorable and warrant filing the application.
• Upon priority review, rida could be approved by the end of 2010.

THOSE LESS OPTIMISTIC
(1) On July 31, 2009, Merriman conveniently downgraded ARIA from neutral to sell. Merriman’s downgrade came after shares had sold off in after hours trading the previous night. According to TheFlyontheWall, Merriman was concerned that “Merck (MRK) and the company (ARIA) are not agreeing on development plans for ridaforolimus."

(2) On April 1, 2009, Joseph Pantginis, Merriman’s analyst, told the Dow Jones Newswires, interim data would not be available until year-end 2009. Therefore, Pantginis concluded, “There’s not a major catalyst for the remainder of the year."

Not to pick on Merriman or Mr. Pantginis, I just see things a bit differently.

(1) MRK evaluated the market potential for rida when used in a combination setting for aggressive breast cancer. As result of this evaluation, MRK said it will not pay for a fifth Phase 3 trial to study this particular indication. From a simple man’s view, it seems evident that the costs to run the trial coupled with US regulatory risks might outweigh the market potential and patient benefit, if any, that rida in combination with trastuzumab could provide. Assuming I’m close, this is likely a smart move by MRK. In the near-term, however, the real key to ARIA’s success (or failure) rests on the existing Phase 3 rida trial for soft tissue and bone sarcomas, which brings me to my second point.

(2) As I indicated above, ARIA expects to announce results of the first Phase 3 interim analysis for rida in patients with soft tissue and bone sarcomas at some point in the next six weeks. Although the results are preliminary, I argue that positive results will likely boost ARIA’s shares above $2.00 – the after hours closing price on July 30 which was the night before Merriman downgraded ARIA to sell.

CONCLUSION
Investors should avoid getting distracted with other trials and remain focused on the current Phase 3 rida trial.

With positive interim Phase 3 results, shares of ARIA are highly likely to move higher.

Factoring that ARIA’s collaboration agreement with MRK is valued at or near $1 billion, I would not be shocked if MRK makes a move to acquire ARIA at some point in the not-so-distant future.

Closing with this thought . . .
The patent privileges associated with an orphan drug once approved should be especially attractive to MRK. Rida was granted orphan drug status for the soft tissue and bone sarcoma indication.

Disclosure: Long ARIA

CAVEAT
As many have learned the hard way, investing in new drug development is NOT always easy. Risks are high. The short sellers are brutal and prey on failure. Missteps are NEVER forgiven. To invest in such an environment, investors need to be prepared for the worst. In other words, investors must manage the risks. One way investors can manage risk is to hedge ALL long positions – common stock or call options – with put options.

Comments

[Justin M. Hall:]

Ralph Hunkey:

With regard to the teleprompter in Washington DC, I agree with your sentiment!
Quoting a former President, "I feel your pain."

In all seriousness, small cap drug makers are a good place to invest in the current environment.
(1) Industry Consolidation is in full effect.
(2) Patent Exclusivity for Biologics is NOT likely to change this year.
(3) Healthcare Bill is likely to fail.

-- If #2 should change, more pressure will be placed on Big Pharma to add to their "drying" pipelines. This is something Big Pharma has already been working on as evidenced by #1. A shift in #2 would just expedite the process in #1, which is already ongoing.

-- If #3 should change, Big Pharma has already agreed to a deal with those at 1600 Pennsylvania to reduce Rx drug costs by $80 billion over the next 10 years – assuming my memory is serving me right.

-- Plus federal funding for the NIH-NCI has seen a nice up-tick as result of that lovely $785 billion "crap sandwich" (quoted from Monica Crowley).

-- There is less VC capital available to fuel IPOs.

High Demand: Big Pharma needs to replenish their late-stage and approved pipelines over the next 1-3 years. So, the demand increases for smaller companies with products and late-stage pipelines as well as cash.

Low Supply: Less small and mid-cap companies remaining for Big Pharma.

Prices Rise: Late-stage small and mid-cap drug makers with drugs for life-threatening diseases, ie. Cancer, Alzheimer’s Disease, Parkinson’s Disease, Lupus, HIV, etc.

Does that make some sense?

Thank you for the comment! I appreciate the feedback.

Good luck!


Justin

Aug 15 05:59 PM

[Justin M. Hall:]

Kool:

I noticed you signed up yesterday! Thank you and welcome aboard! I found that you have an interesting b.g.

As you know, I like ARIA's prospects. The Carolyn Boone story really says it all. Her story is very compelling -- what an awesome result for a person with a near-hopeless prognosis!

Please do stay in touch and keep me posted on your progress in ARIA. I think you made a good investment.

Justin

Aug 15 06:09 PM

[MoneyMachin...:]

what do you think would be it's stock price after they report the results? 5 dollars a share? >5 dollars? I'm in acad right now and I feel very good about it....if the stock could go to 8 bucks this week, it could go to 16 dollars once it report its phase 3 trial as well. I wonder if you think same thing could happen to aria? thanks for your time.

Aug 16 02:06 AM

[REC:]

Oppenheimer analysts seem to agree...

"Oppenheimer expects Ariad's lead cancer drug, ridaforolimus, will receive approval for sarcoma and estimates peak sales at $350M. Shares were started with an Outperform rating and $4 target."

www.theflyonthewall.co...;ARIA;AMPH;MRK;ENOC;DG...

Aug 17 10:30 AM

[Justin M. Hall:]

REC:

Thanks for the feedback! I saw that today. I wonder why he was so optimistic suddenly? Hmmm. You will hear no complaining from me!

Another good day for ARIA. If I were a betting man (I am), I'd say shares will not remian this low much longer.

Best of luck and please keep in touch!

Justin

Aug 17 09:09 PM

[Justin M. Hall:]

MoneyMachine:

I agree with your sentiment. A price of $5+ seems very reasonable and almost generous.

As of right now, I intend to maintain a position in ARIA for the longer-term. As I indicated in the comment above, I believe shares will not likely remain this low much longer. I will even go so far to say ARIA should continue to advance from today's close of $2.09.

Best of luck with your position in ARIA!

Justin

Aug 17 09:16 PM

[Wall Street...:]

Nice informative article. I own Ziopharm(ZIOP) which is working in the Sarcoma space as well. I wish both companies luck. The current treatment options for this disease range from horrific to nonexistant. .

Aug 18 12:38 PM

[makk:]

Hey J!
Just caught this article today. Been following ARIA for some time and was waiting for a quiet period and a down market to start accumulating. Unfortunately, you keep stating the value of the company everytime it starts to dip. Gonna start with my first 28 % this week and hope we get a couple down days to really accumulate. Nice article. Unlike our disagreement regarding SPPI, I agree with you and think ARIA is a takeover candidate with less tangled webs to deal with.

Aug 18 07:45 PM

[Mr. Man:]

When will we see Phase 3 results ? (I got in @ 1.80)

Aug 19 10:35 AM

[Justin M. Hall:]

Makk:

Welcome aboard! ARIA is an exciting potential growth company!

I still very much like SPPI's prospects. I do think SPPI is a buyout candidate. Speculation first, rumors second and the buyout is third. The third and final piece is still TBA. Give it time. I think it will get done.

Thanks Makk!


J.Hall

Aug 19 09:39 PM

[Justin M. Hall:]

Mr. Man:

All of the data from the Phase 3 trial are expected some time in 2010, which is still TBA.

Justin

Aug 19 09:42 PM

[makk:]

Hey J
Good news on courts decision to review appeal with LLY.
Another catalyst! What are your thoughts? Always nice to add to the coffers and if the courts reverses and holds up Mass court decision, ARIA is looking at a possble windfall of 150 -175 million plus future royaltys of approx 30 mil a year until 2019.

Aug 21 07:49 PM

[jsmith1:]

Justin- I was wondering if you could comment on the phase III endpoints. If I am not mistaken, the endpoint was changed by the FDA. I think that the progression free survival rate was reduced. I assume that this bodes well for us.

Also, I thought I read somewhere although the results of interim analysis have been delayed, this is actually a good sign because it may demonstrate that patients are doing well (not sure about this)

Any comments would be appreciated and thanks for all of the info!

Aug 22 09:29 AM

[Jugy:]

JH

Hey keep up the good work, I have been following your articles for awhile and you provide some good insight.

I was wondering the same thing as makk. What are your thoughts of the US Appeals Court to reconsider Ariad-Eli Lilly patent dispute. Sounds very promising to me. Thanks for all the info and keep up the good work.

Jugy

Aug 23 04:33 PM

[Justin M. Hall:]

Makk & Jugy:

LLY v. ARIA
For an appellate court, such action is not the norm. Though a decision will take some time, I think this bodes very well for ARIA.
I am looking into the issue and have contacted a friend from school, who works as a clerk in a different court. If I get a meaningful response, I will let you know what I find.

Justin

Aug 24 07:58 AM

[Justin M. Hall:]

JSmith:

At this time, I do not know the answer to your questions.

I encourage you to contact Maria Cantor at ARIA.

Investor Relations
Maria E. Cantor
Vice President, Corporate Communications and Investor Relations
[e-mail]

If you receive a response, I hope you will post it under this article. Thank you!


Justin

Aug 24 08:05 AM

[koolflowers:]

Jugy and Justin...Just thought I would throw this in as an opinion from my office...
This is a patent issue...therefore it is unique among cases in federal court. The jury decision was obviously good for ARIA and LLY's appeal on the narrow issue of invalidity of the patent obviously struck a cord with the 3-judge appellate panel. Seeking an "en banc" review by all nine appellate justices is not often granted. In this case, the complete court has elected to review the issue. This "en banc" review, on the other hand, is not indicative of a "winner or loser" for either side, rather it is a thorough review by the complete court. As in most federal issues, it is difficult to say when an opinion may be submitted.

Regardless, of the court...PIII results are what we are looking for. A win with LLY would simply be icing on the cake.


On Aug 24 07:58 AM Justin M. Hall wrote:

> Makk & Jugy:
>
> LLY v. ARIA
> For an appellate court, such action is not the norm. Though a decision
> will take some time, I think this bodes very well for ARIA.
> I am looking into the issue and have contacted a friend from school,
> who works as a clerk in a different court. If I get a meaningful
> response, I will let you know what I find.
>
> Justin

Aug 27 04:54 PM

[Justin M. Hall:]

Kool:

Thank you for the feedback regarding ARIA v. LLY! I agree. It is not common for an appellate court to hold a hearing en banc. With that said, I am no longer convinced that the court will necessarily rule in favor of ARIA in the re-hearing. I will provide details in an article that I will make available in the coming days.

I also wanted to thank you for the nice comments you made under the CTIC article yesterday!

I applaud your effort to take control of your own money! Though we all are responsible for how well or poorly our investments perform, most folks will go through life and never try to go it alone. Most of the people I know say they don't have the time or the education and experience required to do it successfully. From my own experience, I can say with confidence that if one is willing to work hard and stick it out, it CAN be done.

Keep in mind that there are others who prey on fear and will try to play on yours. In the coming months and years, work hard to educate yourself on business, law, economics and science. In any environment, one must know the business with which they are investing their money. This will help you to carve through the never-ending BS and lies posted all over the internet.

Know this: you will eventually lose. Do NOT run from it. Rather embrace it and learn from it. No one is perfect and I know no one who is an exception to that rule!

Please do keep me posted with your progress as you work to learn and manage your own account! I will do my best to help you where I can. I wish you the best of luck!

Justin

Aug 28 10:31 AM

[koolflowers:]

Thanks so much, Justin. I will stay in touch and I appreciate your sincerety. I too, do not look for a favorable outcome for ARIA in court...of course, judges are as unpredictable as they are predictable but would be interesting if this ended up at the USSC.

My first (and probably not last) loss was SQNM. What I learned from that was even the most unpredictable can happen (an employee tainting the test?!!!) My other big losses were on paper only, thankfully (should have taken major profits on HEB run up in June....took small profits in July).
So far, I've learned to:
A. Take profits (money is money), unless major news is released,
there will be pullbacks to buy back in.
B. NEVER react out of fear
C. Trust no one anonymously (message boards to be used with
great caution)
D. Patience is, indeed, a virtue :)
E. Read all you can, find someone you trust to help you understand
what you don't, AND lastly, we were given a gut instinct for a
reason.

Have a great weekend Justin and I look forward to your upcoming articles!

kool


On Aug 28 10:31 AM Justin M. Hall wrote:

> Kool:
>
> Thank you for the feedback regarding ARIA v. LLY! I agree. It is
> not common for an appellate court to hold a hearing en banc. With
> that said, I am no longer convinced that the court will necessarily
> rule in favor of ARIA in the re-hearing. I will provide details
> in an article that I will make available in the coming days. <br/>
>
> I also wanted to thank you for the nice comments you made under the
> CTIC article yesterday!
>
> I applaud your effort to take control of your own money! Though
> we all are responsible for how well or poorly our investments perform,
> most folks will go through life and never try to go it alone. Most
> of the people I know say they don't have the time or the education
> and experience required to do it successfully. From my own experience,
> I can say with confidence that if one is willing to work hard and
> stick it out, it CAN be done.
>
> Keep in mind that there are others who prey on fear and will try
> to play on yours. In the coming months and years, work hard to educate
> yourself on business, law, economics and science. In any environment,
> one must know the business with which they are investing their money.
> This will help you to carve through the never-ending BS and lies
> posted all over the internet.
>
> Know this: you will eventually lose. Do NOT run from it. Rather
> embrace it and learn from it. No one is perfect and I know no one
> who is an exception to that rule!
>
> Please do keep me posted with your progress as you work to learn
> and manage your own account! I will do my best to help you where
> I can. I wish you the best of luck!
>
> Justin

Aug 28 12:54 PM

[Justin M. Hall:]

Kool:

If you are going to invest in the small cap drug, device and diagnostic makers, then I STRONGLY encourage you to buy put options to hedge your long positions.

Options are a great way to play safely in any environment.

I am not familiar with any good books on options. Since options were required for the Series 7, I covered them extensively.

In full disclosure, I hold both a Series 7 and 66 licenses among others. I previously worked as a licensed financial advisor with Mass Mutual.

Learn About Options:
www.optionetics.com/
www.optionsxpress.com/...
biz.yahoo.com/opt/

I hope this helps!

Justin

Aug 28 04:23 PM