The shock US FDA hold slapped today on studies of Ariad Pharmaceuticals' (NASDAQ:ARIA) leukemia drug Iclusig serves as a timely reminder to sellside analysts of the high risk associated even with advanced projects, let alone those in early development.
Ever-more bullish sellside forecasts have done much to inflate the US biotech bubble, as caution was thrown to the wind along with the fundamentals of valuation methodology. With Ariad's stock off almost 70% in early trade this serious setback will do nothing to help the Nasdaq biotechnology index recover from its 4% wobble yesterday.
Yesterday Ariad's market cap had stood at a remarkable $3.1bn, basically on the strength of Iclusig. The drug, a BCR-ABL tyrosine kinase inhibitor, had been approved last December for chronic myeloid leukemia or Philadelphia chromosome-positive acute lymphoblastic leukemia in patients who have failed on an earlier tyrosine kinase inhibitor.
But the Ariad bull case depended on expansion of Iclusig's label to first-line patients, and this comprised a chunk of the drug's forecast 2018 revenues of $760m.
Still, the warning signs were there. Indeed, at the time of approval the FDA called for a black box warning of arterial thrombosis and liver toxicity seen in ponatinib's Pace trial, and rumbling fears caused Ariad's stock to lose 32% since its October 2012 peak even before today's unpleasant setback.
The FDA hold was announced after both the US and European agencies conducted a risk analysis of ongoing studies, in particular the Pace trial. After 24 months follow-up in Pace, cardiac problems with Iclusig have not only continued, but they have increased.
Serious arterial thrombosis occurred in 11.8% of Iclusig-treated patients - up from the 8.0% after 11 months reflected in current prescribing information - while serious venous occlusion rose from 2.2% to 2.9%.
As such, Ariad said it would stop enrollment into all studies, though it went to some lengths to stress that it viewed the FDA hold as "temporary." Clinicaltrials.gov lists 12 active studies, 10 of which are actively recruiting.
Right now Ariad's only hope seems to be to modify trials, reducing the Iclusig dose to cut adverse events and hope that a sufficient therapeutic window remains. It claims to have evidence of continued efficacy at lower doses, and insists that the first-line indication is still worth investing in.
Nevertheless, the risk is now real that Iclusig's use might never be expanded. Sellside analysts, some of whom have recently been applying success probabilities as high as 100% to projects at far earlier stages of development than Iclusig, should today rethink their models (The new frontier in valuing US biotechs, September 30, 2013).
No less a force than Goldman Sachs now has egg on its face after raising its price target on Ariad to $21 on September 18 - today the stock stands 73% lower.
US open for business?
Another worry for Ariad must be the US government shutdown, though the company says that for now the FDA is "open for business."
The markets will clearly need more reassurance. Yesterday, the Nasdaq biotechnology index lost 4% as a number of events - but chiefly the risks associated with the shutdown - combined to trigger a sell-off in many stocks whose holders were sitting on massive year-to-date gains.
Undoubtedly Ariad's setback will cause further disquiet as the markets digest the fact that, at last, the bubble might have burst.