Like almost all genuine development-stage biotech companies, Ariad (ARIA) took years to design its ambitious products, develop them, perfect them, find the right partners for its lead drug, and develop the best strategy for achieving its vision. As the years went by without tangible positive financial figures or timetabled promising forecasts, many investors replaced confidence with skepticism, and sold ARIA.
Usually, as the lead products of small development-stage biotech firms having no marketed products (ergo, no source of revenues) reach Phase II trials, the firms, unwillingly of course, add frustration to investors’ anxiety by refraining from making statements. This is reasonable, as during mid-phase trials, the drug developers have nothing to say, or should not say anything, until the data are revealed. Their indispensable silence during this period causes the last remaining drops of investors’ interest and enthusiasm to evaporate, which is typical to what happened in Ariad’s case.
As the stock market was dwarfing Ariad’s value, adding to the firm’s difficulties at this stage, Ariad’s intrinsic value was, in fact, growing. During the time the firm spent to develop its fundamentals, which some investors thought was wasted time, Ariad built a great small molecule drug discovery technology, designed and created state-of-the-art therapeutic molecules that provide optimal efficacy and maximum safety profiles, attracted Merck as a partner on its flagship drug ridaforolimus, and embarked on a strategy fitting its ambitious vision for the future. Following these unnoticed and unrewarded accomplishments by the market, ridaforolimus had advanced into into Phase II and Phase III clinical trials for metastatic endometrial cancer and metastatic soft tissue and bone sarcomas respectively. These cancers are tough to treat, and had no existing treatments, which might have added to investors’ skepticism about the therapeutic potential of ridaforolimus and the outcome of the trials.
Finally, less than two months ago, the data on ridaforolimus trials on metastatic endometrial cancer were unveiled. The results were outstanding, as ridaforolimus demonstrated statistically significant improvement in median progression-free survival. The outcome was surely unexpected, as confirmed by the company’s undervalued market cap before the results. Surprisingly enough, after the announcement of the data, bewildered investors failed to appreciate the breakthrough nature of the drug, as observed in the minimal gain in the stock price following the good news.
Less than two months later, ridaforolimus has done it again. This time the impressive results are from Phase III trials on patients with metastatic soft tissue and bone sarcomas. The drug also demonstrated improvement in PFS compared to placebo and the study achieved its primary endpoint with statistical significance, reflecting 28 percent reduction in the risk of cancer progression compared to placebo. (For more on the drug history and description and the firm’s pipeline go here.)
Following the announcement of ridaforolimus impressive results, investors rushed to buy ARIA. We expected some negative voices to interrupt the celebration by drawing investors’ attention to the small sarcoma market (6000–7000 soft-tissue and 2500 bone sarcomas in the United States). To our delight, negative articles did not surface, at least for the first couple of days.
The fact is that the drug’s huge market size is waiting around the corner. When ridaforolimus will be approved for the sarcomas, it will not be long before it will be granted another approval for the most common cancer of the female reproductive system, metastatic endometrial cancer. These anticipated approvals will be followed by several other approvals for different cancers.
This prophesy emanates from increased knowledge about the drug’s target mTOR. Ridaforolimus is a small-molecule inhibitor of the protein mTOR, which acts as a central regulator of protein synthesis, cell proliferation, cell cycle progression, and cell survival. The target also integrates signals from proteins such as PI3K, AKT, and the tumor suppressor PTEN, known to be linked to malignancy. Oncologists expect successful mTOR inhibitors to be indicated for many cancers. With this knowledge in mind, and knowing in fact that ridaforolimus has proven to do the job effectively, and, possibly, better than other marketed and investigational drugs aiming at the same market, it is not difficult to imagine how large would be the size of the ridaforolimus market.
Merck (MRK) has decided to file NDA for ridaforolimus this year. We anticipate the stock to begin to climb towards a fairer value. As the approval time nears, we believe the stock to stage a rally. The approval of ridaforolimus for metastatic soft tissue and bone sarcoma is expected to expedite the approval for metastatic endometrial cancer. Following the approval of the drug for late-stage endometrial cancer, the drug sales could easily reach approximately $600 million in the first few months and double to $1.2 billion in a year time. The sales are expected to appreciably increase as the drug’s approvals for additional cancers take place. The sales could generate up to $3 billion.
Confirming the rationality of our enthusiasm to ridaforolimus can be found in a statement made by Joe Jimenez, head of Novartis Pharmaceuticals (NVS) about his firm’s mTOR inhibitor Afinitor (everolimus), "We believe that this drug has the potential to be a blockbuster and that's before we even get to breast cancer, gastric cancer and non-small cell lung cancer. This will be a substantial drug for Novartis."
As for the competition, Ariad’s ridaforolimus and Novartis’ Afinitor will likely share the market in for same cancers they treat. However, ridaforolimus and Afinitor, each already has additional different indications where no competition exists between them. In addition, the market for safe and effective mTOR inhibitors is so big that no one single drug can alone meet the huge demand. Bottom line, we believe that the market is huge for safe and effective fmTOR inhibitors developed by both Novartis and Ariad.
Ariad is not a one drug firm. Its pipeline has several investigational drugs; all are new entity having novel targets. Toppingb the list is Ariad’s oral multi-targeted kinase inhibitor Ponatinib. This drug targets BCR-ABL, an abnormal tyrosine kinase, which makes it a good candidate for the treatment of resistant or intolerant chronic myeloid leukemia and Philadelphia positive acute lymphoblastic leukemia (Ph+ ALL). Ariad designed this drug using its computational and structure-based drug design platform to inhibit the enzymatic activity of BCR-ABL with very high potency and broad specificity. Ponatinib does not only target BCR-ABL, but also its isoforms that carry mutations that confer resistance to treatment with existing tyrosine kinase inhibitors, including especially the T315I mutation for which no effective therapy exists.
Are we witnessing the genie coming out of the bottle? That’s what we think is the case, yes.
Disclosure: Currently, we have no position in Ariad and we do not intend to have one in the next 72 hours.