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Executives

Maria Cantor – VP, Corporate Communications and IR

Harvey Berger – Chairman and CEO

Ed Fitzgerald – SVP, CFO and Treasurer

Tim Clackson – SVP and Chief Scientific Officer

Analysts

Bret Holley – Oppenheimer

Howard Liang – Leerink Swann

Eun Yang – Jefferies

ARIAD Pharmaceuticals, Inc. (ARIA) Q1 2010 Earnings Call Transcript May 10, 2010 5:00 PM ET

Operator

Thank you for holding for ARIAD Pharmaceuticals' First Quarter 2010 Investor Conference Call. At this time, all participants are in a listen-only mode. Following the formal report, ARIAD management will open the line for a question-and-answer period. Please be advised that this call is being taped at the company’s request and will be archived on the company’s website for three weeks from today.

At this time, I would like to introduce Ms. Maria Cantor, ARIAD’s Vice President, Corporate Communications and Investor Relations. Please go ahead.

Maria Cantor

Good afternoon and welcome to ARIAD’s investor call. This afternoon, we will report on corporate development and financial results for the first quarter of 2010.

Joining me for this call are Dr. Harvey Berger, our Chairman and Chief Executive Officer; Mr. Ed Fitzgerald, our Senior Vice President and Chief Financial Officer; and Dr. Tim Clackson, our Senior Vice President and Chief Scientific Officer.

Before we get started, I would like to state that during this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to factors, risks, and uncertainties, such as those detailed in our Form 10-K for the year ended December 31st, 2009 and other SEC filings that may cause actual results to differ materially from the results expressed or implied by such statements.

Now, I would like to turn the call over to Dr. Berger for this afternoon’s opening remarks.

Harvey Berger

Thank you very much, Maria and good afternoon to everyone. We've had several notable accomplishments since the beginning of the year that include advancing each of our internally discovered drug candidates and enhancing our balance sheet to ensure that we are well financed into the second half of next year. As a result, we are now in a strong position to focus our full efforts on the development of our oncology pipeline.

Let's start with our financials and an update on the first quarter from Ed Fitzgerald.

Ed Fitzgerald

Thank you, Harvey and good afternoon, everyone. Let me refer you to our press release that we issued this afternoon for a summary of our financial results for the three-month period ended March 31, 2010.

For the first quarter of 2010, the company reported a net loss of $23.4 million or $0.21 per share compared to a net loss of $20.2 million or $0.26 per share for the first quarter of 2009. This net loss in 2010 includes a $6.1 million non-cash charge related to the revaluation of the company's warrant liability as compared to a charge of $215,000 in the corresponding period in 2009.

The increase in the valuation of our warrant liability was driven by a 49% increase in the price of our common stock from December 31, 2009 to March 31, 2010. This increased charge was offset in part by a decrease of $2.9 million in research and development expenses in the three-month period ended March 31, 2010 as compared to the same period in 2009, due to completion of patient enrollment in 2009 in several clinical trials of ridaforolimus, including the Phase III SUCCEED trial in patients with advanced bone and soft-tissue sarcomas, and the completion of certain manufacturing and non-clinical initiatives for our lead product candidates.

For the three-month period ended March 31, 2010, cash used in operations was $14.3 million, compared to cash used in operations of $10.1 million for the first quarter of 2009, which benefitted from the receipt of a $12.5 million milestone payment from Merck in that period last year. The company ended the first quarter of 2010 with cash and cash equivalents of $25.4 million compared to $40.4 million at December 31, 2009.

These financial results do not take into account the positive impact of the restructured collaboration and license agreement with Merck for the development, manufacture, and commercialization of ridaforolimus announced last week. This license agreement provides ARIAD with an initial up-front payment of $50 million, reimbursement of ARIAD's costs for ridaforolimus since the start of this year, estimated by us to be approximately $19 million through April of 2010, and funding by Merck of 100% of ridaforolimus costs going forward, including ARIAD's costs for ridaforolimus during the transition period.

The agreement also includes up to $514 million in potential regulatory and sales milestones for the successful development and commercialization of ridaforolimus in multiple indications, as well as tiered, double-digit royalties on global net sales of ridaforolimus. These royalties are approximately one-third greater that those which ARIAD would have received for ex-U.S. sales at each of the sales tiers in the original agreement. The impact of this agreement will be reflected in ARIAD's financial statements beginning with the second quarter of this year.

The revised agreement with Merck allows us to refocus our resources on the development of our other product candidates and retain the potential commercial value of ridaforolimus through substantial royalties and milestones. As stated on our conference call last week when we announced the revised agreement with Merck, we – now we anticipate positive cash flow from operations for 2010 in the range of $5 million to $7 million, reflecting the impact of the $50 million up-front payment from Merck. We also estimate cash and cash equivalents at year-end 2010 in the range of $44 million to $46 million.

Not taking into account any future milestone payments from Merck, any additional partnering or licensing activities, or other revenues, we believe that our current cash and cash equivalents, together with the near-term payments to be received from Merck, are sufficient to fund our operations into the second half of 2010 – I'm sorry, into the second half of 2011, excuse me for that.

Let me now turn the call back over to Harvey.

Harvey Berger

Thanks, Ed. Last week, we were pleased to announce our successful renegotiation of our collaboration agreement with Merck. The amended partnership ensures continued broad development of ridaforolimus in patients with cancer and reflects the ongoing commitment of both companies to ridaforolimus as a potential new therapeutic option.

We believe that the new license and collaboration agreement will expand the clinical possibilities for ridaforolimus, both alone and in combination with other agents. We also believe that this revised agreement delivers outstanding value to our shareholders, leading to a much strengthened balance sheet and the potential for a receipt of up to approximately $0.5 billion in regulatory and sales milestones, as well as substantial royalties and global net sales.

As noted last week, we consider the financial and business terms of the new collaboration with Merck to be excellent outcomes for ARIAD. And while the restructuring changes some of our plans for the coming year, our corporate strategy remains unchanged, to become a fully integrated oncology company and to provide breakthrough medicines to patients with aggressive cancers where current therapies are inadequate.

In pursuing this corporate strategy, we continue to make progress with our investigational pan BCR-ABL inhibitor, AP24534 or known as 534. The revised agreement with Merck allows us to sharply focus our efforts and resources on the development of this key value driver for ARIAD. 534 is now our priority internal development program and we are moving quickly to advance its clinical development in patients with advanced hematological cancers, specifically chronic myeloid leukemia or CML and Philadelphia chromosome-positive acute lymphoblastic leukemia or ALL.

As you know, 534 has been shown to block all forms of the target protein, BCR-ABL and essentially render all BC-ABL mutations comparably susceptible to treatment including the T315I mutation for which no currently available therapy has activity. Highly promising early data from the ongoing Phase I clinical trial of 534 were presented at the Annual Meeting of the American Society of Hematology last December. An additional safety and clinical data from the study will be presented at the upcoming Annual Meeting of the American Society of Clinical Oncology being held early next month.

We believe that these additional data that will include data from the 45-milligram dose level that was initiated last December, further data from patients enrolled at the 60-milligram dose level, and additional data on durability of hematologic and cytogenetic responses at all dose levels will provide the medical community with reason for continued excitement and optimism about the potential of this highly differentiated drug candidate.

At the same time the Phase I study is continuing, we are advancing our discussions with U.S. and European regulatory authorities to initiate a pivotal trial of 534 in the second half of this year. We expect this to be a global study with a regulatory path and clinical trial designs similar to the registration strategies used for the current second-line therapy for CML.

While we plan to move 534 into late-stage clinical development this year, we eagerly await data from our most advanced clinical program, oral ridaforolimus, our investigational mTOR inhibitor. The independent Data Monitoring Committee will be conducting the second interim analysis of the Phase III SUCCEED trial in patients with metastatic soft-tissue and bone sarcomas as planned this quarter.

As we reported earlier this year, two-thirds of the progression-free survival or PFS events were reached in the first quarter 2010, triggering initiation of the second interim analysis. The final analysis of the PFS data is expected later this year. Depending on the results seen at either the second interim analysis or the final analysis, a New Drug Application for ridaforolimus in patients with advanced sarcomas could be filed by Merck as early as late this year or in the first half of next year.

Now, let me spend a minute talking about our third internally discovered product candidate, our investigational anaplastic lymphoma kinase or ALK inhibitor, AP26113 or 113. Genetic studies indicate that abnormal expression of ALK is a key driver of certain types of non-small cell lung cancer and neuroblastomas, as well as anaplastic large cell lymphoma. Since ALK is generally not expressed in normal adult tissues, it represents a particularly promising molecular target for cancer therapy.

Last month, ARIAD's scientists presented compelling preclinical data on the potency and inhibition of 113 at the Annual Meeting of the American Association of Cancer Research. These preclinical data show 113 to be – to potently inhibit the target protein ALK and its mutant forms that are resistant to the first-generation dual Met/ALK inhibitor developed by Pfizer, which currently is in clinical trials in patients with cancer.

Our scientists specifically designed 113 as a highly potent and selective inhibitor of ALK with superior drug-like properties and best-in-class potential. Similar to data on 534, the preclinical results suggest that more potent compounds such as 113 maybe able to minimize the development of mutation-based drug resistance. The data clearly supports further study to determine if 113 can provide a more complete response in the Pfizer compound in cancer patients with abnormal ALK expression. We are advancing the development of 113 this year through IND-enabling studies.

Lastly, let me end with an update on the status of our intellectual property litigation regarding our NF-kB patent. We and our co-plaintiffs announced in the first quarter that the U.S. Court of Appeals for the Federal Circuit or the Federal Circuit ruled in favor of Eli Lilly & Co. following the en banc rehearing that was held last December 2009. The rehearing concerned the 2007 judgment that held Lilly liable for infringement of four claims of our NF-kB patent. The Federal Circuit held that the four patent claims are invalid due to inadequate written description. While we disagree strongly with the court's findings, we and our co-plaintiffs have decided to not pursue further appeal of the Federal Circuit decision.

This concludes our update on the first quarter of 2010. Operator, please open the call to analyst questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Bret Holley with Oppenheimer. Please proceed, sir.

Bret Holley – Oppenheimer

Yes. Hi, thanks for taking the questions. I'm just wondering, what is the position of the EU regulators on potential approval of 534 on the single-arm trial? Have you had substantive discussions along those lines yet?

Harvey Berger

Good question. We've had discussions both with the FDA and EMA on that topic. We are in discussions and dialogue with both the European and the U.S. regulatory agencies. We remain committed to the single-arm design, believe that given the absence of any comparative therapy that has shown any effect – effectiveness in this resistant/refractory population that will have both the European and U.S. regulatory agencies, we believe, an agreement on that. Obviously, that's the topic of our discussions with them, but we certainly believe that a single-arm trial will be sufficient.

Bret Holley – Oppenheimer

And I guess I'd follow that with – I mean, obviously you've got to be considering trials beyond the single-arm trial. What would be some of the trials you might want to get running in parallel or soon after the single-arm Phase III or pivotal trial?

Harvey Berger

Well, I think that we can get approval we believe, based on a single-arm trial in patients who are resistant or refractory to one of the second-line agents, nilotinib or dasatinib. Obviously, you can – the potential use of 534 extends way beyond resistant/refractory second-line treatment or resistant or refractory to second-line treatments, including high-risk first-line, includes primary second-line where the comparisons might be against either nilotinib or dasatinib.

So there are many opportunities to move 534 earlier in treatment. Clearly, earlier in treatment where there are approved therapies, we would need to run comparative trials against one or the other of those approved drugs. Certainly, in second line, it's quite clear. What the comparator might be in first line depends entirely on which subset of first-line patients from – what type of high-risk patients you might define as your target population. But clearly, in the first and second-line settings, comparative multi-arm trials are going to be needed.

Bret Holley – Oppenheimer

Okay, thank you.

Harvey Berger

Thanks, Bret.

Operator

Your next question comes from the line of Howard Liang with Leerink Swann. Please proceed.

Howard Liang – Leerink Swann

Thanks very much. Regarding 113, the ALK inhibitor, you mentioned that it has a better profile than the Pfizer compound in the resistant mutants. Do we know, at this point, clinically how often – how frequently these resistant mutants are seen?

Tim Clackson

Hi, Howard. Thanks for the question. This is Tim. I don't believe there have been any data presented or announced at this point. As you may know, our findings that were described a little bit earlier were based on our studies that were presented at the AACR meeting a few weeks ago where we used a – an in vitro screen of mutated cells to recapitulate the situation clinic – seen clinically and that kind of screen has proved very clinically predictive in the setting of BCR-ABL-driven CML, for example predicting the mutational profile that one sees upon treatment to imatinib.

So our screen predicted the emergence of mutants that were resistant to the Pfizer compound that we were able to successfully treat in a mouse model with 113. But to my knowledge, there has not yet been any description of any acquired resistance to the Pfizer compound. It may be the case that there will be a clinical update at ASCO, but I don't have visibility on that at this time.

Howard Liang – Leerink Swann

Okay, great. And regarding actually doing the clinical study, is the test for ALK – I guess overexpression, is that commercially available or do you have to (inaudible)?

Tim Clackson

So I think there are a number of potential options that one could take if we moved into clinical testing the – there has been a description of two different technologies for detection of ALK fusion. At this time, I think the commercialization of that type of test lies in the future, but the availability of reproducible and validated tests, I don't think will be a hindrance of moving quickly into the clinic.

Howard Liang – Leerink Swann

Thanks very much.

Operator

Your next question comes from the line of Eun Yang with Jefferies. Please proceed.

Eun Yang – Jefferies

Thanks very much. On the BCR-ABL inhibitor, do you think that – when you run Phase III trials in refractory CML, do you have to have some diagnostic test to go with it, identifying the specific mutation?

Harvey Berger

I think for the overall group of resistant and refractory patients, we don't need a diagnostic test because the entry criterion will not be for that larger group, will not be the mutation, but rather the clinical response to second-line therapies. On the other hand, for a specific invitation for patients with the T315I mutation, in those patients, if you want that specific group in the approved labeling, we are quite confident that you are going to need some sort of a test to know for sure that the patients you are calling T315I mutants are in fact that and it can be diagnosed reproducibly and reliably.

So there are the issues of how you make that diagnosis reliably in your pivotal trial, but that then ties into the broader issue of needing an assay for the T315I that can be made available following commercialization to physicians to be sure that those patients are properly identified.

However, having said that, given that to the best of our knowledge, the activity of our drug is the same in resistant/refractory patients with or without the mutation, the practical consideration is different from the regulatory consideration.

Eun Yang – Jefferies

That's fair. So in terms of in the refractory CML patients, do you know what percentage of refractory patients actually have a T315I mutation?

Harvey Berger

Tim?

Tim Clackson

For the – the mutation itself accounts for between 15% and 20% of all clinical observations of mutation-based resistance. So that's one number which has been fairly consistently reported in the literature.

Eun Yang – Jefferies

Okay, thanks. And then my last question is can you actually provide us with patent expiry for 534, as well as 113?

Harvey Berger

534 is – we can't.

Tim Clackson

Neither compound is at this stage of the subject of an issued patent. The applications have published and I think certainly for 534, you can look to mid-20s expiration date for the anticipated patent.

Eun Yang – Jefferies

Okay, thank you.

Harvey Berger

Thanks, Eun.

Operator

(Operator Instructions) With no further questions in the queue, I would now like to turn the call back over to Dr. Berger for closing remarks. You may proceed.

Harvey Berger

Thank you to all our participants this afternoon for joining us on our call. We expect a very productive second quarter, look forward to reporting on our continuing progress with our product candidates and certainly an update in and around the ASCO meeting as data on ridaforolimus and on 534 will be presented at that meeting as we highlighted this – earlier this afternoon in our press release.

So we will be following up as we move forward through this quarter, especially looking later into the second half of this year to the initiation of the pivotal trial on 534. Thank you very much.

Operator

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a great day.

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