Seeking Alpha
Profile| Send Message| ()  

Jennifer Landis, Ning Yang, Ph.D., Andrew McDonald, Ph.D.

Summary

ARIAD Pharmaceuticals (ARIA) is a clinical stage company focused on the development and commercialization of therapeutics primarily to address mutated or resistant forms of cancer.

  • The Company anticipates receiving its first FDA approval by Q1 2013 for its lead agent, ponatinib, as a second line therapeutic for Chronic Myeloid Leukemia (CML) and Philadelphia chromosome positive Acute Lymphoblastic Leukemia (Ph+ALL) patients. Ponatinib has shown significant efficacy against resistant forms of leukemia, including cancer cells with the T315I mutation, for which no therapeutic options exist today.
  • Other near term value drivers include Phase I/II interim analysis of maximum tolerated dose/dose-limiting toxicity (MTD/DLT) for pipeline candidate AP26113 (Sept 2012), commercial launch of ponatinib (pending approval - Q1 2013), European approval for ponatinib in patients with resistant CML (H2 2013), and interim analysis of Phase III 12 month response rates of ponatinib in first line CML patients (H2 2014).
  • We project worldwide peak revenue in 2023 for ponatinib at $2.0 billion, including a 10% penetration of ponatinib for first line CML and Ph+ALL patients. Upside exists assuming ponatinib is able to demonstrate a significant clinical advantage over imatinib as a first line therapeutic and with demonstrated efficacy of AP26113 in non-small cell lung cancer (NSCLC) - particularly against T790M mutation.

Ponatinib Demonstrates Best In Class Second Line Efficacy In Chronic Phase CML

CML and Ph+ALL are cancers of the bone marrow that impact the immune and circulatory systems. The prevalence of CML and Ph+ALL worldwide is estimated at 55,000 and 1,800 today, respectively. Therapy includes daily oral administration of tyrosine kinase inhibitors (TKIs) such as imatinib from Novartis (NVS), dasatinib, from Bristol-Meyers (BMY), or nilotinib (Novartis). An estimated $3 of $4.7 billion 2011 Novartis revenues are attributed to sales of imatinib as a daily-dose therapeutic for the chronic management of leukemia patients. Imatinib is widely held as the 1st line standard of care for this indication. Five-year survival rates for CML patients are as high as 90%. However, over time, mutations appear, resistance to first line TKIs develops, and the patient must switch therapeutics. Within two years of approval and launch of second line therapeutics in 2006 and 2007, Bristol-Meyers (dasatinib) and Novartis (nilotinib), respectively, were generating over $500 million in combined revenue, indicating high demand for options for patients who are refractory to imatinib. Worldwide revenues for dasatinib and nilotinib quickly grew to just under $1 billion by 2010, before each company gained approval to market the agents for first line therapy as well.

ARIAD has received orphan drug and accelerated review status from the FDA and anticipates regulatory approval of ponatinib for resistant or intolerant CML or Ph+ALL by the first quarter of 2013. In clinical trials, ponatinib has demonstrated significant efficacy against CML with the T315I mutation, for which no therapeutic options exist, and which affects up to 20% of CML patients. Further, the Company reports that during its 450 patient PACE trial, for which 94% of patients enrolled had failed >2 prior TKIs, ponatinib overcame all mutant forms of CML that were identified. For this reason, we don't believe that the withdrawal of Molecular MD's approval application for its companion diagnostic will impact the decision to administer ponatinib in treatment resistant patients. ARIAD's 9-month response rates for patients resistant to available therapy are in line with 15-month second line response rates of dasatinib, the market leading second line therapeutic. In general, response rates improve over time, so ponatinib 12-month response rates likely will continue to improve.

The table below provides a simplified comparison of clinical results for currently marketed and pending approval TKIs targeted at CML patients, including Pfizer’s (PFE) BOSULIF®, which was just approved on September 4, 2012. Major Molecular Response (MMR) is considered the strongest measure of response, followed in descending order by Complete Cytogenic Response (CCR), Molecular Cytogenic Response (MCR) and Complete Hematologic Response (CHR). Note that the table is sourced from various clinical trials, each with unique protocols that need to be considered when comparing response rates.

Second, Third Lines

First Line

FDA Approval

Response Rates

FDA Approval

Response Rates

Time To Response

MMR

CCR

MCR

CHR

Time To Response

MMR

CCR

ARIAD

ponatinib3

NDA**
July 2012

9 mos.

30%

44%

54%

93%

n/a

n/a

n/a

n/a

9 mos.

50%*
(T315I)

66%*
(T315I)

70%*
(T315I)

91%*
(T315I)

Bristol-Meyers

dasatinib

2006

15 mos.

35%4

49%4

59%4

91%4

Oct 2010

12 mos.

46%1

77%1

Novartis

nilotinib

2007

12 mos.

n/a

38%7

55%7

78%7

Dec 2010

12 mos.

44%2

80%2

Pfizer

bosutinib

Sept 2012

24 mos.

34%9

41%6

53%9

86%6

n/a

12 mos.

41%5

70%5

Novartis

imatinib

2001

2003

12 mos.

28%1

66%1

*Results for cohort with T315I mutation only

**FDA has granted accelerated review

ARIAD is hiring and training a U.S. direct sales force and is establishing a European headquarters to manage operations outside of the U.S. The Company anticipates approval to market ponatinib for resistant CML in Europe in the second half of next year.

In July, ARIAD launched EPIC, a 500 patient Phase III pivotal trial of ponatinib for treatment naïve CML patients. The randomized trial protocol mirrors that of nilotinib and is powered to detect the same 15% absolute improvement in 12 month MMR rate vs. imatinib. Depending on the results, interim analysis of 50% of patients may allow early filing for FDA approval, but the Company is anticipating a base case scenario of approval of ponatinib for first line CML patients in 2015.

Strong Pipeline Includes Phase I/II Candidate For Resistant NSCLC

ARIAD's unique and focused internal research program is based on structural and computational analysis of cancer cell biology and metabolism that allows the creation of small molecule therapeutics to block cell division and mutation pathways. The Company plans no further collaborations such as the one it had with Merck to develop and commercialize ridaforolimus, which failed to achieve regulatory approval earlier this year.

AP26113, ARIAD's next drug candidate, is in a Phase I/II trial to determine recommended dosing and preliminary anti-tumor activity against multiple cancers, with Phase II focus on non-small cell lung cancer (NSCLC) exhibiting ALK gene rearrangement or T790M-mutated EGFR. Interim analysis of Phase I will be released in September and presented at ESMO. An estimated 125,000 and 40,000 NSCLC patients worldwide develop T790M-mutated EGFR or are ALK-positive, respectively. Last year, Pfizer received accelerated FDA approval for crizotinib, which targets ALK-positive NSCLC.

Other Considerations

  • Potential value limiters include risks related to the timeline for receipt of regulatory approvals and commercialization vs. operating cash needs, and pricing pressure resulting from the introduction of generic Gleevec (imatinib) in 2015.
  • Cash on hand and marketable securities at the end of June 2012 and December 2011 were $250 and $306 million, respectively. Cash burn for Q2 2012 doubled to $52 million. Cash used in operations is expected to continue to increase significantly over the next twelve months due to hiring, training and management of a new direct sales force, and due to the onset of the 500 patient Phase III EPIC and 80 patient Phase II AP26113 trials. Guidance has not been provided for commercialization expenditures, but management has indicated that it has enough cash to fund operations through the end of next year. Bristol-Meyers achieved over $150 million in its first full-year of marketing dasatinib for second line patients, so if ARIAD does indeed receive FDA approval and execute a successful commercial launch in Q1 2013, its cash runway could be extended. Management has stated that commercialization is the spending priority and that if cash reductions need to take place, ponatinib's commercial program will be protected.
  • The total value of marketed CML therapeutics should decline beginning in 2015 due to the first patent expiration for imatinib, which represents an estimated $3 billion of the $4.7 billion worldwide annual market today. The less expensive, generic alternative of imatinib, which is widely regarded as first line standard of care, will likely prove difficult competition for much more expensive branded products.

Valuation Discussion

  • With its companion diagnostic, ARIAD should easily capture the 15%-20% of CML patients that develop the T315I mutation. Because ponatinib has demonstrated comparable if not superior overall second line efficacy to dasatinib, as well as activity against all tested mutations, ARIAD could capture at least another 25% of the general second line (non-T315I resistant) market. Taking into account that ponatinib's patent protection extends to 2026, we assign worldwide peak revenues for second line ponatinib at $1.6 billion in 2023.
  • FDA approval of ponatinib for treatment naïve patients is expected in 2015, the same year that pricing protection for imatinib dissolves. Therefore the EPIC trial results and the willingness of physicians to adopt an alternative first line therapeutic become crucial to ARIAD's ability to protect pricing of ponatinib and to penetrate the market for treatment naïve patients. Assuming 10% penetration of treatment naïve CML and Ph+ALL patients worldwide, we assign peak revenues in 2023 for ponatinib at $400 million.
  • We believe that ARIA is fairly valued at this time, but expect the price to increase with strong revenue growth. Upside to these projections could be driven by strong EPIC results and progression of AP26113 into a pivotal trial - with demonstrated efficacy particularly against the T790M mutation.

References

  1. Soverini, S. et., al., Targeted therapy and the T315I mutation in Philadelphia-positive leukemias, Haematologica, April 1, 2007, vol. 92 no. 4, p 437-439.
  2. Mayor, S., Phase 3 DASISION Trial Shows Dasatinib Achieves Higher Response Rates Than Imatinib In Chronic Myeloid Leukaemia, Medical News Today, June 14, 2010.
  3. Larson, R., et.al., Comparison of nilotinib and imatinib in patients (pts) with newly diagnosed chronic myeloid leukemia in chronic phase (CML-CP): ENESTnd beyond one year, J. Clin. Oncol. 28: 15s, 2010.
  4. ARIAD ASCO 2012 clinical presentation, available on corporate website.
  5. Kantarjan, H., Dasatinib or high-dose imatinib for chronic-phase chronic myeloid leukemia after failure of first-line imatinib: a randomized phase 2 trial, Blood Feb 22, 2007.
  6. Cortes, J., et.al., Bosutinib Versus Imatinib in Newly Diagnosed Chronic Phase Chronic Myeloid Leukemia - BELA Trial: 24-Month Follow-up, Poster ASH 2011.
  7. Cortes, J., et.al., Safety and efficacy of bosutinib (SKI-606) in chronic phase Philadelphia chromosome-positive chronic myeloid leukemia patients with resistance or intolerance to imatinib, Blood Oct 27, 2011.
  8. Hughes, T., et.al., Responses and Disease Progression in CML-CP Patients Treated with Nilotinib after Imatinib Failure Appear To Be Affected by the BCR-ABL Mutation Status and Types, Abstract ASH 2007.
  9. BOSULIF Prescribing Information.
Source: Ariad Pharmaceuticals: Ponatinib Approval Anticipated In Second-Line CML