Given that Ariad Pharmaceuticals' (ARIA) Ridaforolimus was rejected by the FDA Oncology AdCom in March 2012, and then formally rejected by FDA in June 2012, it might have come as a surprise to many stock watchers why the stock price of this small oncology biotech company has remained so high and continued to rise instead. As our analysis below shows, ARIA's price resilience is partly because Ariad has realized a lot of the potential gains for Ridaforolimus from Merck already, but mostly because Ariad still has one trump card that will likely be approved by Q4 2012.
On July 30, 2012, Ariad submitted a New Drug Application NDA for the use of its pan-Bcr-Abl kinase inhibitor, Ponatinib, in treating patients with resistant or intolerant Chronic Myeloid Leukemia and a form of Acute Lymphoblastic Leukemia (CML and Ph+ ALL). Unlike the case with Ridaforolimus, we found the results of Ponatinib's pivotal Phase IIb clinical trial (which qualifies it for accelerated approval) to be far superior to any other drug in the competitive landscape for the CML field -- a field currently dominated by Novartis' blockbuster and much-touted "magic bullet" drug Gleevec. Accounting for the complex market dynamics for CML and the unique life-long drug dependency of CML patients, we estimated that over the next seven years, Ponatinib will see growth from ~$150M to $2B in annual sales, which is very promising. As Ariad inexorably approaches FDA approval of Ponatinib by Q4 2012, we believe there is still significant upside remaining in ARIA.
Our analysis will start with the past of Ridaforolimus, and then focus on the future for Ponatinib.
Why Ridaforolimus' Rejection Was Not Fatal
Ariad Pharmaceuticals is a mid-cap biotech company, with a focus on kinase inhibitors for treating cancer. It has 2 primary drug candidates in the late-stage pipeline: Ridaforolimus and Ponatinib. Ridaforolimus (also known as AP23573 and Deforolimus) is an inhibitor of the mTOR kinase, a protein that regulates protein synthesis, cell proliferation, and cell growth. Blocking mTOR disrupts cell metabolism, growth and division. Like its competitors Temsirolimus (PFE) and Everolimus (NVS), Ridaforolimus is also a modified analog of the mTOR inhibitor rapamycin (Sirolimus).
In the Phase III SUCEED clinical trial, Ridaforolimus was evaluated for treatment of metastatic soft tissue and bone sarcomas. Unfortunately, the drug performed poorly in the trials with little benefit and several safety concerns. Ridaforolimus was rejected by the FDA Oncology AdCom in a 13-1 vote on Mar 21 2012, and was subsequently formally rejected by FDA on Jun 5 2012. The FDA stated in its complete response letter to Merck and Ariad that it "cannot approve the application in its present form and that additional clinical trial(s) would be needed to further assess safety and efficacy of the drug." Yet, the representative from Merck said, "Merck remains confident in the potential of ridaforolimus. We will continue to work closely with the FDA to define potential paths forward for this investigational therapy."
We think Ridaforolimus has little hope of getting approved for metastatic sarcomas in the near future in the US or Europe, even if Merck resubmits new information soon. The drug only gave a very subtle improvement on overall survival and progression-free survival, with significant toxicities (severe stomatitis, hyperglycemia, thrombocytopenia, anemia, renal failure, pneumonitis). In previous clinical trials in sarcomas, Sirolimus and Temsirolimus, which also target mTOR, had also provided little to no improvements in patient outcomes, so this result was not too surprising. In general, mTOR inhibitors do not seem to work well in many cancers, except for renal cell carcinoma. Based on the current scientific literature on RTK-PI3K-mTOR signaling, we believe the main issues are:
1. Heterogeneity: only a subset of the cancers that have mutations in RTK-PI3K-mTOR signaling will respond to mTOR inhibitors
2. Feedback loops: combination therapy is necessary because mTOR negatively feedbacks to IRS1 via S6K and many other oncogenic tyrosine kinases, so mTOR inhibition can actually activate other oncogenic pathways in many contexts
Short of another Phase III trial in combination with a receptor tyrosine kinase inhibitor TKI, we think these mTOR inhibitors will be limited in therapeutic efficacy, except for renal cell carcinoma. Merck has many Phase II clinical trials for Ridaforolimus in other cancers (breast, endometrial, prostate), some in combination with TKIs. However the sarcoma trial was their only Phase III trial. It will take some years before Merck can complete another Phase III trial, and they will have to frame it carefully, perhaps taking into account mutation profiling.
That being said, Ariad had signed a particularly favorable licensing deal with Merck over Ridaforolimus, so most of the near-term gains that Ariad could have realized from Ridaforolimus had been gained already. In 2007, Merck made a $75M upfront payment to Ariad and another $53.5M in milestone payments for the initiation of Phase II and Phase III clinical trials of Ridaforolimus, in addition to paying its 50% share of development costs. In 2010, the partnership was restructured and Ariad granted Merck an exclusive license to develop and commercialize Ridaforolimus in exchange for $50M upfront, as well as $19M to retroactively fund the cost of Ridaforolimus development. Merck now funds 100% of Ridaforolimus development, manufacturing and commercialization costs. Despite this, Ariad is still eligible to receive regulatory and sales milestones and tiered double-digit royalties on global sales of Ridaforolimus. Thus the recent FDA rejection might have represented a loss in short-term gains, i.e. potentially $40M in milestone payments from Merck for worldwide regulatory approvals of Ridaforolimus, but it was not a large amount relative to the ~$200M that Ariad had already received from Merck. The FDA rejection was a small setback that was not fatal, in short, especially because Ariad still has Ponatinib in its pipeline.
Ponatinib Has Potential to Be a Game Changer in CML
Ponatinib is the major asset in Ariad's pipeline and the major driver of stock price and company value at this time. An NDA was submitted for Ponatinib on July 30th, as Ariad is seeking accelerated approval and priority review for the drug. Ariad is seeking approval for Ponatinib to treat chronic myeloid leukemia and Philadelphia chromosome positive acute lymphoblastic leukemia (CML and Ph+ ALL) patients that are resistant or intolerant to current Tyrosine Kinase Inhibitor TKI therapy.
Approximately 95% of CML patients and 30 % of ALL patients are positive for the "Philadelphia chromosome", a mutation associated with tumors that are often difficult to treat with currently available therapies. The Philadelphia chromosome is a reciprocal translocation of chromosome 9 and 22 where the Ableson1 tyrosine kinase on chromosome 9 fuses to the breakpoint cluster gene on chromosome 22 (Abl and Bcr). The result of this fusion gene on chromosome 22 is production of the Bcr-Abl fusion protein. In CML, presence of the Bcr-Abl fusion protein in common myeloid progenitor cells leads to rapid proliferation and increased numbers of mature myeloid cells such as granulocytes and monocytes in peripheral blood during the chronic phase of the disease (CP-CML). During accelerated and blast phase CML (AP- and BP-CML), the disease has progressed to late-stage, and patients will have increased presence of immature progenitor cells, also known as blast cells, in the peripheral blood. In this particular malignancy, the Bcr-Abl protein drives rapid proliferative expansion of lymphoblasts and overproduction of B-cells and T-cells. AP-CML, BP-CML and Ph+ ALL are considered more aggressive forms of leukemia and nearly impossible to treat with current drug therapies. Ponatinib is designed to treat these Bcr-Abl-driven leukemias better than currently available therapies.
Ponatinib's advantage over other Bcr-Abl inhibitors will be its ability target leukemias in which mutations in Bcr-Abl have rendered other drugs ineffective. Currently, the prevailing therapeutic for 1st line treatment is Gleevec (imatinib), a 1st generation TKI developed by Novartis and approved for CML in 2001. Gleevec had 2010 total annual revenue of $4.3 billion and 2011 annual revenues of $4.7 billion, a 9% increase. Of this annual total, it is estimated that $3 billion in revenue resulted from its use in leukemia (Gleevec is approved for various other indications, such as gastrointestinal stromal tumors GIST and neurofibromas). Gleevec was once dubbed a 'magic bullet' for CML and has proved to be remarkably effective. Until recently, Gleevec was the standard of care for CML with daily treatments of 400-800mg. Patients responding to Gleevec are projected to have a life expectancy that is comparable to the general population. However, the downside to Gleevec is that an estimated 30-40% of patients started on Gleevec will discontinue use for a variety of reasons including insufficient efficacy and development of adverse events. Notably, the Bcr-Abl kinase can evade Gleevec inhibition by evolving new mutations within the Abl kinase domain that are completely resistant to Gleevec binding. There are an estimated 55 different mutations that confer varying levels of resistance to Gleevec. These particular issues led to the development of 2nd generation TKIs: Tasigna (nilotinib, developed by Novartis) and Sprycel (dasatinib, developed by Bristol-Myers-Squibb). Tasigna and Sprycel (BMY) are approximately 30-fold and 300-fold more potent than Gleevec, respectively. These 2nd gen TKIs are also effective against the majority of Bcr-Abl mutations that are resistant to Gleevec.
While these newly approved TKIs work well in general, approximately 30% of patients are still reported to be resistant or intolerant to therapy. A major underlying cause for resistance to currently approved TKIs in CML is the development of mutations in Bcr-Abl that cannot be overcome by the 2nd generation TKIs. The most clinically-relevant mutation is the T351I mutation, which results in the amino acid Threonine being substituted by Isoleucine at codon 315 of the Abl gene. This amino acid substitution prevents appropriate hydrogen bonding between imatinib and the Abl kinase. Second generation TKIs do not bind well at this mutated site because of steric hindrance created by the substitution. Amongst all mutations, this mutation causes the highest magnitude of resistance to current TKI therapies. This mutation is clinically relevant because approximately 20% of clinically-identified mutations are of the T315I variety. The fact that no approved TKI can effectively inhibit Bcr-Abl T315I represents an urgent gap in treatment coverage.
Ariad Pharmaceuticals generated the third generation Bcr-Abl kinase inhibitor Ponatinib (AP24534) from a structure-guided drug design strategy, and is able to target the T351I mutation. In fact, Ponatinib is a pan-Bcr-Abl inhibitor designed to bind to and inhibit all clinically relevant mutants, as well as the unmutated Bcr-Abl kinase. These features of Ponatinib allow for its use in treatment-resistant CML and Ph+ ALL, and potentially as a 1st line therapy in these blood cancers too, as a strategy to prevent the development of treatment-resistant mutations in patients (Zhou et al. Chem Biol Drug Des, 2011). Ariad holds worldwide rights to Ponatinib development and commercialization.
Using Sprycel (dasatinib) and Tasigna (nilotinib) to Benchmark Ponatinib
Tasigna and Sprycel were first developed to address the patient populations that were resistant or intolerant to Gleevec. These 2nd generation TKIs are both more potent than Gleevec and were shown to inhibit Bcr-Abl mutants that were resistant to Gleevec in pre-clinical and clinical settings.
Similar to Ponatinib, Sprycel (see trial in NEJM) and Tasigna (see trial in NEJM) first gained marketing approval from the FDA for use as a 2nd-line treatment in CML and Ph+ ALL patients who were resistant or intolerant to treatment with Gleevec. As a starting point, we compared the pivotal data for Sprycel with Ariad's PACE clinical trial, which will be the major source of data used by the FDA when considering Ponatinib for use in CML and Ph+ ALL patients that were resistant or intolerant to 2nd generation TKIs or a 2nd line market.
The Sprycel trial was a single-arm open label Phase II trial that included approximately 400 patients that were considered resistant or intolerant to Gleevec. Like Bristol-Myers-Squibb, Ariad enrolled 449 patients in its pivotal Phase IIb trial called PACE (Ponatinib Ph+ ALL and CML Evaluation). Like the Sprycel trial, the PACE trial was designed to test Ponatinib in patients with CML and Ph+ ALL that are resistant or intolerant to 2nd generation TKIs Sprycel or Tasigna or had developed the T315I mutation after any TKI therapy including Gleevec (hereafter referred to as "2nd-line patients"). In other words, this trial will test the efficacy of Ponatinib in CML patients and Ph+ ALL patients that do not respond favorably to existing therapeutic TKI options for leukemia. These are hard-to-treat patients that have very limited options to treat their disease. Both trials are single-arm trials because there is no other possible treatment for these patients, as they are already non-responsive to existing therapies. It would be considered unethical to treat cancer patients that have failed current treatments with a placebo. This is why both trials are open-label (meaning patients and doctors know beforehand what treatment they are receiving) because no other options have worked and the effectiveness of the drug is being tested directly.
Although the goal of the PACE study was to enroll patients who were resistant to the new 1st-line TKI therapies dasatinib or nilotinib, the fact is that 93% of the patients in this study had been previously treated with 2 or more TKIs, and 58% of patients in the trial had been treated with 3 or more TKIs. This represents a heavily pretreated population that has already run out of therapeutic options.
In both trials, the primary endpoint for CP-CML patients was achieving a major cytogenetic response (MCyR). The primary endpoint for the more aggressive AP- and BP-CML and Ph+ ALL was achieving a major hematologic response (MaHR). Secondary endpoints in both trials included a major molecular response MMR. The data from the Sprycel trial resulted in Sprycel gaining FDA approval in June 2006 for use in 2nd-line patients. Because the patients in Ponatinib's trial are already resistant to Sprycel/dasatinib or Tasigna/nilotinib, Ponatinib would only have to perform just as well as dasatinib or nilotinib in their trials for 2nd-line patients for FDA to approve it. Below, our tabulated summary of data from clinical trials (see Footnotes 1-9) indicates that Ponatinib actually outperformed Sprycel/dasatinib and Tasigna/nilotinib in their previous trials for 2nd-line patients.
Click to enlarge images.
Key points from the pivotal PACE trial:
In CP-CML patients, 54% had a MCyR and 44% achieved CCyR with a MMR rate of 30%. In CP-CML patients with the multi-drug resistant T315I mutaion, 70% of total patients achieved MCyR while 66% of total achieved CCyR with a MMR rate of 50%. The median time to achieve MCyR rate in these CP-CML patients was 12 weeks.
As patients continued with the drug treatment, these results improved even further over time in the PACE trial. According to oncologists that treat CML, the results are considered outstanding or striking both in the overall response and in the short time to reach this response. In a recent review in Nature Reviews Cancer by O Hare et al. (August, 2012), it was stated that "Ponatinib may join or replace dasatinib and nilotinib as salvage therapy and could represent a potentially unique candidate in the 1st-line setting." The most impressive aspect of Ponatinib is that it can overcome the T315I mutation. This mutation is resistant to treatment by imatinib, dasatinib, and nilotinib. As one can see in the PACE results, patients that express this mutation respond very well to Ponatinib.
The side effect profile did not show any alarming developments. Pancreatitis was a concern from the Phase II trials with Ponatinib however, those levels were decreased in the PACE trial. Cytopenias were also detected in approximately 35% of patients in the PACE trial, but this was comparable or lower than reported in the dasatinib trial.
The data from this trial formed the basis of a recently submitted NDA for Ponatinib. This NDA will seek approval of Ponatinib as a therapy for patients with resistant or intolerant CP-CML and Ph+ ALL. This is a rolling submission and the FDA has begun reviewing the application since July 30 2012. The application will be complete once a subset of chemistry, manufacturing, and controls CMC data is submitted to the FDA in Q3 2012. Ariad is requesting priority review for accelerated approval of Ponatinib (under PDUFA IV, i.e. a 6 month review) and expects to launch the drug for noted indications in the Q1 2013.
EPIC Trial Vs. Generic imatinib: Race Against Time
On July 27th, 2012, Ariad announced the initiation of a randomized two-arm, multicenter Phase III clinical trial that will test Ponatinib directly against Gleevec in adult patients with newly diagnosed CML, as a 1st-line therapy. The trial is dubbed the EPIC trial (Evaluation of Ponatinib versus Imatinib in Chronic Myeloid Leukemia). This trial is designed to allow for Ponatinib to be used in treatment naïve CML patients. Efficacy will be evaluated based on the primary endpoint of MMR rate at 12 months after treatment and Ariad expects to complete enrollment by the end of 2013.
As stated in the press release this trial is "designed to have a 90% (statistical) power to detect (at least) a 15% absolute improvement in 12-month MMR rate by Ponatinib compared to imatinib." The trial was based partly on the results from the ENESTnd and DASISION Phase III trials which eventually led to approval of Tasigna (nilotinib) and Sprycel (dasatinib) as a 1st line therapy (see Tables above). Current clinical journals indicate that these 2nd generation TKIs are emerging as the preferred and standard option to treat newly diagnosed CML patients over Gleevec. Tasigna 2010 annual revenues were $400 million, while 2011 annual revenues were $716 million, an increase of 79%. Sprycel revenues were reported to be $576 million in 2010 and $803 million in 2011, an increase of 39%. Overall, the market for CML treatment in 2011 was approximately $4.5 billion dollars.
In the most recent conference call Ariad CEO Harvey Berger highlighted the urgency of gaining 1st-line approval for Ponatinib. He said:
…[A]re we going to turn heaven and earth to try to get approval by the end of 2014? Absolutely there are a lot of benefits for doing that, every 6 months on the market really matters. It dovetails better and earlier relative to when Gleevec becomes generic, imatinib in 2015. So certainly, we want to get approval in 2014. But the base case is 1st half of 2015.
The overall importance of the EPIC trial is that it will provide pivotal data to approve Ponatinib as a 1st line therapy in treatment-naïve patients. Ponatinib will then potentially take market share away from Tasigna and Sprycel, two drugs that cannot inhibit Bcr-Abl with the T315I mutation.
However, costs of running the EPIC trial will be a major contributor to Ariad's approximately $200M annual burn rate. As indicated by Berger's quote, there is a rush to finish the EPIC trial and gain early approval because of pressure from generic imatinib already being produced and prescribed in India. Gleevec (imatinib) goes off patent in the US in 2015 and will face immediate and harsh reduction in profits because of the generic. This generic drug costs $2500-$5000 per year per patient, compared to $50k-$100k for Gleevec, i.e. an over 10-fold shrinkage of the pie. We feel that while Ponatinib may prove to be a better drug than Gleevec in a head-to-head comparison, the availability of generic imatinib will place a price barrier around all branded TKIs for 1st-line use in CML unless there are special circumstances, such as a known T315I mutation. Branded TKIs will likely only be used in the 2nd-line patients who do not respond to generic imatinib, estimated at about 30% of the patients each year (judging from the ENESTnd and DASISION trial results for imatinib above).
Competitive Landscape: No Current Drugs Can Out-Compete Ponatinib
In addition to the 2nd generation TKIs, several TKIs and other drugs that target different mechanisms to address CML are under various stages of clinical development, leading to intense competition within this market. The most notable TKIs under development are Bosutinib (or SKI-606) by Wyeth/Pfizer, Bafetinib (or INNO-406) by CytRx, DCC-2036 by Deciphera Pharma, and Radotinib (or IY5511HCl) by Il-Yang Pharma of South Korea. Amongst non-TKIs, the most noteworthy drug is Omacetaxine mepesuccinate (or Omapro) by ChemGenex Pharmaceuticals/Teva Pharmaceutical Industries. Here we analyze the landscape of drugs that can potentially compete with Ponatinib in the near future for its market share.
Pfizer filed Bosutinib's NDA for patients with previously treated Ph+ CML in Jan 2012. Bosutinib is an inhibitor for both Src-family and Bcr-Abl kinases, and is being developed for the treatment of solid tumors as well as CML. In vitro, Bosutinib shows sensitivity against all imatinib-resistant mutants except T315I. Results from clinical trials in imatinib-resistant or intolerant CP-CML patients comparable to Ponatinib in the PACE trial (see Table above). However, for patients who were resistant or intolerant to 2 or more TKIs, Bosutinib was clearly inferior to Ponatinib. Once it is approved, Pfizer's Bosutinib could cut into a fraction of the 2nd-line therapy market that addresses imatinib-resistance, although it still fails to address the T315I mutation unlike Ponatinib.
IY5511HCl (Radotinib) by Il-Yang Pharma of South Korea is a 2nd generation TKI of Bcr-Abl and PDGFR that is 35-50 times more potent than imatinib in vitro. Phase I and II trials with Radotinib showed comparable activities to other approved 2nd generation TKIs and a superior efficacy than Imatinib, although it also fails to address the T315I mutation. South Korea's FDA already approved Radotinib (generic name Supect) for CML patients in January 2012. With ongoing Phase III trials in several Asian countries such as India and Thailand, it will quickly compete with Gleevec (and perhaps 2nd generation TKIs as well) in this region. In the US, Il-Yang is still recruiting patients for its Phase III trial for 1st line therapy in newly diagnosed CML patients and for its Phase I/II trial for CML patients who are intolerant or resistant to imatinib and 2nd generation TKI treatment.
Given the importance of the T315I mutation in treatment-resistant CML, we doubt that the 2nd line therapy market for CML will be dominated by any of these T315I-inactive drugs.
DCC-2036 (Rebastinib) by Deciphera Pharma is an ABL inhibitor that disrupts the switch control pocket involved in conformational regulation of ABL. It shows potent inhibitory activities against several imatinib-resistant mutants including T315I mutants. Interim results of an ongoing Phase I trial showed that DCC-2036 is well tolerated and has anti-leukemia activity in subjects with refractory CML and T315I positive disease. However, it is too preliminary to judge the efficacy of this drug without a Phase II/III trial.
Omacetaxine is a subcutaneously bioavailable semisynthetic form of Homoharringtonine, a natural alkaloid that is obtained from various Cephalotaxus species. It binds to the ribosomal A-site cleft and inhibits protein translation of short-lived oncoproteins that are upregulated in leukemic cells (particularly Cyclin-D1, Mcl-1 and c-Myc). Omacetaxine is acceptably tolerated, and that the most common AEs were thrombocytopenia (60%), anemia (51%), diarrhea (40%), neutropenia (37%), and nausea (30%) (any details about trial? Phase, number of subjects, etc). As omacetaxine acts independently of TKIs, it may have a therapeutic advantage for patients who have developed resistance to all TKIs, although it still appears to be inferior to Ponatinib overall (see Table above).
Projected Ponatinib Revenues and Ariad's EV/EBITDA Multiple
The incidence of CML (new cases per year) is about 5,500 in the United States. Due to the strong efficacy of Gleevec therapy the mortality rate of these patients is about 2% and have a projected life expectancy comparable to the general population. The prevalence of CML in the United States is estimated to be approximately 75,000 people.
Patients who are diagnosed with CML and are treated with a TKI will (in most cases) stay on TKI therapy for life. It has thus been determined that the prevalence of patients with CML will increase over time and potentially plateau in 2050 when approximately 181,000 people are projected to have CML.
Initially, Ponatinib will be approved for patients with CML or Ph+ ALL that are resistant to prior TKI therapy. Ariad's investor presentation states there are approximately 1400 patients in the U.S. eligible for Ponatinib under this designation, and approximately 1750 eligible in Europe. While Sprycel and Tasigna cost $100,000/yr/patient, it is expected that there will be a 15-20% premium for Ponatinib.
Finally, it may be informative to understand the annual revenue trend for Tasigna and Sprycel -- since both agents were initially approved for 2nd line use. Note that Tasigna launched in the fourth quarter of 2007 and Sprycel approved at the end of June 2006. As one can see, Sprycel and Tasigna achieved consistent growth sharing the indication for 2nd-line treatment. Total revenue from these two drugs in 2009 was $630M and nearly $1B in 2010.
Using the patient population numbers and prior TKI revenues as a guide we have determined conservative and optimistic revenue projections for Ponatinib.
Our conservative estimates assume that Ponatinib will be prescribed to 1500 patients per year with 5% discontinuing treatment per year, or loss of 50% after 10 years. In 2010, it was estimated that Tasigna and Sprycel treated a total of 10,000 patients or an average of 5000 each. Our conservative estimation equates to about 15% penetration into the 2nd-line market and continues to add 1500 new patients worldwide every year. Our more bullish projection ramps up significantly after 2015 when we expect Ponatinib to be used as 1st-line therapy and we estimate an addition of 5000 patients per year in this scenario or about 50% of newly diagnosed CML patients worldwide. Importantly, the emergence of generic imatinib in 2015 in the U.S. and 2016 will hinder the bullish projection and we feel our conservative estimates are closer to reality. Other analysts have been quoted to show similar projections here, here, and here.
Overall, we estimate that within the next 7 years, Ponatinib will see growth from approximately $150M to $2B in annual sales, which is very promising. But given Ariad's current annualized burn rate of $200M (see below), and its current enterprise value of $3.3B, the EV/EBIDTA ratio for 2013 will be well over 20. This suggests that on top of the 2013 EBIDTA, the market is ready to price in the next few years of growth for Ponatinib in the 2nd-line and perhaps even the 1st-line market. However, we do feel that this drug has potential for continued growth and revenues should see robust growth. Importantly, once patients are on an effective TKI for CML or ALL, they are on this drug for life and new patients will be added every year. The most difficult aspect in projecting Ponatinib use will be how many and how quickly clinicians and health insurers switch to generic imatinib for 1st-line CML treatment in 2015, which is very close to when Ponatinib's use in 1st-line therapy will be approved if the EPIC trial is successful. History has shown that the market share of branded drugs can take a 90% plunge once generics hit the market. It is also uncertain if Ponatinib will always remain the first choice for 2nd-line patients. And, it is impossible to account for off-label usage of Ponatinib once it is approved, which could be high given its broad spectrum of kinase targets (c-KIT, PDGFR, FLT3, FGFR, VEGFR, TIE2) and its excellent safety profile.
Final Financials and Conclusion
Ariad doubled their quarterly burn rate to $52M in Q2 of 2012, compared to $25M last year. And they have $250M cash left. Given that they are still expanding their Phase I/II trial for an early-stage drug candidate AP26113 and they are expanding their sales force for Ponatinib, their cash reserves can only last for 1 more year. Thus they will need to do another stock offering by Q3 2013. In December 2011, Ariad raised $243M with a market cap under $2B, and without a drop in stock price. Given their market cap of $3.2B right now, they could potentially raise another $300-600M in 2013. Furthermore as of Q2 of 2012, they are still eligible to sell $66M worth of securities at any time. By the time positive news on Ponatinib is released from FDA in Q4 2012, we believe the stock price will peak, and Ariad will likely do a stock offering again. It is also remarkable that over 90% of the shares are held by insiders and savvy institutional investors, the top 3 holders being Fidelity, BlackRock, and SAC Capital.
In summary, we believe that Ponatinib will be approved for 2nd-line CML and Ph+ ALL patients by the end of 2012, and Ariad's share price movements could accordingly reflect the exuberance surrounding this impending positive news.
CCyR: Complete Cytogenic Response. No Ph+ cells can be detected in bone marrow.
CHR: Complete Hematological Response. Return of peripheral blood counts to normal levels
CMR: Complete Molecular Response. The absence of Bcr-Abl RNA by PCR testing.
MCyR: Major Cytogenic Response. 35% or less of cells from a patients bone marrow are positive for the Philadelphia chromosome as indicated by cytogenic measurements.
MHR: Major Hematological Response. Considered a CHR with no evidence of blast or stem cells in the setting of peripheral blood counts that have not normalized. See Talpaz et al.
MMR: Major Molecular Response. Defined as a 1000 fold reduction in the detection of Bcr-Abl RNA transcript by quantitative real-time PCR compared to baseline/pretreatment levels.
1. PACE trial results. Cortes et al., 2012, ASCO annual meeting
2. Talpaz et al., 2006, NEJM
3. le Coutre et al., 2008, Blood, Clinical trial ID NCT00384228
4. Kantarijian et al., 2007, Blood, Clinical trial ID NCT00109707
5. Cortes et al., 2010, J. Clinical Oncology
6. Cortes et al., 2011, Blood, Clinical trial ID NCT00261846
7. Khoury et al., 2012, Blood, Clinical trial ID NCT00261846
8. Cortes et al., 2012, ASCO annual meeting
9. Cortes et al., 2009, ASCO annual meeting, Clinical trial ID NCT00375219