Rachel McMinn wrote this today, Monday 9/24 about Ariad:

Mini-ESMO overview of NSCLC
The abstracts for the European Society of Medical Oncology (ESMO, Sept 29-Oct 2) meeting became available last week. In this note we highlight some incremental data to be presented at the conference that we believe is relevant in understanding the market potential for ARIA’s ALK inhibitor ‘113 in non-small cell lung cancer (NSCLC). See original note for our thoughts on ARIA data, to be presented Saturday, Sept 29.
ROS1 is a validated second target for ALK inhibitors
ARIA has previously noted the potential for '113 to be active in NSCLC patients with mutated ROS1, based on in vitro activity showing similar inhibition to ALK rearrangements. ARIA will formally test the potential efficacy in the Phase
2 expansion study. Based on initial data from PFE's first generation Xalkori, we would expect '113 to be active in ROS1. Data from 15 patients with ROS1 showed a 57% objective response rate, consistent with its activity in ALK+ patients. ROS1 represents as estimated 1-2% of NSCLC, and providing in theory for 50% more patients vs ALK alone (est 4%). There is a separate study showing a higher overall prevalence of these mutations in East Asian patients, 8% for ALK+ and 3% for ROS1.
Developments in EGFR T790M: still wide open
There is an expectation that ARIA’s ‘113 might show activity in EGFR-T790M mutant NSCLC, which represents ~50% of EGFR mutations. There is some evidence that Boehringer Ingelheim’s EGFR/Her2 inhibitor afatinib is active in patients with T790M, either alone (<10% response rate) or in combination with LLY's EGFR monoclonal antibody Erbitux (38% overall response rate, PFS=4.7 months, DOR=7.7 months). We see significant room for improvement on both efficacy and tolerability. First initial data for '113 will be available this weekend, but we expect more expansive data (patient number and follow up, optimal dose) will be important to assess '113 potential in T790M.

Rachel McMinn wrote this today, Monday 9/24

Mini-ESMO overview of NSCLC
The abstracts for the European Society of Medical Oncology (ESMO, Sept 29-Oct 2) meeting became available last week. In this note we highlight some incremental data to be presented at the conference that we believe is relevant in understanding the market potential for ARIA’s ALK inhibitor ‘113 in non-small cell lung cancer (NSCLC). See original note for our thoughts on ARIA data, to be presented Saturday, Sept 29.
ROS1 is a validated second target for ALK inhibitors
ARIA has previously noted the potential for '113 to be active in NSCLC patients with mutated ROS1, based on in vitro activity showing similar inhibition to ALK rearrangements. ARIA will formally test the potential efficacy in the Phase
2 expansion study. Based on initial data from PFE's first generation Xalkori, we would expect '113 to be active in ROS1. Data from 15 patients with ROS1 showed a 57% objective response rate, consistent with its activity in ALK+ patients. ROS1 represents as estimated 1-2% of NSCLC, and providing in theory for 50% more patients vs ALK alone (est 4%). There is a separate study showing a higher overall prevalence of these mutations in East Asian patients, 8% for ALK+ and 3% for ROS1.
Developments in EGFR T790M: still wide open
There is an expectation that ARIA’s ‘113 might show activity in EGFR-T790M mutant NSCLC, which represents ~50% of EGFR mutations. There is some evidence that Boehringer Ingelheim’s EGFR/Her2 inhibitor afatinib is active in patients with T790M, either alone (<10% response rate) or in combination with LLY's EGFR monoclonal antibody Erbitux (38% overall response rate, PFS=4.7 months, DOR=7.7 months). We see significant room for improvement on both efficacy and tolerability. First initial data for '113 will be available this weekend, but we expect more expansive data (patient number and follow up, optimal dose) will be important to assess '113 potential in T790M.

Rachel McMinn comments on todays news:

FDA drops T315I companion
diagnostic
?? Surprising, or is it?
ARIA and its diagnostic partner announced the voluntary withdrawal of a T315I
pre-marketing approval (PMA) application for the T315I mutation test, which was
intended to be used as a companion diagnostic with ARIA's BCR-ABL inhibitor
ponatinib (PON) for resistant/intolerant CML. This news comes as a surprise, but
in our view is actually somewhat of a positive on two fronts: (1) the FDA division
responsible for companion diagnostics is implying that this test is inconsistent with
FDA guidance on these kinds of tests, because a T315I yes/no does not provide
essential information required for physicians to prescribe PON; (2) we had
previously questioned the potential for this test to "box" PON into a niche market
segment for only CML patients with T315I disease, when the drug has clear
activity across mutations in patients failing standard CML therapy. We are not
changing our estimates based on this news, and we believe while this news will
have an impact on ARIA's marketing strategy, it will not negatively influence PON
uptake

Merrill Lynch contd.

Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $26 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$21/share for ponatinib, $6/share for 113 and $2/share for cash, which is further
adjusted for 14% dilution. We use the following assumptions in our DCF: 1)
WACC of 11%, 2) peak PON global sales of $566M in 2016, 3) sales out to 2030
and no terminal value, and 4) 14% dilution from outstanding warrants, dilutive
options and potential future equity financing. We see potential upside to our
valuation from: 1) pipeline expansion, and 2) 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) disappointing data for '113.

This from Rachel McMinn today and Merrill Lynch:

Initial ARIA ALK data
encouraging
?? ALK inhibitor data for ARIA, Chugai, Novartis
Abstracts became available today for the European Society for Medical Oncology
(ESMO) meeting which will take place in Austria, Sept 28 – Oct 2. New data show
positive preliminary results for ARIA’s ALK inhibitor ‘113, and suggest ARIA is well
positioned in a highly competitive and evolving lung cancer drug development
landscape. Competitor data from Novartis is unchanged from data previously
presented which showed promising activity in Xalkori failures with GI tox as dose
limiting; Chugai’s ‘802 shows also shows strong initial activity with neutropenia as
dose limiting. Updated '113 results will be presented at the meeting.
ARIA’s ‘113 shows activity in ALK+ lung, no data in EGFR
Phase 1 study of ‘113 evaluated four dose levels (30mg, 60mg, 90mg, 120mg;
1x/day) in 11 non-small cell lung cancer and 4 other cancer patients (10 patients
ALK+ or EGFR-mutated). No treatment related serious adverse events (AEs)
were observed and no dose limiting toxicities occurred. Most common AEs were
fatigue (n=4) and nausea (n=4). We note that gastrointestinal tox is expected and
potentially mechanism driven. The drug demonstrated a clear anti-tumor activity
with partial responses recorded in all ALK+ patients tested (60mg n=1 and 90mg
n=3). 120mg dose is currently under evaluation and data are expected at the
meeting.
Chugai’s ‘802 data solid
Data from a Phase 2 study of ‘802 (300mg, 2x/day) in ALK+ NSCLC showed a
73% response rate (1CR and 10PRs) in 15 evaluable patients, who are naïve to
an ALK inhibitor. The data are solid but tell us nothing about potential efficacy in
Xalkori failures. Most common AEs included liver enzyme elevations,
neutropenia, rash, nausea, myalgia, dysgeusia, constipation, blood
CPK/bilirubin/ALP elevations, all Grade 1 except for neutropenia (Grade 3).

report continued part 3

Table 1: Potential valuation outcomes for '113
Scenario 1 Scenario 2 Scenario 3
ALK+ EGFR+ ALK+ EGFR+ ALK+ EGFR+
Positive data ?? ?? ?? ?? ?? ??
Probability of success 40% 40% 40% 0% 0% 0%
Implied value/sh $6 $14 $6 $0 $0 $0
Implied ARIA value/sh $37 $26 $20
% upside to stock price (9/7) 68% 17% (9%)
% upside to PO 44% 0% (22%)
Source: BofA Merrill Global Research estimates.
Basis for PON estimate revisions
As part of our model review ahead of the ponatinib launch, we revised our
estimates to reflect a slightly higher estimated price of $9,000/month, up from
$8,500. Our current pricing assumption reflects a 10% price premium to current
pricing for second generation CML drugs. ARIA has guided investors to expect a
“modest” price premium, and our prior 4% estimate appeared to us to be overly
conservative. On valuation, we increased probability of success in the frontline
CML setting from 65% to 80%, as we believe this higher rate is more reflective of
our views on the extremely high probability of generating positive Phase 3 data
and coming to market in a timeframe consistent with our expectations. The
lingering risk in our mind is how much market share PON will have with the entry
of generic Gleevec in 2015, particularly in Europe, where price sensitivity is more
acute. Nonetheless, PON is highly differentiated, and we see no risk that PON will
not show strong superiority over Gleevec and appear more favorable than
competitors Tasigna (Novartis) and Sprycel (Bristol Meyers). Thus, we view our
2020+ PON sales estimate of $1.5B as reasonable.
PON launch review
We evaluated prior CML launches to evaluate consensus estimates ahead of the
expected early 2013 launch. Our conclusion is that 2013 consensus of $62M
appears reasonable, 2014 of $208M appears overly optimistic, but there are
several factors to consider:
(1) Sprycel was the first second generation CML drug approved, and
therefore it is important to take into account that demand was naturally
higher for this drug than when Tasigna launched a year later. Sprycel
prescriptions for the first 12 months adjusted for our PON pricing
estimate imply first year US sales of ~$68M and second year US sales
of ~$120M.
(2) The same analysis for Tasigna implies first year adjusted US sales of
~$33M and second year sales of ~$66M. Tasigna launched with a
blackbox warning (QTc prolongation and related), is dosed twice daily
(vs. once daily for Sprycel) and has an inconvenient food effect (has to
be taken at least two hours before food and no food one hour after). We
believe these issues, combined with it having almost no differentiation
vs. Sprycel on efficacy led to roughly half the demand vs. Sprycel.
(3) PON is highly differentiated from Sprycel and Tasigna, with strong
activity in patients failing these drugs, as well as unprecedented and
robust activity in patients with the T315I mutation. Therefore, we expect
there to be more resistant patients available for PON than patients
available for Tasigna.
W
Ariad Pharmaceuticals, Inc.
10 September 2012
5
(4) We model PON US prescriptions launching as an average between
Sprycel and Tasigna. We expect uptake to be somewhat limited until it
is approved in the frontline setting (we model 2015).
(5) European sales represented 50-70% of global sales for Tasigna and
Sprycel launches; we expect EU to make little contribution to PON in
2013 and become more relevant in 2014+. Thus investors should be
cautious in comparing global 1st-2nd year sales for these drugs as a
reference for initial PON sales.
Table 2: Scripts for first 12 months of selected CML drug launches
Actual Scripts Estimated Scripts
Month Sprycel - US Tasigna - US PON - US
1 174 23 154
2 461 144 354
3 510 224 380
4 555 242 412
5 627 271 480
6 673 340 483
7 765 332 553
8 731 373 528
9 839 417 595
10 831 464 590
11 924 479 677
12 932 543 608
Implied Total US Sales* $68 $33 $52
* Total sales calculation based on individual units for purposes of accuracy; assumed pricing of $9,000 for all drugs in all periods.
Source: IMS Health, BofA Merrill Lynch Glob

report continued:

Brief ‘113 background
ALK+ lung cancer represents an estimated 4% of all lung cancers, and several
companies including ARIA have early stage clinical programs aimed to develop
an improved second generation inhibitor relative to PFE’s first-in-class Xalkori.
ARIA’s AP-26113 (‘113) is a kinase inhibitor designed to have greater potency
than Xalkori. The most competitive early data has come from Novartis’ LDK387,
which showed an 80% response rate in a small study evaluating Xalkori failures.
Astellas and Chugai also have early stage programs. The field remains wide
open in our opinion, and if in vitro data are supported in the clinic, ARIA’s ‘113
has the potential to (1) have a rapid path to market in Xalkori failures, with a
market entry as early as 2014 (2) longer term could be one of several drugs that
replace Xalkori as the preferred ALK inhibitor.
‘113 also has potential activity against the gate keeper EGFR mutation, T790M
(an estimated 50% of EGFR failures). Higher doses of ‘113 are likely to be
required to see the EGFR activity, however, because the potency for ‘113 is
greater for ALK than for EGFR.
While shares have increased dramatically YTD (+80%), we believe the riskreward
on the stock remains favorable based on the progress of the clinical study
to date, and the likelihood that ARIA has observed some initial activity thus far.
Early results will be presented at the ESMO conference at the end of September.
To date, ARIA has completed four dosing cohorts (30mg, 60mg, 90mg, and
120mg), and we believe the ongoing dose cohort is testing 180mg. We do not
expect these data to address how ‘113 compares to Novartis’ ALK inhibitor, but
we do expect some initial responses to confirm that ‘113 is active in ALK+ lung
cancer. It is unclear whether there will be any EGFR+ patients enrolled in the
initial dose cohorts to answer questions about EGFR activity, and even if so, it
may be that higher doses are required to generate responses. Thus, we see
three basic scenarios following the data presentation:
(1) no ALK activity, no EGFR activity (seems unlikely given
management’s enthusiasm to present early data from the program)
(2) ALK activity, no EGFR activity (seems most likely; possible because
no EGFR patients enrolled, or high enough doses not yet tested; either
way, EGFR activity is possible in subsequent data)
(3) ALK activity, EGFR activity (best case outcome)
We currently model 20% probability of success for ‘113 in ALK+ and 10%
probability of success for EGFR+ lung cancer. There are other related genetically
defined lung cancer populations (eg ROS1) where ALK inhibitors are likely to
have activity, and ARIA is prepared to test a catch all cohort of these patients as
well. We expect to modify these rates following data. Assuming clear activity, we
would increase rates of success. Following these data, we expect ARIA to
continue dose escalation until it reaches a maximum tolerated dose, and then
expand the best dose for further evaluation. We expect ARIQA could be in a
position to begin Phase 3 late in 2013. Our valuation assumes peak market
share in each setting of 50%, leaving room for one other major competitor.
W

Here is the report from Rachel McMinn:
‘113 risk/reward too good to
pass up
?? Risk/reward too good to pass up, upgrading to BUY
Despite ARIA shares +80% YTD performance, we are upgrading from Neutral to
Buy based on the favorable risk/reward profile on near term data for ‘113 in lung
cancer and subsequent Phase 2 expansion results, as well as our less
conservative view of valuation for lead drug PON. While our new PO of $26 (up
from $20) does not reflect a large premium to the current stock price, we see 15-
70% upside to shares following upcoming lung cancer data (Sept 28-30). The key
near term risk to ARIA is negative results for ‘113 ($6/sh of our current valuation),
which seems unlikely given trial progress and management’s enthusiasm.
‘113: lots of questions, but still lots of upside
While the first clinical data to be presented at the ESMO conference are very
limited, we expect the market to price in higher probability of success for the
program if activity is demonstrated, given the clear and rapid path to market. We
currently assign 20% success to ALK+ and 10% to EGFR+ markets, with peak
share assumption of 50% (peak $900M ALK+ sales, $2B EGFR+ sales). More
data in 2013 from Phase 2 will be important to assess ‘113 relative to competitors
Novartis, Astellas, and Chugai.
Revisiting ponatinib potential sales uptake
With a PON launch expected within ~6 months, we revisited our PON model, and
view the 2013 consensus est. as reasonable (2014 est. appear optimistic). We
model the PON prescription launch trajectory to be in the middle of two prior CML
launches (Sprycel, Tasigna); a differentiated resistance profile should improve
uptake vs. Tasigna but a more crowded market implies weaker demand vs.
Sprycel. When adjusting these launches for estimated PON pricing of $9K/month,
implied US 2013 sales are $33-$68M; EU is likely to contribute modestly in ’13.
??

Rachel McMinn goes to a buy and a $26 price target.

I don't see anything new from Rachel McMinn today.

This from Merrill Lynch and Rachel McMinn on Merrimack Pharm.
A novel cancer drug platform; August 31, 2012
Anyone follow this co?

initiating coverage with a Buy
?? Initiating with a BUY rating and $13 price objective
We are initiating coverage of Merrimack Pharmaceuticals (MACK) with a Buy
rating and a sum-of-the-parts derived PO of $13. Merrimack is a currently lossmaking
biotech company with an unusually large, early-stage oncology pipeline
resulting from its unique “Network Biology” technology platform. Our Buy rating is
based on our positive outlook for the first validation of MACK’s technology
expected in 1H13, when randomized P2 studies for the company and partner
Sanofi-Aventis’ cancer drug MM-121 report data. We are less enamored with
MACK’s most advanced drug MM-398, and do not view positive P3 data (mid
2014 est.) as core to our investment thesis.
ErbB3 is first key target from Network Biology platform
MM-121 is MACK’s lead Network Biology drug candidate, currently in 3 major
randomized P2 oncology studies (HER2- breast: data 1H13, EGFR+/- lung: data
1H13, resistant ovarian: data ‘14). MM-121 is a monoclonal antibody targeting the
ErbB3 receptor, a well known but previously overlooked drug target because it
lacks the signature kinase domain of other EGFR receptors. MACK’s research
shows that ErbB3 is a critical escape pathway for tumor resistance; we are
particularly optimistic in the HER2- breast cancer study based on the positive
efficacy observed for Afinitor, NVS’s mTOR inhibitor which blocks signaling below
ErbB3. If positive, these data would provide strong rationale for positive activity for
MM-111. In our view, each drug has multi-billion dollar market potential, but
without more definitive data it is difficult to confidently estimate future sales.
Pipeline flush, proof of principle takes time/money
A key risk to MACK’s success is the financing burden associated with advancing
its large clinical pipeline. MM-121 is funded by SNY, but MACK is fully funding its
4 other clinical programs with additional clinical candidates expected over the next
12-24 mos. We expect MACK will disclose additional early data for various
candidates, but investors may need to wait for 2+ years until more definitive
results are available to gauge market potential for these products.
thesis/company description
We rate MACK a Buy, based on our belief of significant upside to MACK shares
as the company’s early stage medicines advance into later stages of
development. MACK is a relatively unique biotechnology company for its age and
size, with a large clinical stage drug development pipeline (see table 1). The
company has five clinical stage candidates all focused on treating solid tumors,
with an additional two expected to move into development by the end of 2013.
Our PO of $13 is based on a probability-weighted, sum-of-the-parts approach to
valuation, consistent with other similar development stage companies under
coverage. It reflects our current view of the potential value of multiple clinical
candidates, at different stages of development, across a wide array of oncologic
indications.
MACK’s founding science is based on what it calls Network Biology, a
computational and experimental process designed to understand the complex
signaling networks in cells that cause cancers to grow. MACK’s view is that the
current level of understanding in tumor growth is fairly one dimensional (target
cells with “over-expressed” receptors or interrupt downstream signaling
pathways). MACK’s technology has the potential to identify smarter biological
targets to improve medicine’s ability to control cancer.
MACK’s most advanced clinical candidate is MM-398, in Phase 3, for the
treatment of pancreatic cancer in patients failing standard of care chemotherapy.
Although in the latest stage of development, we view MM-398 as less exciting
scientifically and commercially than MACK’s earlier stage pipeline. This program
is actually not a product of the company’s Network Biology platform, but was
obtained through a small acquisition of nanoliposomal technology.
In our view, MACK’s most interesting candidates are in early/mid stage
development: MM-121 (partnered with Sanofi) and MM-111. Both drug
candidates target the ErbB3 receptor, a well known, but overlooked, receptor
involved in tumor growth across a broad array of solid tumors (breast, lung,
ovarian, bladder, gastrointestinal). Most of the early work with these candidates
has been in dose ranging studies layered onto chemotherapy backbones, leaving
open the question of whether these molecules will lead to substantial treatment
improvements. We expect key data required to validate these drugs in 1H13 for
MM-121 and 2H13/1H14 for MM-111 (est).
Other early stage clinical candidates include MM-151 and MM-302. The company also
has MM-141 (Phase 1 initiation expected next 12 months), MM-310 and MM-131 in
preclinical development. In parallel with its drug discovery efforts, MACK is also
developing diagnostics in order to select the patients most likely to benefit from its drugs;
at this stage, we don’t ascribe any value to these as we believe that the company plans
to use these more as a tool than a significant source of revenue.
MACK has a 74% owned subsidiary called Silver Creek Pharmaceuticals,
focused on regenerative cardiovascular medicine, consolidated since its June
2010 inception.
Valuation
Valuation of biotechnology companies is never a cookie cutter exercise, and we
view valuation of MACK as particularly complex. Positives for MACK include: (1) it
has a rich pipeline of drugs, any one of which could generate significantcommercial returns; (2) the company has proven its ability to advance novel
medicines into development more quickly than its peers on less capital; (3)
MACK’s Network Biology should give the company an edge over competitors in
drug design. The biggest negative for MACK is that its key lead target ErbB3 has
not yet been validated, and this target for better or worse is a litmus test for
MACK’s platform technology; should the company’s lead pipeline fail to show
significant treatment improvements, investors are likely to be less willing to
finance MACK’s earlier stage pipeline.
Given the broad potential of MACK’s pipeline but the need for MACK to validate
its lead programs with additional clinical data, we have employed a probability
weighted, sum of the parts valuation model (see table 3). The biggest driver of
valuation will be data read outs for MM-121 in 1H13 and MM-111 in 2H13/1H14.
Our sum of the parts valuation assumes the following sales expectations, all
discounted for time and probability of success:
?? MM-398 US launch in 2H15, with peak pancreatic cancer sales of $290M in
2022
?? MM-121 initial US launch in HER2- breast cancer in 2H16, and $560M in
blended royalty revenue based on peak sales of $4B in 2023-2025 (73%
breast, 12% lung and 14% ovarian)
?? MM-111 initial US launch in 2018, based on peak sales of $2B in 2025-2026
(14% bladder, 16% gastric and 70% breast)
?? Currently, we are not assigning any value to MM-302, MM-151 and/or earlier
stage candidates, nor are we assigning any value to the company’s
companion diagnostics development efforts
?? $2/sh in dilution (16%) due to financing requirements over the next 1+ year
Our assumptions around specific product launch dates for MM-121 and MM-111
may shift with data from Phase 2 trials. Success in an indication would increase
our probability of success assumptions, although estimated peak sales are likely
to change as we get increased visibility on future market sales with new clinical
results. Also, while MM-121 is further ahead in the clinic than MM-111, we
ascribe more value to MM-111 as it is wholly owned by MACK, and hence worth
more to the company than MM-121. Importantly, positive data for MM-121 will
give us increased confidence in ErbB3 as a target, further validating MM-111. We
assign a 5 multiple on future sales of wholly owned products consistent with
future expected revenue multiples on peak sales, and a 10x multiple on the
higher profit royalty revenues.

Thanks. That is really helpful.

Peter, can you share with us your top holdings or picks in biotech?

Her raising the price objective is a positive, though.

Merrill Lynch raises target to $20. Still Neutral. This from Rachel McMinn:

2Q updates as expected, ARIA progressing pipeline
ARIA summarized a series of recent accomplishments during the quarter, and the
2Q report itself held several minor updates worth noting: (1) ARIA recently filed
most of the new drug application (NDA) for its lead drug ponatinib (PON) for CML,
and anticipates filing the remaining chemistry/manufacturing section during 3Q.
ARIA believes the FDA will start reviewing the application immediately, although
the formal PDUFA data will be set 6 months following the completion of the
application; (2) ARIA does not expect an FDA panel meeting to review PON (3)
ARIA secured accelerated assessment from European regulators for PON, which
should shorten the review cycle by several months (4) ARIA will file the European
PON marketing application shortly, and expects 2H13 approval.
First look at ALK/EGFR inhibitor at ESMO, key catalyst
ARIA’s earlier stage pipeline drug ‘113, a dual kinase inhibitor in a Phase 1/2 trial
for ALK+ and EGFR+ lung cancers, will have its first data at the ESMO meeting
(Sept 28-30). These data will be very preliminary, as they will be based on a
series of early dose cohorts with relatively small patient numbers. Nonetheless,
the data should help us better understand initial activity. We expect it will be
impossible to compare directly to other ALK inhibitors in development, but note
data from NVS’ ALK inhibitor appear promising.
How to think about valuation here?
We have made a series of adjustments to our ARIA model and valuation,
increasing our PO from $17 to $20. Our new PO includes extra option value for
‘113 ($6/sh, adjusted for expected 18% dilution), primarily to account for potential
EGFR value. We see ‘113 data as the core potential value driver over the next 12
months, as our refined PON sales estimate for 2013 is in line with consensus.

Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $20 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$16/share for ponatinib, $6/share for 113 and $2/share for cash, which is further
adjusted for 18% dilution. We use the following assumptions in our DCF: 1)
WACC of 11%, 2) peak PON global sales of $387M in 2016, 3) sales out to 2030
and no terminal value, and 4) 18% dilution from outstanding warrants, dilutive
options and potential future equity financing. We see potential upside to our
valuation from: 1) pipeline expansion, and 2) 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, and 4) unexpected clinical strategy
requirements for future ponatinib trials.

Is it worrisome that quite a few insiders sold shares at 19?

What happens when people post analysts reports word for word or in the exact form that was printed. Wasn' t that copyrighted?

This was an article Jim Cramer wrote a few days ago.

As much as the analysts who cover Procter & Gamble (PG) must hate Procter & Gamble, as much as the people who work at Procter & Gamble must hate management for missing the quarter once again, the real haters are those at the other companies in the industry who will now have to spend the rest of the day saying why their stocks shouldn't be down, but are mistakenly still taken down because of a belief that if it is terrible for P&G it is worse for them.

P&G, which used to define the notion of underpromise and overdeliver -- I first heard it from a competitor of theirs who was saying it was his job to figure out how to out-UPOD PG's UPOD -- now has no idea how to set a bar, let alone beat it.

And they keep doing it wrong. They are lowering the organic sales -- the key metric here because they always seem to be able to finesse EPS no matter what -- from 4-5% to 2-3% (and I don't have any idea how they are going to even pull that off).

PG needs to be broken up. CEO Bob MCDonald, who is totally reviled in the industry, keeps talking about incrementalism when extremism is what is needed. It will be a horrendous day for the company, which will ultimately be buoyed by the yield, which all of these packaged goods companies are.

But what matters here is that the problems bedeviling PG are largely because of the company simply falling behind in innovation.

Which brings me to my bigger point: Colgate-Palmolive (CL) will have to explain all day why it shouldn't be down.

And it shouldn't because it is crushing PG everywhere. And that, more than anything, explains the shortfall and puts it in the context you need to know.

Dew, is this an opportunity to purchase more shares a low price, or does it wait to see if pg can get things turned around?

Cris has finally made through 5.00. How far can it go?

It's great to sell right before a correction, but the trick is getting back in at a lower price, before the stock moves back up. If you don't get back in at a lower price you gained nothing if you want to own that stock. An example would be ariad or apple.

This was posted on Merrill Lynch website by Rachel McMinn on Sunday
Lots of new findings/opinions for ALK inh development
At the ASCO 2012 meeting, we hosted an expert lung cancer physician to gain
insights into the evolving field of genetically targeted therapies, with a specific
emphasis on ALK inhibition. Noteworthy comments include:
Our expert predicted that PFE's Xalkori was not be standard therapy in ALK+ lung
cancer in 5 years, based his expectation that one or more second generation ALK
inhibitors would displace it. The most important Xalkori weakness potentially
improved upon is limited efficacy in the ~50% of patients experiencing
progression with brain disease. It remains an open question whether PFS will
improve with second generation drugs, but initial data from Novartis is suggestive.
Other Xalkori weaknesses include: (1) peripheral edema (believed related to Met
activity and fixable with selective drugs), (2) dramatic drops in testosterone levels
(100% men drop below normal within 3 wks, requires testosterone supplements),
and (3) twice daily dosing (PFE may be able to move to once-daily).
Xalkori adoption will likely increase as ALK testing becomes more common
(currently ~30%); growth will also be driven from duration inc, as physicians are
increasingly recommending treating through progression.
Our expert believes that GI toxicity observed with Novartis's ALK inhibitor LDK378
(48-59%) is mechanism driven, which suggests ARIA's '113 will also have GI tox.
He believes GI symptoms can be managed and not lead to significant
discontinuations. SAEs with '378 were random and 2/5 were re-treated with lower
doses. The MTD was 750mg and Phase 2 expansion is enrolling.
He is skeptical that the high rate of response for LDK378 in Xalkori failures (21/26
pts), as he believes patients were likely over-represented for ALK driven
resistance relative the true % of patients who could benefit from ALK treatment
following Xalkori. Novartis provided no details on background for these patients;
response in Xalkori naïve patients was low (3/15), but many of these patients
could have been under-dosed. One patient with a documented brain mets
responded to '398 which would be important if confirmed with more data.
He expressed some skepticism but was not entirely dismissive that ARIA's '113
will be effective in EGFR+ lung cancer. He noted CLVS's EGFR inhibitor is much
more selective than '113 for the gate keeper T790M mutation, and he endorsed
the approach of focusing on the mutated EGFR over wildtype to lower toxicity.
Chugai data were solid but tell us nothing about potential efficacy in Xalkori
failures (US study just underway). All 15 patients of 240mg+ BID responded, but
these Japan only results can't be directly compared to other studies.

Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $17 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$16/share for ponatinib, $3/share for 113 and $2/share for cash, which is further
adjusted for 18% dilution. We use the following assumptions in our DCF: 1)
WACC of 11%, 2) peak PON global sales of $442M in 2016, 3) sales out to 2030
and no terminal value, and 4) 18% dilution from outstanding warrants, dilutive
options and potential future equity financing. We see potential upside to our
valuation from: 1) pipeline expansion, and 2) 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, and 4) unexpected clinical strategy
requirements for future ponatinib trials.

IPad as a low vision device- for macular degeneration patients, the IPad can be used with the accessibility feature and zoom to blow up any reading material to any size needed. This feature used to cost thousands of dollars on closed circuit devices for patients who were legally blind. The fact that it is built into the IPad is just another incredible feature of this most amazing device.

This from Rachel McMinn and Merrill Lynch yesterday. A price objective change. She went from 16 to 17. Stayed neutral.

ARIA continues to execute on its objectives
ARIA reported 1Q12 results and provided a comprehensive overview of its
development pipeline that is consistent with our expectations, and show continued
execution: (1) updated results from the PACE Phase 2 study for lead drug
ponatinib (PON) for last line CML will be presented at the June ASCO meeting,
with limited new information in the abstract available next week (2) ARIA remains
on track to file for approval of PON in 3Q12 in both the US and EU; ARIA remains
committed to launch PON globally on its own and is continuing to build
infrastructure (3) PON Phase 3 for newly diagnosed CML remains on track to start
3Q12 (4) ALK/EGFR inhibitor ‘113 is progressing through the dose escalation
Phase 1 trial, now in a fourth cohort of 120 mg, and ARIA continues to expect the
Phase 2 portion of the study to start mid-year following dose selection (5) initial
data from the ‘113 study is planned for the ESMO meeting this fall, and ARIA
plans to present as much data available from the Phase 1/2 study at that time.
Minor model changes, our focus is ALK landscape
Operating expenses were consistent with our model, although we had
overestimated the share count slightly which drove the variance in EPS vs our
estimate. We believe that the stock is keyed to updates on the ALK inhibitor
program. Competitor data will become available at ASCO this year (Chugai and
Novartis), both at the same early stage of development as ARIA. This meeting
and ESMO will provide the first look at second generation ALK inhibitors. We
have increased our PO from $16 to $17, based on a slightly increased probability
of success from 15% to 25% for ‘113 based on the program continuing to
progress.

Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $17 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$16/share for ponatinib, $3/share for 113 and $2/share for cash, which is further
adjusted for 18% dilution. We use the following assumptions in our DCF: 1)
WACC of 11%, 2) peak PON global sales of $442M in 2016, 3) sales out to 2030
and no terminal value, and 4) 18% dilution from outstanding warrants, dilutive
options and potential future equity financing. We see potential upside to our
valuation from: 1) pipeline expansion, and 2) 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, and 4) unexpected clinical strategy
requirements for future ponatinib trials.

Are you buying it back now, BTH?

Thanks.

Dew, what are your favorite stocks for yield, growth and safety?

At what point would you buy back in to Ariad? Have you done so already? I am holding some Cris, it seems to trade pretty consistently. It feels to me like it will go up soon from these levels.

Bollinger Hotline today. He has a hotline every Monday.
"As of Monday's close we are on a short-term buy signal, in fact several of them.

A surge in the VIX demarked by an upper Bollinger Band tag.
Ice Breaker signals for both the SPY and the DIA, but not the QQQ thanks to AAPL strength.
Tags of the lower Bollinger Bands with Intraday Intensity positive for SPY, IWM, DIA and many more. (Non-confirmed tags.)
These are all short-term oversold types of signals that have been reliable in the past, for example several Ice Breaker signals demarked the 5 March low for the market. As our outlook remains positive, we are inclined to take these signals seriously and recommend positions in DIA, SPY and MDY. Track these positions with Chandelier stops."

Thanks for that in depth answer. I took some profits after Ridaforolimus got rejected by the FDA panel. I was shocked that Ariad went up after the rejection. It shows how hard it is to get anything through the FDA, and to conduct a valid, proper trial. There is so much potential for mistakes and errors along the way. Perhaps that is why even with so many promising drugs Cris is not higher.
I'm still holding about 2/3's of my Ariad, but may lighten up even more this week. I still feel like I should use mental stops on Ariad, but as some of the Ariad Hub writers always say, "know what you own," and it hasn't paid to use stops.
You have really toned down your criticism of Ariad, but I guess after the stock is up 5X this past year, there is not much to criticize.
Fortunately, my big winner this year has been Ariad and Apple. Apple has been amazing, as have been their products. To think that they will only sell 55 to 60 million I Pad 3's, as is forecast, is a joke. I think they could sell twice that worldwide. It is the most amazing thing I have ever held. They are going to earn over $50 per share in about a year. It is still cheap, although I am thinking about taking profits soon after a straight up run. Google is my next stock that I think will move quite a bit soon. I have had that one for several years. They will earn $45 per share next year. Intc is another one I like here. A correction is a possibility soon, though, and they all could take a hit.
To think that Ariad could really have two great cancer drugs that are properly tested and are effective, is quite an accomplishment. 113 could really be the key to their future and the stock price taking off, as well obviously as ponatinib. Rachel McMinn has been quite accurate in her assessment of Ariad. When she turns bullish that would be a great sign. It hasn't happened yet.
Cris is something that I will take seriously now, thanks to you. I'll start slowly, and get in soon. Thanks.

BTH, Do you feel like Cris has the potential to move like Ariad did this past year? Are you holding a lot of Cris, and did you take any profits in Ariad recently? Thanks.

Xalkori resistance mutations
In laboratory tests, researchers can select ALK+ tumors that are resistant to
Xalkori. The most prominent mutations with corresponding IC50’s are:
L1196=800nM, G1269=1uM, S1206=170nM. Second generation ALK inhibitors
might have activity against these mutations (see paragraph below).
In the clinic, two reports discuss specifics around Xalkori induced tumor
progression:
A report of 11 Xalkori resistant patients found the following:
?? 4/11 with secondary ALK mutations, 2/4 were G1269 mutant, 2/4 were L1196
?? 2/11 with ALK copy number gain (1 patient was also ALK mutation)
?? 1/11 showed EGFR mutation, no longer ALK positive
?? 2/11 showed Kras mutation, one within one month of Kalkori initiation, also
evident at baseline pre-treatment; another not present at baseline byut
evident after 7 months on Xalkori
?? 1/11 lost ALK positive tumor but no other identifiable mutation
?? 2/11 had ALK positive tumor, but no identifiable resistance
A report of 15 Xalkori resistant patients found the following:
?? 1/15 had copy number gain
?? 4/15 had resistance (L1196, G1202, S1206, 1151T insertion)
?? Increased EGFR activation in most patients; in 4/9 cases compared pre and
post Xalkori treatment and found increased EGFR activity, but no EGFR
mutations
?? Increased Kit activation in on available sample
Rational for combination use
Based on the findings of no-ALK related resistance, researchers have begun
investigating whether combining Xalkori with other inhibitors will improve activity.
There is reason to believe that combination use should extend progression free
survival if a series of escape pathways can be blocked up front. We expect this
area of research to broader over time. A brief summary of studies ongoing
includes:
Tarceva vs Xalkori+Tarceva
?? N=175
?? Study start Jan 2010, expected data July 2014
?? Study population: NSCLC adenocarcinoma patients second-third line
following chemotherapy; patients must be EGFR and Met inhibitor treatment
naïve
?? Primary endpoint: PFS
W
Ariad Pharmaceuticals, Inc.
08 March 2012
7
Xalkori + panHER inhibitor PF-00299804
?? N=70
?? Study start August 2010, expected data Nov 2012
?? Study purpose: dose escalation, treat until progression
?? Patients treated with combination or panHER inhibitor followed by combination
?? Study population: NSCLC with acquired resistance to EGFR inhibitors
Tarceva or Iressa
Second generation ALK inhibitors an industry focus
There are a number of companies working on ALK inhibitors, all early stage
development, so how the future market landscape shapes up is difficult to
forecast. Below is a quick snapshot of ALK inhibitors in clinical development, and
we understand there are a wide range of other inhibitors in preclinical
development (eg GSK, Novartis, Xcovery, and others) that could be in the clinic
over the next few years:
Chugai: AF802
?? Trial start: August 2010
?? N=45
?? Study purpose: dose escalation
?? Study group: NSCLC, ALK+, one-two prior chemotherapy exposure, ALK
inhibitor naïve
?? Resistance coverage best for S1206 (~3 nM); L1196 was ~10nM, ~20nM for
1151 insertion, and ~80-90nM for G1202
Conclusion: This study isn’t going to be very useful to compare to other studies,
because Xalkori failures are not prespecified; this drug appears to have the least
promising resistance profile relative to other second generation drugs in
development
Astellas: ASP-3026
?? Two trials, Trial start: December 2010 and May 2011
?? N=54 each
?? Study purpose: dose escalation
?? Study group: one is advanced malignancies, other is advanced
malignancies+B cell lymphomas; does not appear to be selecting ALK+
patients as inclusion criteria
?? Resistance coverage best for S1206 (~2 nM) and G1202 (~5 nM), and L1196
(~8 nM), ~25nM for 1151 insertion
Conclusion: These studies are not designed well, because there is no prespecification
for ALK+ to enter the study. Development may be slower than it
should be because of the poor design. Nonetheless, the resistance profile looks
solid, and should compare favorably to Xalkori clinically assuming early safety
and exposure data are successful.
W
Ariad Pharmaceuticals, Inc.
08 March 2012
8
Novartis: LDK387
?? Trial start: Jan 2011
?? N=70
?? Study purpose: dose escalation
?? Study group: three arms including NCSLC prior ALK inhibitor treated, NSCLC
ALK inhibitor naïve, other ALK+ tumors, not NSCLC
?? Very preliminary data shows partial responses in Xalkori naïve patients with
“no significant toxicity;” no details available yet in Xalkori failures
Conclusion: This study should yield useful information. We have no published
resistance data, but assume given Novartis’ experience with the CML market that
the company would not bring forward a drug into the clinical unless resistance
was significantly improved over Xalkori.
ARIA: AP-26113
?? Trial start: September 2011
?? N=130
?? Study purpose: dose escalation (30 mg, and 30 mg increments), then overall
response
?? Following dose expansion, four study groups: (1) NSCLC, ALK+, ALK
inhibitor naïve; (2) NSCLC, ALK+, resistant to at least one ALK inhibitor; (3)
NSCLC, EGFR mutation+, resistant to at least one EGFR inhibitor; (4) other
tumor types with anticipated activity for AP-26113, including ALCL, DLCL,
IMT or other ALK+ or ROS+ tumors.
?? AP-26113 resistance profile: L1196=8nM, G1269=9nM, S1206=17nM
Conclusion: The largest of all Phase 1/2 studies, ARIA appears well positioned
to advance into Phase 3 pending data from this study. The resistance profile
appears similar to the Astellas drug.
Proving ALK+ in a randomized setting
PFE started two randomized Phase 3 studies evaluating Xalkori in ALK+ patients
comparing head to head vs the standard of care. In one study, Xalkori is being
studied in second line ALK+ patients and compared against Alimta or Taxotere,
investigator’s choice (N=318, data expected Feb 2013). The second study is
comparing Xalkori in ALK+ newly diagnosed patients to Alimta+cisplatin or
Alimta+carboplatin (N=334, data expected December 2013). PFS is the primary
endpoint in both studies, and overall survival may be confounded since crossover
is allowed. While the studies are expected to be positive, these data will provide
the first active comparator demonstrating superiority over chemotherapy in this
subset of patients.
PFE’s ALK+ tumor expansion strategy
PFE is planning to start a large Phase 2 trial called CREATE, focused on a series
of tumors harboring specific ALK mutations or cMET mutations. The study is
planned to start in June, enroll 580 patients, and assess the following tumor types
in patients with confirmed mutations in ALK/MET inhibitor naïve patients:
W
Ariad Pharmaceuticals, Inc.
08 March 2012
9
(1) anaplastic large

Improved activity in ALK resistant tumors should lead to better efficacy
Second generation ALK inhibitors have more potent activity in ALK resistant
tumors, which should enable these drugs to show (1) activity in patients failing
Xalkori, specifically for those tumors with ALK dominant tumors (2) longer
progression free survival in ALK naïve patients whose tumors have a more
difficult time mutating around the drug. In the former case, physicians have noted
that patients need re-assessment following Xalkori failure; an estimated 50% of
patients fail due to ALK resistance; the other 50% however fail for a range of
other genetic factors. Second generation ALK inhibitors with better activity in key
resistance pathways should eventually show longer progression free survival in a
head to head study against Xalkori.
Too early to know safety bar is high
According to experts, patients taking Xalkori feel better within days of starting the
drug, including improvement on constitutional symptoms such as fatigue, pain,
cough and shortness of breath. A high frequency side effect of visual
disturbances was described to us as more of a curiosity than damaging, some
trailing lights at the edge of vision when moving from a dark to light room. More
problematic is constipation for some patients and over longer term treatment
peripheral edema. The edema is believed to be related to Xalkori’s Met inhibitor
activity, so in theory second generation inhibitors could have a cleaner side effect
profile. In low frequency cases (3-5%), patients experience elevated liver function
tests and rarely have died; experts note that monitoring of LFTs and withholding
Xalkori on elevations gets around this issue, as patients do not experience
problems upon rechallenge.
Initial ALK market opportunity is $1B+…
We estimate the initial size of the ALK inhibitor market could be $1B globally.
ALK mutations are present in an estimated 4% of NSCLC cases in the US and
Europe. Xalkori is priced at $9,572/month in the US, and based on an average
progression free survival of 9-10 months, this implies a US market size of $800M
with an expected comparable ROW market size assuming all patients with ALK
positive disease actually received Xalkori.
…but market driven by testing
It is worth noting that patients cannot receive Xalkori unless they are documented
ALK positive. According to experts, ALK testing is not yet standard for all lung
cancer cases; experts we spoke with are testing for all NSCLC mutations on
diagnosis, including EGFR, KRas and ALK. However, community physicians,
where the bulk of lung cancer is treated, are testing in selected patients (e.g.
never smokers, adenocarcinoma) or testing serially, after first testing Kras and
EGFR mutations. Experts are optimistic that over time physicians will increasingly
test all mutations at diagnosis.
Second generation ALK inhibitors to expand future market
We see the fastest path to regulatory approval for second generation ALK
inhibitors as those drugs showing response in patients progressing on Xalkori.
While second generation drugs with greater potency should be successful in
some patients, not all Xalkori failures will progress with a resistant ALK mutation.
This topic is somewhat controversial; not all companies are testing patients failing
Xalkori for mutations prior to treatment in early stage clinical studies. However,
given the diversity of mutations following Xalkori treatment, we expect that the
FDA will require that patients are re-tested for mutation status in order to gain
approval. Additionally, given the expected expensive price for these therapies,
W
Ariad Pharmaceuticals, Inc.
08 March 2012
5
we expect insurance companies will limit reimbursement to those patients with
ALK mutations, unless data show otherwise that a drug’s response is irrespective
of mutation status (unlikely). Nevertheless, we expect the ALK market to expand
significantly over the next 5-10 years as certain patients failing Xalkori go on to
second generation drugs. We estimate the size of the future Xalkori failure
market to be $600M globally at peak, assuming patients go to second line therapy
only. If the second generation drugs have differentiated enough profiles and can
be used serially, the failure market could grow beyond our estimate.
Xalkori failures with ALK mutations
We estimate that 30% of patients who initially fail Xalkori will respond to second
generation drugs, but note that patients not responding to Xalkori initially (10%)
are unlikely to respond to second generation drugs. Duration of treatment is
unknown because there is no data; we expect a similar PFS (9-10 months) for
second generation drugs in this segment, although duration could be shorter if
there is a significant lag between Xalkori failure and starting the second drug and
a patient’s health status significantly deteriorates.
Xalkori failures with brain disease
An estimated 40% of patients fail Xalkori from progressive brain disease. Second
generation drugs that penetrate the blood brain barrier could extend progression
free survival in this market segment.
Xalkori failures due to other non-ALK mutations
An estimated 30% of Xalkori failures with have non-ALK related mechanisms of
resistance, including EGFR, Kras, Kit, and Her2 related according to experts.
Therefore second generation ALK inhibitors are not expected to demonstrate
activity in this segment.

Rachel McMinn wrote this Merrill Lynch report today:

Ariad Pharmaceuticals, Inc.
Close up look at ALK inhibitor
landscape and opportunity
?? Second generation ALK inhibitor market up for grabs
While the majority of value ascribed to ARIA remains with its lead development stage
oncology drug ponatinib for CML (approval expected early 2013), investors have
recently begun to focus on the company’s earlier stage oncology drug AP-26113, a
second generation ALK inhibitor in development for non small cell lung cancer. This
report takes a broad look at the ALK inhibitor development landscape. We have
several preliminary conclusions: (1) the future second generation ALK inhibitor market
is up for grabs, as four companies are in early stage development and lots more could
move into clinic over the next 1-2 yrs
(2) ARIA is running the most intelligently designed clinical study in our view, and is well
positioned to move into Phase 3 in 2013 pending data (3) ARIA and Novartis could be
the most promising early stage candidates if pK/safety offer no surprises.
Xalkori failure market is heterogeneous, not all ALK driven
The fastest path for regulatory approval is to demonstrate strong response rates
in patients failing Xalkori, the first in class ALK inhibitor from PFE approved in
August 2011. While attractive, we note that Xalkori failure is heterogeneous: est.
30% acquire resistance due to ALK related mutations and represent the lowest
hanging fruit; other populations are trickier or out of reach: 40% progress due to
brain disease and need better CNS penetration; 30% due to non-ALK, unlikely to
successfully treat; 10% initial failures may score ALK+ but require combo therapy.
Xalkori should be beatable frontline, not on ORR but PFS
Experts are skeptical that drugs in development will show a superior response
rate to Xalkori, as 90% of patients achieved tumor reduction with Xalkori.
However, improved penetration across the blood brain barrier to limit brain
disease progression and increased potency against common mutations suggest
Xalkori should be very beatable on PFS. These data will take time to generate.
ALK positive lung cancer
This report summarizes the latest understanding of ALK positive lung cancer.
Over the past several years, it has become increasingly recognized that lung
cancers represent a large heterogeneous group of genetically distinct cancers.
EGFR was the first genetically defined subgroup for lung cancer, and over time it
became clear that drugs like Tarceva, an EGFR inhibitor, worked only in patients
with an EGFR activating mutation, while patients with normal EGFR had no
response. ALK (anaplastic lymphoma kinase), a tyrosine kinase, was discovered
in 2007 to be associated with the EML4 gene in a gene rearrangement in a small
subset of lung cancers. The ALK/Met inhibitor Xalkori was able to suppress
growth of ALK+ tumors in animals and subsequently in human clinical studies.
Xalkori: First in class, not the last
PFE’s Xalkori (crizotinib) was approved by the FDA in August 2011 for the
treatment of ALK positive (ALK+) non small cell lung cancer (NSCLC) based on
impressive objective response rate of 50-61% in two single arm studies. Based
on physician feedback, patients rapidly feel better (within days) of initiating Xalkori
therapy. However, patients eventually fail Xalkori and will need new treatment
options. The remainder of this report is focused on the potential new treatment
options.
Next generation inhibitors: places to improve
A number of companies, including ARIA, are focused on developing second
generation ALK inhibitors that have an improved profile over Xalkori. Based on
other areas of cancer, an obvious place to start would be to improve coverage in
tumors with mutations in the ALK gene that are resistant to Xalkori, as this
improvement could lead to improved response rates and/or time to disease
progression. Xalkori overall is considered by experts to be very well tolerated,
although there are a number of side effects that could be improved upon (most
notably longer term peripheral edema, rare cases of elevated liver enzymes that
result in death). Based on discussions with consultants we provide our
expectations on the following:
Very difficult to beat Xalkori on response rate
Xalkori showed an objective response rate of ~60%, but on a waterfall plot
analysis showed nearly 90% of patients had some level of tumor shrinkage. One
expert we spoke with believes that it is difficult to show a higher response rate,
because many patients not reaching a 30% tumor shrinkage to fit the definition of
objective response have tumors that are “sausage” shaped, and while flattening
out in response to drug would never be calculated at a 30% volume reduction.
Therefore, there is a belief that no ALK inhibitor will be able to show a
meaningfully better objective response rate. Patients not responding to Xalkori
initially are believed to have a non-ALK dominant profile and not expected to
respond to second generation ALK inhibitors.
Penetration of the blood brain barrier could lead to better efficacy
According to our consultants, roughly 40% of patients failing Xalkori experience
disease progression in the brain. Experts believe the progression in the brain is a
result of Xalkori not having good penetration across the blood brain barrier (BBB).
An ALK inhibitor that did cross the BBB may prevent these micro-metastases
from growing into measurable disease and extend progression free survival. One
expert noted his choice is currently to treat patients through progression with
Xalkori and control brain disease with radiation.
W

Thanks for that quote. That to me is significant. If it is true that the data is exciting to HB, then that would be great for cancer patients as well as shareholders.

BTH, at what point if any would you take some profits? Would you sell some here?

The one upgrade we need is from Rachel McMinn. When that happens you know we are off to the races. A neutral to a buy from her would be great. Hope it happens.

Cramer's quick take on MMM.

3M (MMM). Boy, this one confounds me. MMM has multiple growth levers, a fantastic record on dividends -- just about the best there is -- terrific Asian growth prospects, but it has become a serial earnings-per-share disappointer and is finishing down for the year. I believe it could be one of the steals of the Dow if China starts cutting rates dramatically. And I believe it could trade to the high 80s where it would still be inexpensive on its growth rate. The company has let so many people down, though. It might take all year to rebuild that credibility.

Why is cris so strong? Do you still have it BTH? Is it a buy here?

Merrill Lynch on Mnta: Dec.27 author: Sumant S. Kulkarni
Momenta Pharmaceuticals, Inc. NEUTRAL
Raising PO to $19 on
interesting biologics deal
?? Deal flexible enough to target biologic interchangeability
On 12/22, MNTA announced a deal with Baxter on six biosimilars (two now, BAX
has option on four more). We are raising our DCF-based price objective to $19
(vs. $18) as we added the upfront payment and future milestone estimates to our
model. We also raised R&D/G&A, but did not add any product sales estimates.
Conceptually, we like this deal as it provides incentives for MNTA to target
substitutable biologics (higher milestones if fewer clinical trials for approval, higher
royalty on interchangeable products), but still provides economics for MNTA if the
market does not evolve that way. That said, we are maintaining our Neutral rating
as key variables such as identity of products, magnitude of development costs,
potential launch timeline, and competitive environment at launch are unknown.
Why could biosimilar interchangeability be a big thing?
MNTA believes its technology could result in biosimilar products that may be
deemed substitutable at some point. We note FDA’s thinking is still evolving on
this important issue, which could have structural implications for the industry; for
eg, a sales force may not be required if products are substitutable like “regular”
generics. We believe FDA (guidelines may come any time) may choose to define
interchangeability on an individual product basis vs. some broader decision.
Upfront, milestones and economics on sales or profits
MNTA will receive an upfront payment of $33mn for two products and $28mn in
option exercise milestones if the deal is expanded (to six products). MNTA could
get up to $91mn in tech/development milestones, regulatory milestones up to
$300mn (for all six products) and is eligible for sales royalties and/or profit splits.
Don’t forget upcoming Lovenox and Copaxone legal events
Oral arguments in Amphastar’s appeal on the injunction on its enoxaparin launch
are set for 1/24/12, and a lower court ruling in MNTA’s challenge on Copaxone
could come at any time. We remind investors that both decisions could cause
stock volatility. We model MNTA alone on generic Lovenox through 2012 and
generic Copaxone launch on expiry of Teva’s patents in May 2014.
?? Estimates (Dec)
(US$) 2009A 2010A 2011E 2012E 2013E
EPS (1.60) 0.83 3.73 3.56 0.19
GAAP EPS (1.60) 0.83 3.73 3.56 0.19
EPS Change (YoY) 8.0% NM 349.4% -4.6% -94.7%
Consensus EPS (Bloomberg) 3.75 1.38 0.74
DPS 0 0 0 0 0
Valuation (Dec)
2009A 2010A 2011E 2012E 2013E
P/E NM 21.0x 4.7x 4.9x 91.6x
GAAP P/E NM 21.0x 4.7x 4.9x 91.6x
Dividend Yield 0% 0% 0% 0% 0%
EV / EBITDA* NM 14.1x 3.0x 3.1x 38.4x
Free Cash Flow Yield* -6.4% -0.3% 25.1% 17.8% 4.2%
Key Changes
(US$) Previous Current
Price Obj. 18.00 19.00
2012E Rev (m) 236.1 269.1
2013E Rev (m) 45.2 95.2
2012E EPS 2.92 3.56
2013E EPS 0.08 0.19
2012E EBITDA (m) 151.9 184.9
2013E EBITDA (m) 4.3 15.1

Price objective basis & risk
Momenta Pharmaceuticals, Inc. (MNTA)
Our $19 price objective for MNTA is based on a discounted cash flow analysis.
For our analysis, we discount back to the end of 2012 at roughly 13%, which we
assume is MNTA's approx. weighted average cost of capital. Upside risks:
Earlier-than-expected launch of generic Copaxone via approval or settlement,
less competitive market conditions on MNTA's products than expected,
successful monetization of biosimilar pipeline opportunities and/or brand pipeline
products, and MNTA's technology when viewed within a biosimilar context that
could make the company attractive to others (Novartis is the second-largest
shareholder). Downside risks: regulatory/legal delays or greater-than-expected
competition on generic Lovenox and/or Copaxone, potential issues due to heparin
raw material, Sanofi's legal challenge vs. FDA to reverse generic approval,
competition to generics from other types of brand drugs, and pipeline failures. In
general, growth for generic companies is highly variable and difficult to predict
based on intense competitive pressures from other brand and generic companies,
price competition or controls, involvement in litigation, FDA delays and legislative
risk (e.g., implementation of the AMP rule).