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ARIAD Pharmaceuticals, Inc. (NASDAQ:ARIA)

Q2 2010 Earnings Call

August 04, 2010 08:30 am ET

Executives

Maria Cantor - VP, CC and IR

Dr. Harvey Berger - Chairman and CEO

Ed Fitzgerald - SVP, CFO and Treasurer

Tim Clackson - SVP and CSO

Analysts

Ryan Martins - Barclays Capital

Howard Liang - Leerink Swann

Bret Holley - Oppenheimer

Presentation

Operator

Thank you for holding for ARIAD Pharmaceuticals Second 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 lines 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 morning and welcome to ARIAD’s investor call. This morning, we will report on financial results and corporate developments for the second quarter of 2010. Joining me for the call are Dr. Harvey Berger, our Chairman and Chief Executive Officer, Mr. Ed Fitzgerald, our Executive Vice President and Chief Financial Officer and Dr. Tim Clackson, our President of Research and Development 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 31, 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 mornings opening remark.

Dr. Harvey Berger

Thank you very much Maria and good morning to everyone. I'm very pleased to report that we are making excellent progress in several key areas of the company and have major achievements from the second quarter of this year to talk about this morning.

First, we have completed most aspects of the transition of ridaforolimus to Merck as part of our restructured agreement with Merck and now it’s been made for the developments, manufacture and commercialization of ridaforolimus in oncology.

Non-channel areas for ridaforolimus transitioning including clinical research and operations, drug safety and drug management’s regulatory and quality and commercial operations are now largely transitioned to our colleagues at Merck.

Manufacturing operations is on track to be transitioned by end of this year. These successful transitions are enabling us to focus fully on advancing our other exciting product candidates forward.

We presented updated data from the ongoing Phase 1 trial of our investigational pan-BCR-ABL inhibitor. AP24534 or 534 in patients with advanced blood cancers primarily Chronic Myeloid Leukemia at the annual meeting of the American Society of Clinical Oncology in June.

These advanced and evolving data continued to service the basis for our pivotal Phase 2 clinical trial of 534, in patience with resistant and refractory CML or Philadelphia-chromosome positive acute lymphoblastic leukemia ALL, that we expect to begin this fall.

We are also moving expeditiously with IND enabling studies of our third internally discovered product candidate. Our investigational anaplastic lymphoma kinase or ALK inhibitor, AP26113.

And finally our balance sheet has remarkably strengthened as a result of the restructured agreement with Merck and we have the necessary funding to take us into the second half of 2011.

As a result, we are able to focus our corporate efforts on driving value for a pipeline product and in turn retaining key value for our shareholders.

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

Ed Fitzgerald

Thank you Harvey and good morning everyone. Let me refer you to our press release issued this morning for a summary of our financial results as of June 30th 2010.

For the second quarter of 2010, we reported net income of $159.3 million or $1.35 per share on a diluted basis. Compared to a net loss of $21 million or $0.24 per share for the second quarter of 2009.

For the six months period ended June 30 2010, the company reported net income of $136 million or $1.22 per share on a diluted basis. Compared to a net loss of $41.2 million or $0.50 per share for the same period 2009.

These results reflect the positive impact of ARIAD’s restructured agreement with Merck for the development, manufacture and commercialization of ridaforolimus that we announced this past May.

The agreement with Merck replaces the previously existing collaboration agreement that we entered into in 2007. Under this new license agreement Merck has assumed responsibility for all ridaforolimus activities including clinical trials and regulatory filings. Upon signing the agreement Merck made an up front cash payment of $50 million to ARIAD in the second quarter of this year.

And reimbursed ARIAD for ARIAD share of ridaforolimus expenses incurred from January 1 2010 to May 4, 2010, the effective date of the agreement. Merck is now responsible for funding 100% of ridaforolimus cost from May 4, 2010 and forward. The positive impact of the restructured agreement with Merck is reflected in our revenue and in our operating expenses for the three and six month’s period ended June 30, 2010.

We reported revenue of $175 million for the quarter ended June 30, 2010 as compared to $2.1 million for the same period in 2009. And a $177.2 million for the six month period ended June 30, 2010, as compared to $4 million for the same period in 2009.

Revenue in 2010 includes the $50 million upfront payment from Merck, and $12.8 million from Merck for reimbursement of ARIAD’s share of the cost related to ridaforolimus for the period from January 1, 2010 to May 4, 2010.

Revenue in 2010 also includes the recognition of upfront and milestone payments previously received from Merck under the 2007 collaboration agreement, which had been deferred for accounting purposes, amounting to $109.4 million and then $111.5 million for the three and six months periods ended June 30, 2010 respectively. It is important to note that this revenue as well as the $50 million upfront payment and the $12.8 million payment for reimbursement of our share cost through May 4, 2010 will not be recurring in the remaining quarters of 2010.

Note as well that as move forward all milestone payments received from Merck under the new agreement will be recorded by ARIAD as revenue when they are received.

Finally, revenue includes $2.8 million from Merck for ARIAD’s services provided in May and June 2010, under the terms of the restructured agreement in connection with the transition of all responsibilities for ridaforolimus from ARIAD to Merck.

The company reported operating expenses of $17.8 million for the quarter ended June 30, 2010, as compared to $20.6 million for the same period in 2009. And operating expenses of $37.2 million for the six months period ended June 30, 2010 as compared to $42.5 million for the same period in 2009.

The decreases in operating expenses for these period, reflect the fact that Merck is now responsible for all of the cost of ridaforolimus as of May 4th, 2010.

Note that our operating expenses in 2010 are net of approximately $7 million in reimbursement of ARIAD’s ridaforolimus cost prior to the effective date. For the six months period ended June 30, 2010, cash provided by operating activities was $20.2 million as compared to cash used in operating activities of $18.9 million for the same period in 2009. The increase in cash provided by operating activities is primarily due to the receipt from Merck in 2010 of the $50 million up front payment and the $12.8 million in reimbursements of ARIAD’s share of ridaforolimus cost, offset in part by the receipt in 2009 of $22.5 million in milestone payments from Merck, under the 2007 collaboration agreement related to the start of two Phase 2 clinical trial.

The company ended the second quarter of 2010 with cash and cash equivalents of $61.8 million, compared to $40.4 million at December 31, 2009. Our financial guidance provided when we reported our first quarter 2010 earnings this past May, stays unchanged. We anticipate positive cash flow from operations for 2010 in the range of $5 million to $7 million and estimate year end cash and cash equivalents in the range of $44 million to $46 million.

As we stated on our first quarter call, not taking into account any future milestone payments from Merck. The impact of any additional partnering or licensing activities or rather revenues, we believe that our current cash and cash equivalent are sufficient to fund our operations into the second half of 2011.

In conclusion, we are confident in the current strength of our balance sheet and now plan to focus our resources on the timely development of our most advanced oncology product candidate.

Let me just note a correction in the attachment to our press release this morning. On the table, the line items that say net loss and net loss per share should say net income or loss and net income or loss per share. All amounts presented in the table are however, correct.

Let me now turn the call back over to Harvey.

Dr. Harvey Berger

Thanks very much Ed. As anticipated we are now beginning to see the financial benefits to ARIAD of our revised agreement with Merck regarding ridaforolimus oncology. We believe that this revised agreement will deliver important value to our shareholders in the form of a strengthened balance sheet and the potential for receive up to approximately $0.5 billion in regulatory and sales milestone as well as substantial royalties and global net sales of ridaforolimus.

As we pursue our corporate strategy of becoming a fully integrated oncology company, we are making excellent progress developing our investigational pan-BCR-ABL inhibitor 534 which is our highest priority internal development program.

We reported initial safely and efficacy data from the ongoing Phase 1 study of 534 at the annual ASH meeting last December and updated data from a larger number of patients at the annual ASCO meeting in June. These data confirmed that what we had expected strong clinical evidence of hematologic, cytogenetic and molecular anti-leukemia activity of 534 in very heavily pre-treated patients with, CO, CML including those patients with the T315I mutation for whom there are no current treatments available.

Importantly the data on 534 presented at ASCO also show that the clinical benefit of the targeted therapy appears to be quite durable. Out of 12 major cytogenetic responses in patients with chronic phase CML, the key group for this evaluation that we reported at the time of the meeting 11 patients remained on therapy without progression after an average of almost a year on 534 treatment or about 327 days.

These additional findings have led to heightened excitement and optimism about the potential of this clearly differentiated and much needed new drug candidate for aggressive forums of CML and Philadelphia chromosome positive ALL. While the Phase 1 study has now completed patient enrolment in this CML and ALL cohort. We expect to initiate a pivotal Phase 2 trial of 534 this fall.

This will be a global study with a regulatory path and trial design similar to the registration strategies of the current second line therapies for CML. We will provide additional details regarding the trial design and metrics regarding the trial once the first patient has been dozed.

We believe that the upcoming initiation of the pivotal trial for 534 in the fall will be a transformative event for ARIAD, and importantly as well for patients with a resistant and refractory CML. We view the probability of success for 534 to be extremely high, given the strength of the clinical data today.

We also expect at the time to full patient enrollment in this study and to potential regulatory filings for global approval will be swift.

Our key clinical investigators could not be more optimistic about the potential of 534, it is difficult to treat patient population. Well, we move 534 into its initial pivotal trial later this year. We also await the results of the final analysis from our most advanced clinical program or ridaforolimus our investigational mTOR inhibitor in patients with Metastatic Sarcomas.

The independent data monitoring committee completed the second interim efficacy analysis of the Phase 3 SUCCEED trial in the second quarter of this year. This analysis was based on approximately two thirds of the progression free survival events that were reached in the trial earlier in the year.

The DMC’s recommendation was to continue the trial to its final analysis of PFS without modification to the study protocol. The final analysis which will be conducted by our colleagues at Merck is expected to occur by approximately year end. Should the SUCCEED trial reach its primary end point of a difference in medium PFS, comparing the drug and placebo treated arms, we expect that Merck will file a new drug application for ridaforolimus in patients with advanced Sarcoma in the first half of 2011.

We at ARIAD are very product of our work in completing this global phase 3 clinical trial of ridaforolimus in more than 650 patients with soft tissue and bones Sarcomas, the largest study of its kind conducted in this patent population today.

In addition to the clear and near terms catalysts related to 534 and ridaforolimus, in 2010, we are actively advancing our third internally discovered product candidate, our investigational ALK inhibitor AP26113 or 113 as is known. ALK is now considered a clinically well validated targeted oncology, abnormal expression of ALK has been shown in genetic studies to be a key driver of certain types of non-small cell lung cancer and neuroblastomas, well as anaplastic large cell lymphoma.

Since ALK is generally not expressed in normal result tissues, it represents a highly promising, molecular target for cancer therapy. Earlier in the second quarter, ARIAD scientist presented compelling pre-clinical data at the annual meeting of the American Association of Cancer Research on the potency and inhibitory profile of 113 against its target ALK. These pre-clinical data show 113 to potently inhibit the target protein and its mutant form that are resistant with a first generation dual Met/ALK inhibitor being developed by Pfizer which currently is in clinical trials and patients with cancer.

Our scientist specifically designed 113 as a highly potent and selective inhibitor at ALK with superior drug like properties and best in class potential.

Similar to the data on 534 the preclinical result suggest a more potent content such as 113 may be able to minimize the development of the patient based drug resistance and evolving clinical problem.

This data clearly supports further study to determine if 113 can provide a more complete response than the Pfizer compounding cancer patients with abnormal ALK expression. We are advancing the development of 113 this year through IND enabling studies with a goal of filing an investigation on new drug applications in mid 2011.

We have many important catalyst and reasons for optimism and enthusiasm around our three lead oncology programs ridaforolimus 534 and 113. This concludes our update on the second quarter, operator please open the call to analyst questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Ryan Martins with Barclays Capital. Please proceed.

Ryan Martins - Barclays Capital

Just a few questions around 534. One thing if you could tell us if you’ve made a final doze selection for 534.

Dr. Harvey Berger

Yes, the decision has been made, we’ll be reporting details of doze and the design of the trial in the fall when the first patient is dozed. But it’s within the context of the results that we’ve had and presented in the past on 534 at ASCO.

So certainly, yes we have a doze, we have dozing schedule, we understand the relative PK and PD results of the various different dozes that have been studied and we’ll provide those details as soon as possible when the first patients enrolled.

Ryan Martins - Barclays Capital

Thanks Harvey and have you guys also finished your equivalent study between the capsule and the tablet form.

Dr. Harvey Berger

Yes I mean all the data that are need in order to pick the dosage form tablet versus capsule and the actual doze has been completed, the PD and PK studies totally support that plan, so yes we are all set and as part of our protocol and IND filings and all moving ahead as part of the launch of the trial in the fall.

Ryan Martins - Barclays Capital

Okay good and, will be seeing any updates on the duration or major cytogenetic responses that we are open to study with Hematology?

Dr. Harvey Berger

The next major submission on major clinical data from the trial most likely going to be at the Hematology meetings at the end of the year, the ASH meeting, so I expect that at ASH in December, they’ll be you know obviously depended upon results have been and abstracts being, accepted that’ll be a pretty comprehensive update.

Tim Clackson

Just to clarify since I think you are trying to watch in the press release referring to the ESH meeting the presentation of the submission that we’ve made to the ESH meeting is primarily focused on follow up pharmacokinetic and pharmacodynamic data.

Ryan Martins - Barclays Capital

And then, finally in terms of any additional near term milestones from Merck, obviously with Sarcoma, but is there anything in terms of maybe initial data for endometrial cancer expected still in the second half this year?

Dr. Harvey Berger

Well the issue of whether data will be presented at milestones, under the current agreement are completely separate issues. We believe that there is a good likelihood that the endometrial cancer data will be presented in an appropriate meeting in the coming months, but we do not have confirmation of that as of yet.

In terms of milestones from Merck the milestones are built around regulatory filings, regulatory approvals on a global basis, US, Europe and Japan. And so the next key driver of that will be the results of the SUCCEED trial.

Operator

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

Howard Liang - Leerink Swann

Regarding the SUCCEED trial I think you were previously running the trial. I think you now mentioned that the analysis will be done by Merck, can you just talk about whether there’ll be any change associated with this transition whether in the analysis or the planned announcement of the data?

Ed Fitzgerald

The analysis is all locked in by the SPA, the statistical analysis plan and the protocol all of which are filed with regulatory agencies worldwide other than the SPA which is only US but the protocol in the statistical analysis plan are clearly what lock in the analysis in the US you’ve got the added commitments built around the SPA. So, the actual analysis is completely pre-defined whether we do it or Merck does it. So, Merck under the new agreement is responsible for un-blinding the data at the appropriate time and doing the analysis as we would have done under the old agreement, but the processes are very similar in terms of how data get analyzed and how they’ll ultimately get submitted for publication, positive, negative whatever the results are, how they’ll be packaged and put into regulatory filing, all of that is largely the same independent of who actually does the reporting and the analysis.

So for all intents and purposes are unchanged.

Howard Liang - Leerink Swann

I may have missed it in your opening remarks, but did you say when the announcement, I know that data analysis is near the year end, but to be said when data will be announced to us?

Dr. Harvey Berger

Data, no. we have not. Data will be announced when we have the results and Aria and Merck have, decided at the time how its going to be presented, I mean how its going to be disseminated so, there is nothing new to report and that’s really at the moment is the best as we know nothing is materially different than what would have occurred, I mean, I think clearly if the results are positive negative whatever the results are certainly we believe they’ll be positive, they’ll get announced as is common practice for any whether it’s a big pharma or a big biotech order for us, its important information and we’ll disseminate it with Merck as quickly as possible.

Operator

(Operators Instructions). Your next question comes from line of Bret Holley of Oppenheimer. Please proceed.

Bret Holley - Oppenheimer

I have been wondering on the SUCEED trail what your assumptions are for overall survival on the control on that, I realize this is secondary end point but I think obviously its important secondary end point. I am just wondering what your assumptions there are what might be the powering of the trial for demonstrating over all survival as a secondary end point.

Dr. Harvey Berger

As we said before Bret the trial side and the design of the trial was built entirely around progression-free survival, so that the primary end point is what determines the sample size, determine the projected differences between drug and placebo made assumptions of our control group of placebo progression-free survival and then looked at what sort of a difference will be both clinically meaningful as well as statistically significant.

As, if you go back historically to the prior to when the trial was started we had considered running a survival trial and had discussions with the regulatory agency about our survival trial and in fact have had a variety of public discussions about that issue.

Now probably 20 years ago, and concluded that a survival analysis would require to reach statistical power a much for a significantly larger trial. And also the challenges of running a survival trial when the primary end point and the primary design is around a maintenance setting. So by definition patients are going to go in all sorts of therapies after the fact.

After they come of this trial, so it made far greater sense to build the trial side the power assumptions and the different clinical differences anticipated around progression for your survival which is what the [FDA] is based on and what the regulatory agencies especially the FDA have focused on and concurred on. Having said that, we made see differences in overall survival, depending on how big the differences are.

We have not made assumptions in deriving the sample size or deriving the differences need to be expected in control group survival because of the head [originality] of therapeutic interventions after they come of our trial.

Bret Holley - Oppenheimer

I was just wondering if you had thought about a survival trial with the 630 patient’s enrolment to see are you in a position to show trends of our survival, are you way off of the sample size that you would have used for a survival trial?

Dr. Harvey Berger

Well, we talked about that a couple of years ago. And certainly, we might see a statistically significant difference, but on one hand, we certainly may see trends as you’ve seen in other PFS trials, we certainly should be in a position to see trends in survival over the long term. But clearly, the trial was not powered to detect significant differences between drug and placebo in overall survival. Where the sample size probably would have to be on the order of a third larger base than what we’ve publicly disclosed in the past. And most importantly you’d have to follow patients a lot longer, because the time to that is a lot further out than time to progression in a maintenance setting.

Operator

Ladies and gentlemen we have no more questions in queue at this time. I’d like to turn the call over to Dr. Berger for closing remarks.

Dr. Harvey Berger

Yes, thank you very much. I’ve limited closing remarks other than to thank all of our participants for joining us on our call this morning. Looks like third quarter is going to be a very productive one, should expect in the fall a lot of information about the 534 pivotal trial, and as we head into later this year the progress under ridaforolimus SUCCEED results. So I look forward to the opportunity of reporting on our continuing progress in these and other areas, as we move forward with our promising oncology product candidate. Thanks very much.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes our presentation you may now disconnect and have a good day.

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Source: ARIAD Pharmaceuticals, Inc. Q2 2010 Earnings Call Transcript
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