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Ariad Pharmaceuticals (NASDAQ:ARIA) based in Cambridge, MA, engages in the discovery and development of small-molecule drugs for the treatment of cancer. On Wednesday evening, the company released its 1Q 2011 earnings and hosted a conference Thursday morning discussing the report. Much of the report was expected; however, management announced that the pivotal phase 2 trial for ponatinib, called PACE, was on track for significantly early enrollment (six months early!). This is a pleasant surprise (which Ariad highlighted extensively in the press release) for investors as this may dramatically shorten the timeline to approval. Furthermore, cancer trials are notoriously slow for enrolling the required number of patients to achieve statistical significance, making this announcement welcome news.

PACE Trial: The PACE trial is a pivotal phase 2 clinical trial of its investigational pan-BCR-ABL inhibitor, ponatinib, in patients with resistant or intolerant chronic myeloid leukemia [CML) and Philadelphia positive acute lymphoblastic leukemia (Ph+ ALL). CML is a cancer of the white blood cells, and is diagnosed by detecting the Philadelphia chromosome (95% of patients CML have this chromosomal abnormality). However, the presence of the Philadelphia chromosome (Ph+) is not sufficiently specific to diagnose CML, since it is also found in acute lymphoblastic leukemia (Ph+ ALL, approximately 25-30% of adult patients). Depending on the specific nature of the chromosomes, the protein coded by this abnormality varies. Therefore, Ariad believes they have developed a broad-based inhibitor that can be effective as a 3rd generation therapy.

The PACE trial is a single arm, open label trial of oral ponatinib and is designed to determine the efficacy and safety in patients who are resistant or intolerant to either dasatinib or nilotinib, or who have the T315I mutation. The trial is designed to provide definitive clinical data for regulatory approval of ponatinib in this setting. The primary endpoints are major cytogenetic response rate for chronic phase patients and major hematologic response rate for accelerated or blast phase CML patients and Ph+ ALL patients. Secondary endpoints in the trial include major molecular response rate, duration of response, progression-free survival, and overall survival. Ponatinib has been granted orphan drug status in both the United States and Europe for the treatment of CML and Ph+ ALL. While the current front line drugs Gleevec (imatinib), dasatinib, and nilotinib have helped many patients and turned pushed 5 year survival rates near 90% for these once quickly fatal cancers, resistance is being developed. Furthermore, ultimately many patients fail the current first and second line therapies. Specifically, the T315I mutation represents a case in which the patient does not respond to any inhibitor, leaving them with no effective clinical remedy. Therefore, Ariad’s phase 1 trial results must not be overlooked:

Of 18 patients who had the T315I mutation in the study, 67 percent had chronic-phase disease and nine were evaluable for response: 100 percent (all 18) achieved both a complete hematologic response (CHR) and an MCyR; eight achieved CCyR. The MCyR rate in patients without the T315I mutation was 55 percent (16 of 29).

Although single-armed studies might scare away potential investors, the author believes this trial is appropriately designed based on the nature of CML and Ph+ ALL. With widely accepted measures of the disease being used as endpoints and the fact these patients have no current treatment options (they have failed/resistance/intolerance to 2nd line therapy), this study will be able to determine the efficacy and safety of ponatinib. On Thursday’s conference call, the optimism was evident in the analyst questions when management was asked about initiating trials for first-line therapy. Management is clearly optimistic as well, as evidenced by their exercise of the co-promote option with Merck for ridaforolimus. This will set the foundation for an oncology sales-force, presumably to market both ridaforolimus as well as future drugs. While the author has not extensively addressed the dynamics of the oncology field with respect to prescriptions and number of physicians, Ariad has been aware of the issue (last quarter’s conference call) and has likely weighted the positives and negatives.

First Quarter Highlights: Ariad’s strong balance sheet is clearly a positive. For the three-month period that ended March 31, 2011, cash used in operations was $17.3 MM, compared to cash used in operations of $14.3 million for the corresponding period in 2010. In addition, cash flows for the first quarter of 2011 included $7.6 million in proceeds from the exercise of warrants and $4.4 million in proceeds resulting from an amendment to ARIAD’s term-loan agreement. The Company ended the first quarter of 2011 with cash and cash equivalents of $98.4 million, compared to $103.6 million at December 31, 2010. While the cash burn has slowed for ridaforolimus due to restructuring of the company’s agreement with Merck, this was offset by an increase in expenses related to development of ponatinib. The author does not believe the net-loss increase (to $37.9 MM) is cause for concern, given that this is a non-cash charge related to warrant liability (and Ariad’s higher common stock price during the quarter).

Per the previous guidance, Ariad plans to spend approximately $53-56 MM for all of 2011 and management anticipates cash of $59-62 MM at the end of the year (assuming $25 MM milestone payment for NDA filing by Merck and following modification of a term loan and warrant exercise earlier this year). Management believes this will be sufficient to last through 2012.

AP26113 is in preclinical trials with an expected IND filing in the middle of the year. According to Ariad, this compound has significantly higher potency than the investigative ALK inhibitor by Pfizer and inhibits mutated forms of ALK that have become resistant, something I view quite positively, and eerily similar to ponatinib. Ariad expects to file an IND to begin clinical trials this summer. Preclinical data will be presented in early July at a conference in Amsterdam.

Risk Factors: While clearly there is an unmet need for treatments for sarcomas, the broad applicability of ridaforolimus is not guaranteed. Furthermore, statements from the SUCCEED trial press release raise the issue of how much pricing power and applicability Merck/Ariad will have. In this age of rising health-care costs, convincing insurers and benefit providers that a statistically significant couple of weeks (almost 2 months) are worth a high price tag (~$50,000 per year) is not trivial.

Conclusions and Future Directions: Globally, with multiple candidates in various stages of clinical development, Ariad’s eggs are now in multiple baskets. With both ridaforolimus (on track for Merck to file an NDA later this year) and ponatinib possibly able to receive marketing approval in late 2012 (best case scenario), the company is nearing sustained profitability. In addition, we expect the company to further its preclinical pipeline this year and possibly expand current treatments for other oncology indications. The author also views favorably the licensing of non-core assets as providing future upside potential, as he believes the partners will utilize their expertise to create value for both parties and allow Ariad to focus on its oncology program. The author is looking forward to full data from the SUCCEED trial (ridaforolimus) and data from ponatinib in the coming months.

Source: Ariad Pharmaceuticals and PACE: First Quarter Earnings Highlights