Ariad Pharmaceuticals Inc fka ARIA

[moneyman1010]

Mclinn from Merrill

?? Details from CML expert event
We hosted two distinguished CML experts at our investor lunch to better
understand the market and potential for ARIA’s 3rd generation TKI ponatinib
(PON). Detailed Phase 2 data were strong but as expected and support ARIA's
accelerated approval plans for mid 2012. Below are key highlights:
-- Physicians have strong conviction that ponatinib is a very potent TKI, which is
as safe and well tolerated as marketed second generation drugs from NVS
(Tasigna) and BMY (Sprycel). Experts are confident the current study will support
FDA approval, and expect PON long term will dominate the salvage CML market,
which is consistent with our model. One important nuance is that the expected
PON label would force patients to fail a second generation drug prior to use,
which we believe limits the number of available patients per year eligible for PON
relative to Street models.
-- Development of PON for front line CML remains controversial and physicians
debate two approaches and had the following bias, different than ARIA's view: 1)
front line study in high risk CML- narrower label but stronger superiority data and
2) broad frontline study-broader market potential but risk of being on the losing
side of a battle with entrenched Novartis.
-- Physicians believe penetration of Tasigna and Sprycel will continue to increase
in newly diagnosed CML from an estimated 60% today in the US to 70%+ in the
next two years. However, they believe availability of generic Gleevec in 2015 will
significantly reverse that trend, with Gleevec being the preferred therapy. An
emerging thought is that expensive CML drugs will be used as a finite therapy for
inducing complete cytogenetic responses, but using generic Gleevec as
maintenance therapy. If this paradigm were to take hold, the CML market could
compress significantly.
Company Update NEUTRAL
Equity | United States | Biotechnology
12 December 2011
Rachel McMinn [phone]
Research Analyst
MLPF&S
[e-mail]
Masha Chapman [phone]
Research Analyst
MLPF&S
[e-mail]
?? Stock Data
Price US$11.63
Price Objective US$14.00
Date Established 19-Jul-2011
Investment Opinion C-2-9
Volatility Risk HIGH
BofAML Ticker / Exchange ARIA / NAS
Bloomberg / Reuters ARIA US / ARIA.O
W
Ariad Pharmaceuticals, Inc.
12 December 2011
2
Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $14 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$15/share for ponatinib, $1/share for ridaforolimus and $1/share for cash, which is
further adjusted for 17% dilution. We use the following assumptions in our DCF:
1) WACC of 11%, 2) peak global sales of $400M in 2016, 3) sales out to 2030
and no terminal value, and 4) 17% dilution from outstanding warrants, dilutive
options and potential future equity financing. We see upside to our valuation
from: 1) serious M&A offer, 2) pipeline expansion, and 3) partnership for ponatinib
in EU and / or Asia. Downside risks to valuation are: 1) disappointing results in
the PACE study that could put accelerated approval at risk, 2) execution risks
following the ponatinib launch in the resistant/intolerant settings, 3) data
disappointments for ongoing/anticipated ponatinib trials, 4) unexpected clinical
strategy requirements for future ponatinib trials, and 5) absence of a serious M&A
offer in the next 12-months.
Link to Definitions
Healthcare
Click here for definitions of commonly used terms.
Analyst Certification
I, Rachel McMinn, hereby certify that the views expressed in this research report
accurately reflect my personal views about the subject securities and issuers. I
also certify that no part of my compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or view expressed in this
research report.