Seeking Alpha
Long/short equity, deep value, contrarian
Profile| Send Message|
( followers)  

Ariad Pharmaceuticals (NASDAQ: ARIA), based in Cambridge, MA, engages in the discovery and development of small-molecule drugs for the treatment of cancer. Tuesday, the company put out a press release and hosted a conference call disclosing preliminary phase III trial data. In short, the data was positive, and the stock soared over 30% Tuesday. For discussion of the reaction in the options markets, optionsmonster put out a piece earlier.

Abridged from the press release:

Based on the full analysis of 552 PFS events in 711 patients, the study achieved its primary endpoint with a statistically significant (p=0.0001) 28 percent reduction by ridaforolimus in the risk of progression compared to placebo (hazard ratio=0.72). Determination of median PFS for each arm of the trial demonstrated that ridaforolimus treatment resulted in a statistically significant 21 percent (3.1 week) improvement in median PFS (ridaforolimus, 17.7 weeks vs. placebo, 14.6 weeks).

Additionally, there also was a statistically significant (p < 0.0001) 31 percent reduction by ridaforolimus in the risk of progression compared to placebo (hazard ratio=0.69). Ridaforolimus treatment resulted in a statistically significant 52 percent (7.7 week) improvement in median PFS (ridaforolimus, 22.4 weeks vs. placebo, 14.7 weeks).

Earlier, I had written favorably about the company as a whole, but now I’d like to address this study more in depth. The study was initiated in 2007, with the purpose of determining whether maintenance therapy with oral ridaforolimus, by preventing and controlling tumor growth for a prolonged period of time in patients with metastatic soft-tissue or bone sarcomas responding to chemotherapy, will result in clinically significant improvement in PFS as compared to oral placebo. As described on the conference call, these patients have previously responded to chemotherapy (1st, 2nd, and 3rd line) and are currently in a “watchful waiting” period, where their disease has not progressed. This allowed the trial to be constructed with ridaforolimus against placebo. The FDA granted a special protocol assessment (SPA) for the SUCCEED trial, prior to dosing of the first patient.

As mentioned in the previous analysis, because rapamycin-based analogs, so-called rapalogs, are already on the market for cancer and immunosuppressant indications, the FDA is familiar with their side effect profile (consistent with SUCCEED results as well). A very detailed and scientific analysis of mTOR inhibitors is given here. This paper implies combination therapy could be extremely effective. Only time will tell.

Fundamentals: With the company poised to receive $65 MM in payments from Merck (NYSE:MRK) given the successful results (consisting of $25 MM for acceptance of a new drug application by the FDA, $25 MM for marketing approval in the United States, $10 MM for marketing approval in Europe, and $5 MM for marketing approval in Japan), and a successful equity raise of $57.4 MM (10/29/10) to add to its coffers on top of the $59 MM in cash on its balance sheet (9/30/10), the company is in a strong cash position and likely able to fund itself through 2011. However, given the recent increase in the share price, a secondary offering could be forthcoming and further strengthen the balance sheet. Merck has assumed responsibility for ridaforolimus activities, including clinical trials and regulatory filings. Ariad will receive double-digit royalties on all global sales.

Conclusions and Future Directions: Clearly this data is positive and continues to validate the entire ridaforolimus platform. In the future, further positive results in ongoing clinical trials, as well as a NDA filing by Merck (expected this year, dependent on the overall results) remain near term catalysts for the stock. In the long term, I believe additional formulations of ridaforolimus as a component in a combination therapy may offer additional upside potential for the oncology platform.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Near Term Catalysts for Ariad Pharma Add to Positive Outlook