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I just found this board about AIM. I read Robert Lichello's book many years ago several times. I never actually put the concept into practice. It seems to me that he wanted a stock that fluctuated up and down. One that went from 5 to 10 , then back to 5 , then back to 10 over and over was the perfect stock. Using the perfect portfolio which is designed not to fluctuate and not go down much doesn't seem like the right choice. I would rather use a stock with an upward bias, maybe even a strong upward bias, but one that fluctuates. Perhaps a google or apple. Perhaps an oil stock, or schlumberger or cvx.
Has anyone really done super well with the AIM approach? I should have tried it years ago.
Richard Russell wrote this on June 3, 2011 about the Permanent Portfolio:
I'm placing the latest statistics for the Permanent Portfolio below. Aside from the fact that I like the concept of PRPFX, I have a special place in my heart for this fund, since the concept was originated by my brilliant friend, the late Harry Browne.
The high for the fund was reached on May 3 at a price of 49.53. As of yesterday's price of 48.61, the fund shows a loss of 2.40%. This a remarkably good performance in view of what the markets have done since May 3 (over the same period the Dow has lost 4.36%)
PRPFX? - Permanent Portfolio (MUTF)?
48.34? -0.27? (-0.56%?) NAV as of? Jun 2, 2011
YTD Return: 5.52%
Net Assets: 13.62B
Front Load: None
Yield (ttm): 0.58%
Expense Ratio: 0.82%
Morningstar Rating:
The fund has walloped the stock market by an average of nine percentage points annually over the past five years and 11.2 points annually over the past decade. And it keeps less than a third of its assets in stocks.
Launched in 1982 and based in San Francisco, this eccentric, no-load fund grew out of the ideas of Harry Browne, the author, investment adviser and Libertarian candidate for president. Mr. Browne, who died in 2006, advocated keeping one-quarter of your portfolio in each of four assets: stocks, bonds, gold and cash. Once a year, if any of the assets fell below 15% or rose above 35%, you would buy or sell as needed to rebalance back to 25%. Otherwise, you would do nothing. Mr. Browne called this the "permanent portfolio": A basket of assets you could hold undisturbed for a lifetime. He believed it was "bulletproof" and "fail-safe," protected against drastic loss no matter what the future held.
The Permanent Portfolio fund is not quite as simple as Mr. Browne's four-square approach. Instead, it seeks to keep 20% in gold, 5% in silver, 10% in Swiss francs and bonds, 15% in real-estate and natural-resource stocks, 15% in growth stocks and 35% in cash and U.S. bonds
BTH, at what point if the market turns up and ariad does also, would you get back in with a full position?
BTH, at what point if the market turns up and ariad does also, would you get back in with a full position?
"America is still the greatest place to live", absolutely, and well put. This country will get through this. It seems like there is no way out, but as the great Ronald Reagan said, "Freedom is the very essence of our nation.It must be fought for and defended constantly by each generation." In talking about freedom, Reagan said that it is "never more than one generation away from extinction." He had a vision of America as a "shining city on a hill. America's greatest chapter is still to be written, for the best is yet to come."
This country linked the world through the internet. We have the best research, medicine and education system on earth.
It is time to be optimistic again. It is this country's freedom, where you are free to shape your life, which has allowed the creativity that has made America the envy of mankind.
I think many of our companies are on sale, this is a buying opportunity.
Pfe added to Merrill Lynch's US 1 list, 8/9/11, which is their top picks.
Adding PFE to US 1 list
?? Good mix of value, income, catalysts
We are adding PFE to our US1 list, as we expect the stock to perform well vs. the
broader markets based on (1) its relatively defensive nature, (2) absolute and relative
valuation levels that are near lows, (3) strong prospective dividend yield (4.8%), (4)
pipeline news flow in the coming months, and (5) business spins/sales next year that
should be accretive to EPS, (6) management that seems highly focused on delivering
shareholder value. We are not changing our estimates or rating.
2 major pipeline catalysts in next 6 months: Eliquis & tofa
On 8/28, full data from the ARISTOTLE trial, evaluating Eliquis (novel oral
anticoagulant) in the prevention of stroke in atrial fibrillation, will be presented at ESC
in Paris. Top-line data showed that Eliquis demonstrated superiority on efficacy and
rates of major bleeding vs. warfarin. We currently assume Eliquis captures 25% share
of the WW stroke prevention market, generating $2.1bn in sales in 2015. These
estimates could be conservative given its best-in-class profile. In November at ACR,
detailed results from the tofacitinib (noval oral treatment for RA) ORAL studies will be
presented. We currently model 2015 tofacitinib sales at $700mn, a potentially
conservative estimate given ABT’s Humira generated ~$6.6bn in 2010.
Trough PE, strong dividend yield, accretive sale/spin ahead
PFE’s current PE of 7.3x is near an absolute and relative low due to the downward
pressure created by macro headwinds/market sentiment. We view PFE’s current
trading range, coupled with a strong dividend yield (4.8%), as particularly attractive.
Additional upside could come if PFE sells/spins-off its Animal Health and Nutrition
businesses, as PFE communicated its intention on 7/7. Our analysis indicates that, at
its current valuation, if PFE sold these business for 2-3x 2011 revenues (which is
comfortably supported by prior comps) and used the proceeds to buy back stock, the
net effect would be 3-8% accretive to 2012/13 EPS.
?? Estimates (Dec)
(US$) 2009A 2010A 2011E 2012E 2013E
EPS 2.02 2.23 2.26 2.29 2.33
GAAP EPS 1.23 1.03 1.16 1.62 1.77
EPS Change (YoY) -16.5% 10.4% 1.3% 1.3% 1.7%
Consensus EPS (Bloomberg) 2.25 2.29 2.38
DPS 0.79 0.75 0.80 0.88 0.96
Valuation (Dec)
2009A 2010A 2011E 2012E 2013E
P/E 8.2x 7.5x 7.4x 7.3x 7.2x
GAAP P/E 13.5x 16.2x 14.4x 10.3x 9.4x
Dividend Yield 4.7% 4.5% 4.8% 5.3% 5.8%
EV / EBITDA* 8.4x 5.9x 6.0x 6.2x 6.2x
Free Cash Flow Yield* 11.5% 7.4% 12.4% 14.5% 14.4%
Price objective basis & risk
Pfizer Inc. (PFE)
Our PO of $25 is based on roughly 11x our 2012E EPS of $2.29, which assumes
modest expansion from the current multiple of 7.4x on 2011E EPS. We believe
that continued strong cash flow generation, focus on shareholder return through a
stable and growing dividend and significant share buybacks, expense control, and
potential for positive pipeline news could improve sentiment over time and lead to
multiple expansion. Our PO is supported by a DCF analysis based on what we
view as conservative assumptions, including: (1) slowly eroding revenue base, (2)
relatively modest contribution from new launches (we only include launches of
products that have been validated in Phase III), (3) minimal cost-cutting beyond
the company's announced restructuring programs, and (4) no terminal growth.
Risks to our price objective are: sector rotation to non-defensive sectors, greaterthan-
expected pressure from US healthcare reform and/or European price cuts,
adverse regulatory and political actions, changes to tax laws, rates, and/or
treaties that increase the tax rate, pipeline failures, and other general R and D
risks
Firepower: Anyone who used stops on stocks the last 2 weeks got stopped out. Not just ariad, but everything. There may be more buying power out there than people think. I used stops on ariad partially. I wish I had used more in the 12 to 13 range. Now I am looking to buy back stocks such as ariad. Long term bulls who got stopped out will want to get back in to high quality stocks.
BTH, would you step in and buy stocks tomorrow morning?
It shows you how you have to use stops on most stocks whether the stock is ariad, google, apple, or goldman sachs. If we looked at ariad at 13.50 and said let me put a stop 8%, or 10% or even 15% below the approximate high price, we would have gotten out at somewhere around 12.40, or 12.15, or even 11.50. I did sell some at some of those areas, but not enough. This is nothing new, but when you get attached to some stocks you rationalize holding and owning it for the long run. I have made the same mistake with google many times.
This is from John Bollinger's hotline today, 8/3.
Years ago when invited to speak at an IFTA conference in Japan I presented a paper on combining Western and Japanese technical analysis techniques. I chose a Japanese candle stick pattern called a karakasa and Bollinger Bands. A karakasa is a Japanese paper umbrella. This pattern consists of a closely coupled open and close a short distance from the high and a long drop to the low. The paper showed that a karakasa at the lower Bollinger Band was more effective that a karakasa in general. I bring this up as today's trading created karakasas at the lower Bollinger Bands for most indices and many stocks. This is a basic reversal formation and a positive factor for the Ice Breaker positions we discussed above. In addition, there are a number of short-term divergences in place that suggest a lot of potential for a bounce. All of which suggests that unless the employment report tomorrow is terrible we are set for a rally. In addition there is a great deal of compression evident in the market place, but that'll have to be a topic for another time.
Merrill Lynch report today 8/2/11
Not much new in 2Q
Updates from the 2Q earnings call
ARIA's 2Q report was in line with our expectations, both on spend and company
strategy. We are moving forward the $25M milestone payment connected to the
MRK partnered ridaforolimus program from 4Q11 to 3Q11 based on management
guidance. Ponatinib for resistant second-line chronic myelogenous leukemia
(CML) remains the main value driver for the stock, and upcoming data will be
important for further establishing the drug profile: (1) final Phase 1 results,
expected at the iCMLf meeting (Sept. 22-25) and (2) initial 3-6 month data from
the ongoing 450-patient Phase 2 PACE study at the ASH meeting (Dec. 10-13).
We continue to believe these data presentations will support ponatinib’s emerging
profile as a differentiated product in second-line CML. ARIA reiterated its
guidance for a mid-2012 NDA filing with the earliest time to marketing approval in
late 2012, and its projections for cash use that takes the company into late 2012.
Key focus beyond data remains future studies
The company reiterated its plan to meet with the FDA later this year regarding the
study design for a confirmatory ponatinib study required to satisfy FDA standards
for accelerated approval. As a reminder, the company has received regulatory
advice that such a study in CML treatment naïve patients would need to be a
comparator study vs. market leader Gleevec, and the company favors the primary
endpoint of major molecular response (used in the Tasigna Phase 3 study). ARIA
did not change its guidance of a Phase 3 study start around mid-2012.
Company Description
Ariad Pharmaceuticals is a biotechnology company
focused on the development and commercialization
of therapeutics for the treatment of cancer. Its key
drug candidate, Ponatinib, is being developed for
the treatment of chronic myeloid leukemia (CML).
Investment Thesis
We rate ARIA a NEUTRAL. We believe that current
valuation reflects a high likelihood of data,
regulatory and commercial success for ponatinib.
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.
The problem with owning Ariad here is do you use stops to protect your profits, and get stopped out here, or hold knowing that in the long run the fundamentals that "seem" to be there, will cause the stock to run up again. Do you use the Investors Business Daily approach, and sell, similar to Marty Zweig's approach using stops, and you would be out now. Or do you say, I know better, and will ride this out. Maybe give up much of my profit. So hard to know, because if it bounces back and heads up again you will be kicking yourself, and probably buy it back higher.
This was a very long report from Merrill Lynch written by Rachel McMinn, Chapman, and Shepard. Sorry I had to break it up like that to copy it.
ARIA retains worldwide rights to ponatinib
ARIA currently retains the worldwide rights to ponatinib, and plans to
commercialize the drug alone in the US. The company is now evaluating its
options in EU and leaning towards a go-alone commercial strategy. ARIA plans to
submit an IND in Japan in 2012 for a bridging study that would be required for
approval. That said, it is unclear if longer term ARIA would sign a Japanese
commercial deal.
Ridaforolimus overview
Ridaforolimus is an internally discovered mammalian target of rapamycin (mTOR)
inhibitor. mTOR inhibitors act by interfering with cell growth, division, metabolism
and angiogenesis. Ridaforolimus is being developed in collaboration with Merck,
and in January 2011 top-line data was released from Phase 3 in metastatic softtissue
and bone sarcomas. The drug demonstrated a statistically significant
improvement progression free survival (primary endpoint) by providing a 21%
reduction in the risk of progression relative to placebo (17.7 weeks vs 14.6
weeks). Based on the results from this study, Merck is expected to file an
application for approval in the US and EU in 2H11. Merck is pursuing other
cancer indications with ridaforolimus, either as a single agent and other targeted
agents. Our global ridaforolimus sales estimate is $230M in 2016.
Agreement with Merck for ridaforolimus
Ariad signed the Collaboration Agreement with Merck in July 2007, and in May
2010 the companies terminated the collaboration agreement and entered into a
license agreement whereby Merck is responsible for the development,
manufacture and commercialization of ridaforolimus retroactively to January 1,
2010. Merck paid an upfront fee of $50M for this revised agreement and ARIA is
eligible to receive $514M in future payments related to regulatory and sales
milestones, $65M of which is related to the US and EU regulatory events for the
sarcoma setting. ARIA is eligible to receive a $25M payment for the acceptance
of the FDA application for approval, $25M for FDA approval, $10M for EMA
approval and $5M for Japanese approval. There is an additional $249M ARIA
can receive for regulatory filings and approvals in other settings, and up to $200M
for specific sales milestones. ARIA received $12.8M for the costs it recorded for
January 1 to May 2010.
Merck will pay ARIA tiered double-digit royalties on global net sales, which we
estimate to be 20%. ARIA has elected to co-promote ridaforolimus in the US, and
is eligible to participate in up to 20% of the co-promotion. MRK will fund ARIA’s
sales team for ridaforolimus, although we understand this funding is limited to a
small number of representatives, and how much of a benefit this funding is for
ponatinib is unclear to us.
Next drug candidate to enter clinic in 3Q11
Ariad has filed an IND for AP26113, a small molecule inhibitor that is active
against both the anaplastic lymphoma kinase (ALK) and the activated form of the
epidermal growth factor receptor (EGFR), which are two different factors found to
promote distinct forms of non-small cell lung cancer (NSCLC). Ariad plans to
begin a Phase 1/2 biomarker-based clinical study in 3Q11 in a range of tumor
types in the US and EU, including NSCLC. ARIA is pursuing a rapid proof-ofconcept
approach similar to what was done for ponatinib and expects to have
preliminary data from the study in 2012.
W
Ariad Pharmaceuticals, Inc.
19 July 2011
20
AP26113 has better potency than crizotinib, and it has shown activity against a
common mutation that is resistant to crizotinib. Pfizer recently filed an application
for approval for crizotinib in ALK-positive lung cancer setting and in May 2011 the
application was granted priority review, suggesting that it can be approved in
2H11.
Management background
ARIA is led by Chairman and CEO Harvey Berger, who founded the company in
1991. Prior to founding the company, Dr. Berger worked at Centocor Inc., Emory
University, Yale University and the University of Pennsylvania. Edward Fitzgerald
is the Chief Financial Officer, and prior to joining the company in May 2002, he
worked at AltaRex Corp., BankBoston Corp. and Arthur Andersen & Co. Frank
Haluska serves as Chief Medical Officer, and before joining ARIA in 2007, he
worked at the Tufts University, Harvard Medical School and at Dana-Farber
Cancer Institute/Massachusetts General Hospital Cancer Center. Tim Clackson
has been the Chief Scientific Officer since 2003, and he has served in various
roles at the company since joining in 1994.
W
CML market dynamics evolving
We estimate that approximately 20,000 US CML patients were being treated with
a TKI at the end of 2010 based on our analysis of IMS prescription data. This
estimate is not far from the 24,800 prevalence estimate in 2010 provided by ARIA
at its June 2011 analyst and investor day. The overall treated population in
Europe is ~1.8x higher than that in the US based on our analysis of sales.
According to Ariad’s market research, the majority of the EU CML opportunity is
localized to 10 EU countries, suggesting that the most of the EU market
opportunity can be addressed with a small, focused sales team.
Gleevec’s introduction into the US CML market has led to a dramatic increase in
the prevalence from 2001 to present day. The median age of CML patients at
diagnosis is 67 and it has been observed that patients on a TKI typically have a
normal life expectancy (79 years). We estimate that the prevalence will
eventually reach a steady state as the first portion of CML patients treated with
Gleevec reach the median age associated with non-CML related mortality.
Headwinds over the next 3-5 years
2014: 5 year data for Sprycel/Tasigna vs Gleevec data
Data from the Sprycel versus Gleevec and Tasigna versus Gleevec head-to-head
studies are maturing, and the long-term complete cytogenetic response rate is a
primary focus for clinicians (Chart 16 and 17). The one-year complete
cytogenetic response rates were published in 2010 and demonstrated that
Sprycel/Tasigna provided a more rapid complete cytogenetic response than
Gleevec. That said, as the data matures, the complete cytogenetic response
rates are beginning to converge for Sprycel versus Gleevec. If the convergence
is confirmed with longer term follow up (5-year data analysis expected in 2014),
insurance companies might require patients start on cheaper Gleevec treatment
presenting a risk to second generation TKIs. We note the higher CML-related
death rate with Gleevec vs. Tasigna (Table 18), which could support secondgeneration
TKIs if confirmed with longer follow up.
2015 and 2016: Generic Gleevec expected in US and EU
Generic Gleevec is expected in the US in July 2015 and in 2016 in Europe, and
experts expect will dampen the market potential for all branded TKIs, including
ponatinib. Feedback from experts suggests that use of the more expensive
branded TKIs is not significantly restricted by payers currently, although generic
Gleevec would change the payer dynamic. While the market reality is an
unknown until generics enter the market, one expert expects most patients will
start generic Gleevec initially and be moved to more expensive therapies on
failure. Given timelines for ponatinib development, ponatinib may not have the
opportunity for significant front-line penetration, despite the potential for it to show
superiority over Gleevec on early response metrics.
Revisions to CML treatment paradigm possible
Currently the NCCN does not recommend one TKI over another in the different
stages of CML, but instead lists all three drugs as an option. Revisions to the
treatment paradigm are possible as more clinical data become available, and
potential revised treatment paradigms include: 1) treatment of low-to-intermediate
risk patients with Gleevec first, or 2) time adapted risk monitoring to follow
response with patients taking Gleevec and switch them to another TKI if needed.
We believe the lack of added efficacy for low risk patients that receive Tasigna
and Sprycel at roughly 60% higher cost compared to Gleevec, and the looming
generic Gleevec will create momentum for an updated treatment paradigm.
Table 17: Sprycel vs Gleevec in frontline CML
Cumulative CCyR (ITT) by month
6 months 12 months 18 months 24 months
Sprycel 73% 85% 86% 85%
Gleevec 59% 73% 79% 82%
Source: ASCO 2011 Abstract 6510
Table 18: Tasigna vs Gleevec in frontline CML
Overall survival
Tasigna
300 mg
Tasigna
400 mg
Gleevec
400 mg
Estimated 24-month rate of OS 97.4% 97.8% 96.3%
p-value* 0.6485 0.2125
Estimated 24-month rate of OS
for CML related deaths 98.9% 98.9% 96.7%
p-value* 0.1930 0.0485
CML-unrelated 4 3 1
CML-related 5 3 10
Source: ASCO 2011 Abstract 6511
Note: *log-rank test stratified by Sokal vs Gleevec
W
Ariad Pharmaceuticals, Inc.
19 July 2011
18
As physicians do not want to treat patients with Gleevec after Sprycel and
Tasigna, physicians may change guidelines and recommend sequencing for
Gleevec before other TKIs in some or all patients. Nonetheless, most of the
market is driven by prevalence, and it is highly unlikely physicians will switch
patients performing well on a therapy, in our opinion. As a result, the overall
market shift should be relatively slow to change.
Where does ponatinib fit in?
The consensus among the experts we spoke to is overwhelmingly positive for
ponatinib given the initial impressive efficacy in the heavily pretreated CML
patients. However, its role in the front-line setting is unclear given the competitive
market dynamics and colliding timelines for Phase 3 data and generic Gleevec
availability. We believe that ponatinib's most certain market opportunity is as a
follow on treatment to Sprycel and/or Tasigna. Additionally, ponatinib's future
may be dependent on how rapidly Sprycel and Tasigna penetrate the front-line
segment, with greater ponatinib use as these agents gain greater front-line share.
We currently model $900M in global peak sales by 2020 for ponatinib in the
second-line/salvage setting. Given the greater risk to front-line sales, we
conservatively model $200M in ponatinib peak sales in this setting.
Competitive drugs in development to keep an eye on
Pfizer has completed a Phase 3 studies with bosutinib in newly-diagnosed CML
patients, but the study failed to meet its primary endpoint. Experts we spoke with
suggest that the reduced efficacy was primarily due to a flawed study design and
believe that bosutinib has activity in the disease. Pfizer has stated that it intends
to file for approval in 2011, however experts do not expect approval.
Other drugs that experts highlighted were Deciphera’s BCR-ABL inhibitor DCC-
2036, hedgehog inhibitors, including Pfizer’s PF-04449913, and ChemGenex’s
Omapro (now owned by Cephalon). Deciphera is examining a BCR-ABL inhibitor
in a Phase 1 study in leukemia patients that began in March 2009, and the
company expects to begin a Phase 2 study in 2012. Pfizer began a Phase 1
study with PF-04449913 in March 2010 and is expected to be completed in 2013.
Chemgenex originally sought approval for Omapro in T315I patients, but the FDA
would not approve the drug without a companion diagnostic. Cephalon could file
for approval again in the future, but the efficacy from the available dataset is
modest at best.
Ponatinib in AML patients
ARIA presented data from the 12 AML patients enrolled in the dose-escalation (2-
60mg) Phase 1 study at 2011 ASCO. The overall response rate in this study was
25% (3/12 patients), with two patients achieving a complete remission and one
patient developed a partial response. All three patients that achieved a response
had the FMS-like tyrosine kinase (FLT3) mutation, and it is estimated that 30% of
all AML patients have this mutation, however, it is notable that all three were
naïve to FLT3 inhibitors. There were three cases of Grade 2 pancreatitis in the
study, with two of the cases resolving and the patients continued therapy at a
reduced dose, but one patient discontinued because of the pancreatitis. ARIA
intends to pursue development of ponatinib in the AML setting, but it has not
outlined a strategy for these plans.
W
Global CML market is $4B and growing
The 2010 global sales for Gleevec were $4.3 billion, and Novartis has reported
that approximately 70% of Gleevec sales are from CML, implying global Gleevec
CML sales of $3.0B. Sprycel global 2010 sales were $576 million and Tasigna
global sales were $399 million. Together the worldwide sales of the three TKIs
are nearly $4B, and Gleevec sales represent nearly 75% of this total (Chart 2).
Approximately 70% of the total TKI sales are from outside the US with about 30%
US sales (Chart 3), highlighting the importance of global reach in this market.
It is worth noting that implied patient penetration of second-generation TKIs is
lower than dollar market share due to the higher price of these agents relative to
Gleevec. We estimate Gleevec currently has approximately 75% US patient
share versus Sprycel at 12% and Tasigna at 12% (do not sum to 100% due to
rounding) based on our analysis of IMS US prescription data (Chart 4).
Chart 4: Estimated number of patients receiving Gleevec, Sprycel and Tasigna
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
Jun-05
Oct-05
Feb-06
Jun-06
Oct-06
Feb-07
Jun-07
Oct-07
Feb-08
Jun-08
Oct-08
Feb-09
Jun-09
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Estimated patients
Gleev ec Spry cel Tasigna Total
Spyrcel approval in
relapse/intolerant
patients
Tasigna approval in
relapse/intolerant
patients
Spyrcel approval in
newly diagnosed
patients
Tasigna approval in
newly diagnosed
patients
May-11
Source: BofA Merrill Lynch Global Research and IMS
Chart 2: 2010 Global CML dollar market share (in $M)
$2,986
$576
$399
Gleev ec Spry cel Tasigna
Source: BofA Merrill Lynch Global Research
Note: Based on our communication with NVS, we estimate that 70% of global Gleevec sales are from CML
Chart 3: ex-US CML sales dominate global CML opportunity
31%
69%
US exUS
Source: BofA Merrill Lynch Global Research
Note: Based on our communication with NVS, we estimate that 70% of global Gleevec sales are from CML
W
Ariad Pharmaceuticals, Inc.
19 July 2011
16
Gleevec is well-entrenched
When comparing the first four years of launch for the three different TKIs,
Gleevec had a dramatically better launch than either Sprycel or Tasigna (Chart
5). We believe this is driven by a smaller overall pool of patients that can benefit
from a second TKI after Gleevec has been on the market for a considerable time
period. Once a patient is on a drug and can tolerate the side effects, the patient
is unlikely to switch to another TKI unless they progress. The difficulty the
second-generation TKIs had penetrating the CML market implies a slow initial
ramp for ponatinib.
Chart 5: Analysis of the first four years of sales for Gleevec, Sprycel and Tasigna
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Year 1 Year 2 Year 3 Year 4
$Million
Gleev ec - CML*
Spry cel
Tasigna
Source: Company reports and BofA Merrill Lynch Global Research estimates; *Estimated sales for Gleevec in CML based on the assumption that
Gleevec sales attributable to GIST in the first year were 0%, in the second year were 10%, in the third year were 15% and in the fourth year were
20%.
Why patients switch between three TKIs
NCCN guidelines suggest that patients should continue a TKI therapy indefinitely,
however, due to acquired drug resistance, poor response or tolerability issues,
many patients will switch to another TKI, pursue other treatment options or stop
treatment all together. Experts estimate that 20-35% of patients on Gleevec in
the front-line will fail the therapy or will not develop a strong response, and
another 10-20% of patients discontinue treatment due to a side effect, although
only 5% are truly intolerant to the drug. Given the availability of alternative
medicines, patients increasingly discontinue treatment in favor of another TKI
simply due to a mild side effect. Resistance is linked to the inherent genetic
instability of the BCR-ABL gene that can lead to drug resistant mutant cells, and it
is estimated that about 40% of Gleevec resistant patients have a mutation at the
time of resistance. One of the most common mutations is known as T315I, and it
is generated when the threonine amino acid at position 315 in the BCR-ABL
kinase domain is substituted for an isoleucine. The T315I mutation is known as
the “gatekeeper” mutation because all three marketed CML drugs are ineffective
at treating this mutation.
W
ARIA’s front-line Phase 3 plan forming
ARIA has guided to a Phase 3 trial start in the front-line around mid-2012. ARIA
believes that its Phase 3 plan and the outcome of the PACE study are running on
parallel tracks; we disagree, as we believe data learned from PACE will be
important for the FDA to come to agreement with ARIA on a Phase 3 design.
Below we highlight the steps ARIA plans to take to facilitate the rapid completion
of the front-line study:
?? We believe PACE results this December will be important for guiding Phase
3. Limited Phase 1 data while very impressive should not form the basis of a
confirmatory Phase 3 study, although we acknowledge the regulatory
pathway in CML is well formed.
?? ARIA has not conducted a pilot study in the front-line setting to examine the
optimal dose in this setting; management is open to a front-line study with a
two different doses of ponatinib (30mg and 45mg). The company feels that it
would save more time and money by running a three-arm study over a small
pilot study before initiating a two-arm Phase 3 study.
?? The company feels confident that one of the two possible doses will be well
tolerated in the front-line setting; we note however that all three TKIs use a
lower dose in the front-line setting relative to resistant/intolerant patients or
patients with advanced disease.
?? The company believes Gleevec is the only suitable comparator from a
regulatory perspective because Tasigna and Sprycel have accelerated
approval (no full approval). That said, using Gleevec will do little to
differentiate ponatinib from the second-generation TKIs from a marketing
perspective.
T315I diagnostic required for specific marketing claims
ARIA expects to receive initial approval in patients failing second-generation
TKIs. Additionally, if data continue to show strong response rates in patients with
T315I, it would be ideal that ARIA could promote that claim to maximize
differentiation from other TKIs and also encourage physicians to use ponatinib
earlier in patients with T315I disease. However, Ariad believes the FDA will
require an approved T315I diagnostic test in order to market ponatinib in this
population. ARIA is working with MolecularMD to develop a diagnostic test for
the T315I mutation, and MolecularMD is expected to file an application for
approval for the diagnostic at approximately the same time as the ponatinib
application is filed.
The FDA could hold up accelerated approval of ponatinib until the diagnostic is
approved, although we believe this is unlikely because the drug works in other
TKI failures. In terms of market uptake, lack of an initial T315I claim will limit
uptake to some degree, as physicians do not regularly test for T315I, and the
company will not be able to promote testing without the diagnostic.
Overview of commercial market for CML
Key differences between Gleevec, Sprycel and Tasigna
Gleevec is the first-generation BCR-ABL inhibitor and has a slightly inferior
product profile relative to Sprycel and Tasigna overall, but remains a well
entrenched preferred front-line option (Table 16). The potency of Gleevec is lower
than both Sprycel and Tasigna, but the safety profiles for each drug is slightly
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differentiated. Sprycel use is associated with pleural effusions and
thrombocytopenia, Tasigna is associated with QT prolongations, liver
complications, and rash, while the common Gleevec side-effects include edema,
GI issues and muscle cramps. For the second-generation TKIs in the front-line,
experts have indicated that Tasigna is more frequently used for patients that can
fit the drug profile and take the drug appropriately (without food), while Sprycel is
used less frequently due to the pleural effusion side effects. Pricing is
substantially higher for Sprycel/Tasigna relative to Gleevec in the front-line
setting, which we believe might be a barrier to aggressive front-line adoption.
The primary endpoint for the chronic phase patients is major cytogenetic
response rate (complete and partial cytogenetic responders), and for
accelerated and blast phase CML and Ph+ ALL patients the endpoint is major
hematologic response rate. Secondary endpoints are major molecular
response rate, duration of response, progression-free survival and overall
survival. PACE is enrolling patients at centers in North America, Europe and
Asia. The first patient was enrolled in 3Q10, and enrollment completion is
expected in 3Q11, nearly six months ahead of schedule. ARIA expects interim
Table 15: Treatment-related side effects (=10%)
N=74 Any Grade Grade 3/4
Hematological
Thrombocytopenia 23% 16%
Neutropenia 10% 7%
Anemia 10% 0%
Nonhematological
Rash* 22% 1%
Arthralgia 15% 0%
Headache 15% 0%
Lipase increase 14% 7%
Nausea 12% 0%
Fatigue 11% 0%
Myalgia 11% 0%
Pancreatitis 10% 4%
Dry skin 10% 0%
Vomiting 10% 0%
Source: 2010 ASH ponatinib presentation; *combines erythematous, macular
and papular rash
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data in 4Q11, and aims to present full three-month data and partial six-month
data at the 2011 ASH meeting.
Although this study does not have a special protocol assessment, experts
believe the study will be sufficient for FDA approval. Specifically, experts agree
that a minimum of 20-30% major cytogenetic response rate would be a positive
result in this heavily pre-treated population, and they believe prior data portend
at least this level of response. Experts note PACE patients represent an unmet
medical need, as patients will have failed Sprycel and / or Tasigna, and do not
have any viable treatment options outside of a risky allogeneic stem cell
transplant procedure.
In terms of disclosure, ARIA has stated that it will not publicly release the
results from this interim analysis prior to the ASH meeting unless the data
significantly deviates (positively or negatively) from the prior Phase 1 study
results.
Confirmatory study likely in front-line patients
As part of the normal regulatory process for accelerated approval, ARIA will need
to design and initiate a confirmatory Phase 3 study for ponatinib. There is some
debate among experts over what the next study should be (primarily front-line vs
second-line); ARIA appears to be leaning heavily towards a front-line study,
although the company is not yet ready to communicate trial specifics. Whatever
that study design is, it will have to be negotiated and agreed with the FDA. Below
we highlight key design issues that the company is currently debating internally.
?? Comparator: ARIA’s research suggests that a front-line study needs to
include Gleevec as a comparator, as Sprycel and Tasigna only have
accelerated approval in front-line CML; experts do not see clinical value in a
ponatinib vs. Gleevec study, but recognize it could support approval. A
second-line study could use either Sprycel or Tasigna as a comparator, and
experts disagree over which drug is a better choice.
?? Primary endpoint: ARIA favors major molecular response as a primary
endpoint in its confirmatory study, however, the caveat is that MMR has not
been consistently correlated with overall survival, while complete cytogenetic
response has. Experts we spoke with were divided, although the FDA has
accepted both endpoints previously.
?? Patient population: We see three options: 1) front-line study in broad
patient population; 2) front-line study in high-risk patients; or 3) second-line
study in Gleevec failures. ARIA expects to finalize the confirmatory study
design after the interim look of the PACE study following discussions with the
FDA.
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Ponatinib – the third generation TKI
Ponatinib was designed to be BCR-ABL tyrosine kinase inhibitor with activity against
a wide range of mutations, including the T315I mutation, the one variant in which all
three marketed drugs fail. Ariad conducted a Phase I study of ponatinib in patients
with CML and other hematological malignancies (ALL, acute myeloid leukemia,
myelodysplastic syndromes, multiple myeloma and myelofibrosis) relapsed or
refractory to the standard of care. This dose escalation study examined 2, 4, 8, 15,
30, 45 and 60mg capsules and 45 and 60mg tablets. The demographics of the study
are listed in Table 12.Results for ponatinib Phase 1 study
The efficacy was reported for all the ponatinib doses examined in the CML
chronic and advanced phases at the 2010 ASH meeting (Table 13). Although it is
difficult to compare across trials, the efficacy observed for the chronic phase CML
patients (66% major cytogenetic response) as a 3rd or 4th line of therapy appears
better than Sprycel (45% major cytogenetic response) and Tasigna (35% major
cytogenetic response) results in patients that only received Gleevec (2nd line).
Major cytogenetic responses for ponatinib were comparable in the higher dose
range (30-60mg) relative to the overall pooled data, showing an average 64%
major cytogenetic response rate (Table 14). The numbers of patients treated are
small, but show ponatinib is highly active. Additionally, 9/9 of the patients that
had the T315I mutation recorded a major cytogenetic response, suggesting that
ponatinib is effective against the key mutation it was designed to overcome.
The overall ponatinib response rate in the advanced phase group (accelerated
and blast phases) is comparable with previous Sprycel and Tasigna results in the
advanced phases. Notably, ponatinib recorded no complete responses in the
advanced phase patients with the T315I mutation, and only 1 out of 5 patients
experienced a partial response. While patient numbers are even smaller in this
subset, experts do not expect any drug to be highly effective in the advanced
stages of disease because the cancer is very genetically unstable by that point.
Table 13: Results for ponatinib in chronic and advanced phases of CML
Chronic Phase CML Advanced Phases of CML
Overall T315I* Non-T315I Overall T315I* Non-T315I
N=38 N=9 N=29 N=17 N=5 N=12
Major cytogenetic response 66% 100% 55% 24% 20% 25%
Complete cytogenetic
response 53% 89% 41% 12% 0% 17%
Partial cytogenetic response 13% 11% 14% 12% 20% 8%
Complete hematologic
response 95% 100% 93% 35% 20% 42%
Source: 2010 ASH ponatinib presentation; *patients with T315I mutational status confirmed at entry
Adverse event profile acceptable
Ponatinib appears to be well tolerated and may prove to be differentiated relative
to the approved TKIs (Table 15). While it is difficult to draw a conclusion on small
patient numbers, we note the following:
?? Ponatinib is uniquely associated with pancreatitis, and the effect appears
dose related (Table 14). ARIA has noted the events were reversible and
managed by dose reductions. Expert feedback suggests the primary effect is
elevated lab metrics (amylase and lipase enzymes); in some cases there
was mild-to-moderate abdominal pains, and in one case, an imaging analysis
Table 12: Ponatinib Phase 1 study demographics
Cancer type N=74
CML (Chronic, Accelerated, Blast) 60 total (44, 7, 9)
Ph+ ALL 4
AML (FLT3 ITD) 6
Other (MM, MDS, MF) 4
Median age 56 years
Range 26-85 years
Female/Male 47%/53%
60 CML patients had previous TKI exposure
Resistant =2 TKIs 95%
Resistant =3 TKIs 65%
Prior approved therapies for enrolled patients
Drug Frequency
Gleevec 97%
Sprycel 90%
Tasigna 57%
Sprycel and Tasigna 52%
Source: 2010 ASH ponatinib presentation
Table 14: Response rates and pancreatitis by dose
Major cytogenetic
response Pancreatitis events
Dose* Rate Dose (N=81)**
Pancreatitis
events N (%)
30mg (N=5) 40% 2mg –30mg 3/31 (10%)
45mg (N=12) 83% 45mg 4/31 (13%)
60mg (N=11) 55% 60mg 4/19 (21%)
Average 64%
Source: 2010 ASH ponatinib presentation
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revealed inflammation of the pancreas, although not a major concern to
clinicians at this point.
?? Ponatinib appears to have similar rates of rash and gastrointestinal adverse
events as Gleevec, although head to head data will be required to fully
assess these side effects.
?? To date there are no reports of pleural effusion as seen with Sprycel, or liver
abnormalities associated with Tasigna.
Based on the results from the Phase 1 study, Ariad has decided to move forward
with the 45mg dose in the ongoing Phase 2 PACE study.
Ongoing Phase 2 ponatinib PACE trial
In September 2010 ARIA started a pivotal Phase 2 study in resistant or intolerant
CML and Ph+ ALL called PACE (Ponatinib Ph+ ALL and CML Evaluation). The
study is expected to enroll over 400 patients with chronic phase, accelerated
phase and blast phase CML, as well as Philadelphia chromosome positive ALL.
PACE has six study arms as shown in Chart 1, evaluating T315I positive and
negative disease across chronic and blast/accelerated phase disease (Chart 1).
The study specifically requires patients to have failed a second-generation TKI
(Sprycel, Tasigna), although physicians note that most patients in the study will
have also failed Gleevec. Failure includes resistance or intolerability.
Tasigna has a lower
incidence of hematological events, but it has been associated with rash, QT
prolongation, sudden cardiac death and liver complications (Table 8). Also,
Tasigna cannot be taken with food because it has been shown to slow the
metabolism of the drug.
Modest improvement over Gleevec in naïve CML
Two independent Phase 3 studies that compared the efficacy of Sprycel to
Gleevec and Tasigna to Gleevec in newly diagnosed chronic phase CML were
published in the New England Journal of Medicine in June 2010. Both Sprycel
Table 7: Adverse events for Sprycel in Gleevec failure CML and Ph (+)
ALL patients (N=84)
Hematological Grade 3 Grade 4
Neutropenia 19% 49%
Thrombocytopenia 15% 43%
Non-hematological All Grades Grade 3/4
Diarrhea 23% 1%
Peripheral edema 19% 0%
Pleural effusion 18% 4%
Dyspnea or pulmonary edema 12% 2%
Rash 11% 0%
Nausea 10% 0%
Headache 10% 0%
Gastrointestinal hemorrhage 8% 6%
Periorbital edema 7% 0%
Vomiting 5% 0%
Pericardial effusion 5% 2%
Generalized edema 5% 0%
Flushing 5% 0%
Fatigue 5% 1%
Tumor lysis syndrome 2% 2%
Source: NEJM 2006; 354, pp 2531-2541
Table 8: Adverse events for Tasigna in Gleevec failure CML and Ph (+)
ALL patients (N=119)
Hematological Grade 1/2 Grade 3/4
Thrombocytopenia 1% 20%
Neutropenia 1% 13%
Anemia 3% 6%
Non-hematological Grade 1/2 Grade 3/4
Rash (all types) 20% 2%
Pruritus 15% 2%
Dry skin 12% 0%
Constipation 8% 0%
Nausea 8% 0%
Increase in both total and conjugated bilirubin levels 5% 3%
Fatigue 5% 1%
Increase in unconjugated bilirubin level 2% 4%
Alopecia 6% 0%
Increase in lipase level 0% 5%
Increase in level of ALT, AST or both 1% 3%
Source: NEJM 2006; 354, pp 2542-2551
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and Tasigna provide an improvement in the complete cytogenetic response rates
over Gleevec at 12 months (Table 9), suggesting that the two kinase inhibitors
may provide a benefit to a subset of patients unable to reach a complete
cytogenetic response with Gleevec. However, with limited long term follow up
and no overall survival benefit to date, the physician community has not fully
embraced these next generation drugs as truly better than Gleevec. Experts
indicate that the modest improvement in efficacy for Sprycel and Tasigna in
certain patient subgroups (ie low-risk) does not justify the 60% price premium.
Table 9: Sprycel vs. Gleevec and Tasigna vs. Gleevec in treatment naïve chronic phase CML
Sprycel vs. Gleevec Phase 3 Tasigna vs. Gleevec Phase 3
Sprycel Gleevec Tasigna* Gleevec
N=259 N=260 N=281 N=283
Major cytogenetic response NA NA 84% 77%
Complete cytogenetic response 83% 72% 80% 65%
Partial cytogenetic response NA NA 4% 12%
Major molecular response 46% 28% 44% 22%
Source: NEJM 2010; 362, pp 2260-2270; NEJM 2010; 362, pp 2251-2259; *300 mg/2x day (recommended dose for front-line CML); NA - not
available
Safety profile in naïve consistent with prior studies
The adverse events for Sprycel and Gleevec were consistent with prior studies,
with a higher rate of pleural effusion for Sprycel, while Gleevec was associated
with higher rates of edema, nausea/vomiting and muscle/bone pain (Table 10). In
the head to head Tasigna vs. Gleevec study, Tasigna was associated with a
higher incidence of liver complications and rash, but a lower rate of
gastrointestinal adverse events and edema relative to Gleevec (Table 11).
Tasigna has a black box warning about QT prolongation and sudden deaths,
however physicians have not highlighted it is a major concern.
Table 10: Adverse events for the Sprycel v. Gleevec Phase 3
Sprycel (N=258) Gleevec (N=258)
All Grades Grade 3 or 4 All Grades Grade 3 or 4
Hematological adverse event
Neutropenia 65% 21% 58% 20%
Thrombocytopenia 70% 19% 62% 10%
Anemia 90% 10% 84% 7%
Nonhematological adverse event
Fluid retention 19% 1% 42% 1%
Superficial edema 9% 0% 36% <1%
Pleural effusion 10% 0% 0% 0%
Other 5% 1% 8% <1%
Diarrhea 17% <1% 17% 1%
Nausea 8% 0% 20% 0%
Vomiting 5% 0% 10% 0%
Myalgia 6% 0% 12% 0%
Muscle inflammation 4% 0% 17% <1%
Musculoskeletal pain 11% 0% 14% <1%
Rash 11% 0% 17% 1%
Headache 12% 0% 10% 0%
Fatigue 8% <1% 10% 0%
Source: NEJM 2010; 362, pp 2260-2270
Table 11: Adverse events for the Tasigna v. Gleevec Phase 3
Tasigna* (N=279) Gleevec (N=280)
All Grades Grade 3 or 4 All Grades Grade 3 or 4
Hematological adverse event
Neutropenia 43% 12% 68% 20%
Thrombocytopenia 48% 10% 56% 9%
Anemia 38% 3% 47% 5%
Nonhematological adverse event
Rash 31% <1% 11% 1%
Headache 14% 1% 8% 0%
Nausea 11% <1% 31% 0%
Alopecia 8% 0% 4% 0%
Pruritus 15% <1% 5% 0%
Myalgia 10% <1% 10% 0%
Fatigue 11% 0% 8% <1%
Vomiting 5% 0% 14% 0%
Diarrhea 8% 1% 21% 1%
Muscle spasm 7% 0% 24% 1%
Peripheral edema 5% 0% 14% 0%
Eyelid edema 1% 0% 13% <1%
Periorbital edema <1% 0% 12% 0%
Source: NEJM 2010; 362, pp 2251-2259; *300 mg/2x day (recommended dose for front-line CML)
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Response measured by different blood tests
The therapeutic benefit can be measured by improvement in three different tests:
Cytogenetic response: Reduction in the number of cells that contain the Ph
chromosome found in a bone marrow biopsy. Importantly, there is a correlation
with patients that lose all Ph chromosome positive cells during treatment and
overall survival, and this endpoint has historically been the gold standard for early
stage CML trials.
Molecular response: Reduction in the RNA copies used to make the BCR-ABL
protein as measured with a blood based test. This endpoint is more sensitive
than cytogenetic response and is gaining traction among physicians, although still
controversial as it has not been consistently correlated with overall survival.
Hematological response: Improvement in specific blood cell counts and
reduction in the spleen size. This endpoint is a gross measurement of the
disease, and it is used as a supportive endpoint for early stage disease and as
the primary endpoint for advanced disease.
In Table 4 below we outline the parameters used to classify the responders per
each endpoint.
Table 4: Parameters for clinical endpoints in CML
Cytogenetic Response
Complete: No Ph chromosome positive cells
Partial: 1-35% Ph chromosome positive cells
Major cytogenetic response rate = Complete rate + Partial rate
Molecular Response
Complete: No detectable levels of the BCR-ABL mRNA transcript
Major: >= 3-log reduction of BCR-ABL mRNA transcript
Hematological Response
Complete: Normalization of blood cell counts with no immature blood cells and no signs or symptoms of the
disease
Partial: immature cells in the blood, platelet count less than 50% of baseline but more than 450 X 109/L and / or
persistent enlarged spleen
Source: NCCN guidelines
Note: mRNA - messenger ribonucleic acid
Clinical results for Gleevec, Sprycel & Tasigna
Gleevec – first approved TKI in CML
Gleevec was first approved for the treatment of chronic CML for patients that
failed front-line therapy. Gleevec represented the first approved tyrosine kinase
inhibitor that targets the BCR-ABL protein, and the efficacy reported from the
study was the best-ever observed for this setting (Table 5). The 41% complete
cytogenetic response for Gleevec in this treatment experienced population is
better than the 5-20% observed with interferon alfa. The most frequent adverse
events included hematological events, edema, rash, GI complications and
muscle/joint pain.
2nd-gen TKIs follow Gleevec in treatment experienced
Following Gleevec’s approval, two second-generation TKIs (Sprycel and Tasigna)
were approved based on results from studies that enrolled Gleevec-resistant or
intolerant CML patients and acute lymphoblastic leukemia (ALL) patients (Table
Table 5: Gleevec in treatment experienced CML
N=454
Cytogenetic response
Major 60%
Complete 41%
Partial 19%
Hematological response
Complete 95%
Source: NEJM 2002; 346, pp 645-652
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6). The studies demonstrated that a second TKI can provide a complete
cytogenetic response in patients that failed Gleevec treatment with a similar
mechanism of action, suggesting that the second-generation TKIs have improved
activity over Gleevec. This enhanced activity is thought to be due to better
binding to the BCR-ABL protein and higher activity against certain Gleevecresistant
mutants.
Table 6: Sprycel and Tasigna in CML and Ph (+) ALL patients failing Gleevec
Sprycel in Gleevec failures Tasigna in Gleevec failures
Chronic Accelerated Blast* Chronic Accelerated Blast**
N=40 N=11 N=33 N=17 N=56 N=33
Major cytogenetic response 45% 27% 48% 35% 27% 18%
Complete cytogenetic response 35% 18% 27% 35% 14% 6%
Partial cytogenetic response 10% 9% 21% 0% 13% 12%
Complete hematological response 92% 45% 45% 65% 46% 6%
Source: NEJM 2006; 354, pp 2531-2541; NEJM 2006; 354, pp 2542-2551; *Combined both the CML with myeloid blast crisis subgroup and CML with
lymphoid blast crisis/Ph+ ALL subgroup; **Includes both myeloid and lymphoid blast phase patients
The adverse events from the two studies are listed below. Sprycel has a high
incidence of hematological events just as Gleevec does, while the adverse events
unique to Sprycel include pleural effusion (fluid build up in lung and chest cavity),
edema and gastrointestinal complications (Table 7). Tasigna has a lower
incidence of hematological
Chronic myeloid leukemia (CML) overview
The American Cancer Society estimates that in 2010 there were 4,870 new cases
of CML and 440 deaths associated with the disease. CML represents
approximately 15% of all adult leukemias, and while the disease can occur in all
age groups, it is more frequent in the elderly as the median age of onset is 67.
CML is caused by the translocation of two DNA fragments that include the genes
known as breakpoint cluster region (BCR) and Abelson murine leukemia (ABL),
which leads to the formation of a unique chromosome structure known as the
Philadelphia chromosome (Ph). The product of the DNA fusion is called the
BCR-ABL protein, and this protein is an activated form of a tyrosine kinase that
has an important role in cell growth regulation. The development of three tyrosine
kinase inhibitors (TKIs: Gleevec, Sprycel and Tasigna) that stop the function of
the BCR-ABL protein has dramatically improved the outlook for CML patients. A
brief timeline of the disease and its treatment is outlined below:
?? 1840s: Initial reports describing CML
?? 1960: Discovery of the Philadelphia chromosome
?? 1986: Characterization of the BCR-ABL fusion gene
?? 2001: Approval of first-generation TKI Gleevec (Novartis)
?? 2006: Approval of second-generation TKI Sprycel (Bristol-Myers Squibb)
?? 2007: Approval of second-generation TKI Tasigna (Novartis)
Current CML treatment paradigm
CML disease progression follows a three-stage pattern, with an initial chronic
phase that typically lasts several years, then transforms into an accelerated
phase and ultimately into a brief blast phase. The National Comprehensive
Cancer Network (NCCN) recommends starting chronic phase CML patients on
Gleevec, Sprycel or Tasigna, and then monitor for response, although the vast
majority of patients start on Gleevec. Patients diagnosed with advanced phases
of disease (accelerated or blast) have a poor overall prognosis, and are typically
treated with a TKI alone or in combination with a cytotoxic drug. For patients that
progress while on the first TKI, experts recommend a different TKI or allogeneic
stem cell transplantation. Allogeneic stem-cell transplantation is an option for
less than 30% of CML patients because few patients have a suitable donor.
Allogeneic stem cell transplantation can cure CML, but the stem cell
transplantation procedure is associated with serious complications, including graft
vs. host disease, infectious complications and death.
approvals. If Ariad fails to gain accelerated approval for ponatinib (late 2012/early
2013 est.), shares will be significantly negatively impacted as the full approval
would only be possible in 2015-2016 at the earliest.
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Commercial execution risk
ARIA intends to hire a sales force and market ponatinib in oncology in the US and
potentially in Europe. ARIA does not have prior commercial experience and
execution will remain a risk until proven otherwise, particularly in such a crowded
market as CML (three drugs approved).
Generic Gleevec in July 2015
We expect a generic version of Gleevec to come to the market shortly after the
Gleevec composition of matter patent expires in July 2015 (with pediatric
extension). We expect the generic launch will create a headwind for the branded
tyrosine kinase inhibitors (TKIs) Gleevec, Sprycel and Tasigna, particularly so in
the front-line CML setting, which is the largest market segment. We currently
model ponatinib label expansion into the front line in 2015 with conservative 4%
penetration at peak suggesting limited impact to our model from generic Gleevec.
Longer term, ponatinib peak sales could be dampened by the entry of generic
Sprycel (2020) and Tasigna (2023).
Consensus estimates are overly optimistic
Revenue consensus estimates for 2012-2013 are significantly higher than our
estimates suggesting the Street might be overly optimistic on the launch of
ponatinib. The consensus estimates might have to come down to a more realistic
range or the stock would be negatively impacted.
Negotiation on confirmatory studies with regulators
ARIA is required to complete a confirmatory study with ponatinib to satisfy the
accelerated approval requirements, and it can conduct either a study in newly
diagnosed CML patients or a second-line setting. The design of the study needs
to be negotiated and agreed on with the FDA. While we believe there will be
sufficient time to finalize the design following the PACE study results, this process
will be important to watch over the course of 1H12.
Trading history
Ariad Pharmaceuticals shares have been volatile like most in the biotech sector,
and since going public in 1994, the stock has traded in a $3-$7 range. Shares
began trading out of this range shortly after presentation of the ponatinib Phase 1
data at the December 2010 ASH meeting. This momentum has continued
following the June 2011 ASCO meeting and company analyst event focused on
the market opportunity for ponatinib.
Company overview
Ariad Pharmaceuticals is a small biotechnology company with two late stage
compounds known as ponatinib (100% owned) and ridaforolimus (est. 20% royalty
from MRK). Ponatinib is being examined in a range of cancer types, and the first to
market indication is a rare blood cancer called chronic myeloid leukemia (CML).
Initial data for ponatinib indicates that it can provide a benefit to patients that have
failed all current CML therapies. ARIA is expected to file for regulatory approval for
ponatinib in mid 2012. Ridaforolimus has demonstrated modest efficacy in a large
Phase 3 sarcoma study and regulatory filings in the US and EU are expected by
partner MRK in 2H11; we do not believe this product is a key value driver.
Nonetheless, assuming that ponatinib is successful in the ongoing pivotal study,
Ariad has the potential to have two drugs on the market in late 2012/early 2013.
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Ariad
Valuation overview
Based on our sum-of-parts analysis, we arrive at a price objective (PO) of $14 per
share, which reflects risk adjustments on ARIA's pipeline as well as our
projections for 17% dilution (Table 3). We base our valuation on a discounted
cash flow model of both ponatinib and ridaforolimus, assuming peak sales of
>$1B for ponatinib in the CML setting and a 20% royalty rate on partnered
Table 1: ARIA's drug pipeline
Drug Stage of development Ownership rights
ridaforolimus Filing for approval in 2H11 Shared with Merck
ponatinib Phase 2 study (PACE) ongoing ARIA has full rights
AP26113 To enter clinic in 3Q11 ARIA has full rights
Source: ARIA
Table 2: Upcoming milestones for ARIA
2H11 Merck to file for ridaforolimus US and EU approval
3Q11 AP26113 to begin Phase 1/2 study with cancer patients
Dec. 2011 Interim ponatinib Phase 2 study data
mid:2012 Ponatinib filings for US and EU approval
1H12 Potential ridaforolimus US approval
2H12 Potential ridaforolimus EU approval
2012 Interim data for AP26113 Phase 1/2 study
Late '12/early '13 Potential ridaforolimus US approval
Source: ARIA and BofA Merrill Lynch Global Research
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ridaforolimus sales (peak global sales of $200M). We assign a high probability of
success for ponatinib in the second line/salvage CML market (90%) consistent
with our high expectations for a positive data readout this December, and a
relatively high probability of success for ponatinib (70%) in the front-line setting
based on the strength of the initial product profile. The majority of our peak
sales estimate ($900M) is based on our expectation that ponatinib will
become the "go to" second CML drug choice, and therefore we do not believe
there is upside to our valuation on positive pivotal trial results this December.
The front-line setting will be significantly more competitive than second line, as
generic Gleevec will likely dampen uptake of expensive branded drugs like
ponatinib beyond 2015. We believe that ponatinib even with positive Phase 3
results will receive a small slice of the market as a fourth to market drug with no
compelling data showing superiority over branded entrenched competitors.
Therefore, we model $200M in front-line ponatinib sales, but assign a high
probability of achieving those sales. The collective valuation for ponatinib prior to
dilution is $15/sh. For ridaforolimus, we assign a 50% chance of success as we
believe the clinical data are marginal and have limited confidence in the market
opportunity. Our ridaforolimus valuation takes into account that the company is
expected to receive a series of cash milestones on marketing approvals in the
US, EU and Japan.
Table 3: Sum-of-parts DCF analysis
Program Launch year Max value/sh Probability of success Adjusted value/sh
Ponatinib 2nd line/salvage 2013 $14 90% $12
Ponatinib 1st line 2015 $4 70% $3
Ridaforolimus 2012 $2 50% $1
Cash YE2010 $1
Total $17
Expected dilution 17%
Total value dilution adjusted $14
Source: BofA Merrill Lynch Global Research estimates
Note: Key assumptions include: WACC of 11%, no terminal value assigned, and sales are modeled out to 2030 for expected patent protection;
*Expected dilution takes into account dilution from outstanding warrants, dilutive options and potential future equity financings
Risks to our rating
Disappointing Phase 2 PACE results
ARIA’s ponatinib is currently being evaluated in a pivotal Phase 2 PACE study.
The data available from a Phase 1 study (n=74) suggest benign safety profile and
a major cytogenetic response of 66% in chronic CML. Management points to the
Phase 1 results as a reasonable bar for the PACE study outcome, suggesting a
high response rate. If the response rates are significantly lower than Phase 1 or
any new/unexpected safety events occur in the PACE study, the share price
would be negatively impacted.
Accelerated approval – more conservative FDA stance
ARIA intends to file for an accelerated approval for ponatinib based on the results
of the PACE study. While the company appears to meet the requirements for
accelerated pathway (unmet medical need, durable/large effect, and should have
a confirmatory study ongoing at the time of the NDA filing), the FDA Oncologic
Drugs division has become more conservative in its view of accelerated
approvals. If Ariad fails to gain accelerated
Investment overview
We are initiating coverage of ARIA with a Neutral rating and $14 PO. ARIA is a
development stage biotech company focused on cancer and its lead drug
candidate ponatinib is currently in late stage development for the treatment of
chronic myeloid leukemia (CML). We are confident ponatinib will demonstrate
clinically meaningful response rates in the upcoming pivotal study (PACE) with
the data expected in Dec 2011 at the American Society of Hematology (ASH)
meeting, and we view ponatinib to be differentiated in the treatment failure CML
setting. However, ARIA stock moved 4x over the last 12 months and our DCF
analysis suggests the shares are fairy valued at this level.
Expectations for positive clinical data are high, and while data and regulatory
risks are low probability, the current valuation implies limited likelihood of negative
outcomes, in our opinion. Longer term, ARIA could create additional value with
pipeline advancement, although the next drug candidate (AP26113) is too early to
value. M&A activity is common within the biotech sector, and as where we
estimate that ponatinib sales could be >$1B globally in the second-line CML
setting, we believe the biggest risk to our Neutral rating is for ARIA to be
acquired.
The factors that weigh in favor of upside to the stock are balanced by possible
down-side factors.
The up-side factors include:
?? Experts we spoke with are overwhelmingly positive on the activity of
ponatinib in the resistant/intolerant setting, giving us comfort that Phase 2/3
data in December will report in line with high expectations.
?? Key ponatinib side effects (primarily asymptomatic pancreatitis) is
manageable with dose reductions.
?? Ponatinib has a differentiated profile relative to other CML drugs because it
works against the key drug resistant form of CML (T315I).
The down-side factors include:
?? We estimate 17% dilution from outstanding warrants, future equity raises,
and options outstanding; ARIA could minimize dilution if it chooses to partner
ex-US ponatinib rights, although this would reduce longer term earnings
upside.
?? Potential for FDA to reject or delay accelerated approval of ponatinib given
its more conservative bent in oncology (we view this risk as low).
?? Generic Gleevec market entry in 2015 will limit ponatinib potential as a frontline
drug, which represents the biggest piece of the CML market.
Valuation overview
Based on our sum-of-parts analysis, we arrive at a price objective (PO) of $14 per
share, which reflects risk adjustments on ARIA's pipeline as well as our
projections for 17% dilution (Table 3). We base our valuation on a discounted
cash flow model of both ponatinib and ridaforolimus, assuming peak sales of
>$1B for ponatinib in the CML setting and a 20% royalty rate on partnered
Table 1: ARIA's drug pipeline
Drug Stage of development Ownership rights
ridaforolimus Filing for approval in 2H11 Shared with Merck
ponatinib Phase 2 study (PACE) ongoing ARIA has full rights
AP26113 To enter clinic in 3Q11 ARIA has full rights
Source: ARIA
Table 2: Upcoming milestones for ARIA
2H11 Merck to file for ridaforolimus US and EU approval
3Q11 AP26113 to begin Phase 1/2 study with cancer patients
Dec. 2011 Interim ponatinib Phase 2 study data
mid:2012 Ponatinib filings for US and EU approval
1H12 Potential ridaforolimus US approval
2H12 Potential ridaforolimus EU approval
2012 Interim data for AP26113 Phase 1/2 study
Late '12/early '13 Potential ridaforolimus US approval
Source
Merill Lynch Report on Ariad
Initiating with a Neutral rating and $14 price objective
We are initiating coverage of Ariad Pharmaceuticals (ARIA) with a NEUTRAL
rating and a DCF derived $14 PO. ARIA is an unprofitable biotechnology
company focused on oncology, and is developing a drug for patients with a rare
leukemia (CML) failing prior therapy. Based on our positive outlook for an
ongoing study to report data this December, we believe ARIA’s drug has potential
to achieve >$1B in peak sales globally as it becomes a favored second drug
choice in a large CML market. Despite our favorable outlook, we believe the
current share price captures most of the value in the absence of an M&A event.
Ponatinib highly differentiated in a $4B market
Ponatinib is a small molecule inhibitor of the key CML target (BCR-ABL), and if
successful, will be fourth to market in a $4B drug class, following Gleevec,
Sprycel and Tasigna. The first ponatinib clinical study (74 patients) demonstrated
that it has promising efficacy in patients developing resistance to multiple CML
drugs, including the mutant CML T315I that all currently marketed drugs fail to
successfully treat. A larger, ongoing Phase 2 study is expected to enroll over 400
patients and will provide further insight into ponatinib’s potential in CML this
December, setting up a potential drug approval in late 2012.
Next CML study being debated
ARIA is required under FDA statutes to conduct a confirmatory study to support
accelerated approval of ponatinib, and this study must be negotiated with the FDA
prior to approval. While multiple design metrics are under debate, the company
plans to conduct a study in newly diagnosed patients vs market leader Gleevec
starting in mid-2012. Although this design may satisfy regulators, we believe it
will provide limited marketing firepower to secure meaningful frontline share.
?? Estimates (Dec)
(US$) 2009A 2010A 2011E 2012E 2013E
EPS (0.81) 0.79 (0.58) (0.60) (0.76)
GAAP EPS (0.86) 0.74 (0.65) (0.67) (0.84)
EPS Change (YoY) NA NM NM -3.4% -26.7%
Consensus EPS (Bloomberg) (0.56) (0.35) (0.12)
DPS 0 0 0 0 0
BTH, are you becoming more bullish on Ariad? At what price would you take profits?
On the Dean’s Council of Yale University School of Medicine. Now that is impressive. M.D. degree from Yale University School of Medicine. You have to be quite brilliant to have acheived that. Dr. Berger is also involved with Emory University and U. of Pennsylvania. It doesn't get much better than that. Some biotechs have nobody's as spokesman. He has been able to collaborate with very impressive researchers. Harvey Berger has taken a lot of heat from everyone, including board members, and has stood up to all of them, and stood the test of time. All in all not too shabby. He actually is one of the reasons I have stayed with Ariad over the years. The man's a genius. He understands all aspects of running a biotech, from trials to speaking to the analysts. When he bought stock himself in the milions of dollars last year, that turned out to be the best sign of all.
Since Ariad made the announcement about 113 on June 16, the stock has advanced from about 9.5 to 12.5. The analysts may not have quantified the value, but the announcement sure helped move the stock price. To me at least 2 points are due to the 113 announcment.
Phase 1/2 Clinical Trial of Novel Dual ALK/EGFR Inhibitor to Start in 3Q11
CAMBRIDGE, Mass., Jun 16, 2011 (BUSINESS WIRE) --
ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA) today announced results of preclinical studies on its investigational anaplastic lymphoma kinase (ALK) inhibitor, AP26113, showing that AP26113 has a novel profile as a dual inhibitor of ALK and epidermal growth factor receptor (EGFR), an additional validated target in non-small cell lung cancer (NSCLC). In addition to inhibition of ALK and its mutant forms, AP26113 was shown to inhibit the EGFR T790M mutant that is resistant to available EGFR inhibitors. These data will be summarized at ARIAD's Analyst and Investor Day being held tomorrow in New York City.
Why not do 15 million shares and raise $180 million? Or 12 million shares and get close to 150 million? Then they are set.
A little Jim Cramer.
Another Day, Another 'Armageddon'
By Jim Cramer
RealMoney Columnist
7/11/2011 4:17 PM EDT
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CLICK HERE NOW
Didn't know we now face another Armageddon. In fact, a couple of Armageddons. The debt-ceiling Armageddon. The Italian Armageddon. The Chinese inflation Armageddon.
Jeez, these Armageddons seem like a dime a dozen. And that's the real problem. Armageddons aren't sold a dozen by the dime. They are sold very rarely. We should know it -- we lived through one just a couple short years ago.
Here's the problem, though. We have learned the wrong lesson from then. We have learned that every single crisis is the paramount crisis. That every single woe is the death rattle. That the sky not only falls but falls hard and takes all of us chickens with it.
Here's what we should have learned. You can almost blow up the western financial world. You can almost nationalize every single bank. You can almost destroy capitalism. We almost did. We can scorn Bernanke and Geithner and criticize them for 9% unemployment. But I think we should have and could have had 25% unemployment. I think we could have had a depression.
What's happening now is not equal to what happened then. Sure, stocks are higher. But don't tell me that a potential Italian bond restructuring -- which I don't think will happen -- is as bad as the collapse of the U.S. financial system. Don't tell me that 5% or even 6% bond yields in Italy could be our funeral. As a broker, I sold 14% Treasuries 30 years ago, and that was supposed to be the end of the world.
I am suspicious of the end-of-the-worlders here. Their rap is too convenient. I see this one as, "OK, we beat Greece, now let's go after Italy with shorts, with credit default swaps, with everything we can, because we have to make our quarters." That's hedge-fund speak for "Look, we can't take down companies, but that doesn't mean we can't take down indebted countries."
I say, sure, go ahead. But if you think you can send this market down even 10% from here on Italy and a possible budget talk breakdown, I say, give it your best shot.
We're better than we were three years ago.
It's just that after a day like today, you don't feel it.
My biggest fear is something going wrong with 113. So much sudden optimisn and potential value is being attributed to 113. It hasn't even been tested on a human yet. Any delay there will cause the stock price to drop.
Don, where do you weigh in on when to take profits in Ariad?
BTH, at what point would you take some profits in Ariad? This run has been amazing, but at some point it has to take a breather. Right now it is at 11.60. Who would have thought it could get here so quickly.
Is it possible that there could be safety issues with 113? After all it has not been tested on humans yet. They had to adjust 534 which took an extra year approximately.
Sell Ariad and buy goog and aapl? BTH, you really know biotech fundamentals and market technicals. A rare combination. The Ariad board seems to be so sure about much higher prices for aria. Nothing is that easy, usually. Is it possible that the fundamentals are so positive and yet not reflected in the price? At some point buying Google at 500, when they are going to earn $40 next year with $110 in cash is close to a lock long term, as far as I'm concerned. Buying Apple here is also very solid. I guess ariad is potentially a stock you can retire on if it truly goes to 20, 30 or 40. At what point would you sell it, and swtich out? As far as I'm concerned we are so oversold as to be right near a bottom, right here in the market.
Also to say the stock is undervalued, I would defer to BioTechHedge, DonS, Dough, or Dew. If you are a chartist or technical analyst,fine, don't try to be a fundamental analyst. It is way too difficult.
Harvey Berger wrote this on May 9, in his message on the Ariad website, mentioning specifically parts of Europe.
Executing on a Commercial Strategy
We plan to exclusively market and sell ponatinib in North America and potentially in parts of Europe, allowing us to retain the major commercial upside of this exciting product candidate. We have outstanding interest from leading pharmaceutical and biotech companies to partner ponatinib with us on a regional basis. We have no specific timeframe under which we expect to sign a partnership for ponatinib, recognizing that the value of ponatinib will only increase as additional clinical data become available. There is little denying that ponatinib is a tremendously valuable asset for ARIAD, and we are determined to make sure that the company, our shareholders and, most importantly, CML patients benefit fully from its clinical potential.
This article was posted this morning on TheStreet.com
Cancer Stocks on Tap: ASCO Abstract Preview
By Adam Feuerstein
TheStreet Senior Columnist
5/11/2011 7:18 AM EDT
Click here for more stories by Adam Feuerstein
BOSTON (TheStreet) -- Biotech investors take note: On Weds. May 18, the American Society of Clinical Oncology (ASCO) will be posting online the full content of cancer drug research abstracts to be presented next month at its closely watched annual meeting in Chicago.
The ASCO research abstracts will be posted on the medical society's web site starting at 6 p.m. EDT -- free for everyone to browse and download. The ASCO annual meeting -- the most important cancer drug research meeting every year -- runs June 3-7.
Biotech traders start focusing on "ASCO stocks" early in the year, well before the release of research abstracts.
A research abstract is simply a summary of clinical data to be presented at a medical conference. The abstract typically includes a brief description of the clinical study, the types of patients enrolled and sometimes, a brief summary of the study results, including efficacy and safety data.
Research abstracts can be flinty on the important details investors want to know. Think of a research abstract as a placeholder a company uses to reserve a spot at a medical meeting. A cancer research meeting like ASCO is a very hot ticket, so companies vie for presentation slots well in advance. Often, that means the cancer drug data companies want to present isn't ready or fully analyzed yet. ASCO abstracts, therefore, often summarize the study but put off disclosing the important details (like if the drug being studied works and is safe) until the actual data presentation at the meeting.
To make it easier for investors to search ASCO's annual meeting web site next Wednesday, I put together a list of abstracts most interesting to Wall Street, arranged alphabetically by drug sponsor.
Ariad Pharmaceuticals (ARIA - commentary - Trade Now) and Merck (MRK - commentary - Trade Now)
Abstract No. 10005
Abstract title: Results of the phase III, placebo-controlled trial (SUCCEED) evaluating the mTOR inhibitor ridaforolimus (R) as maintenance therapy in advanced sarcoma patients (pts) following clinical benefit from prior standard cytotoxic chemotherapy (CT).
Is nps pharmaceuticals (NPSP) a stock that anyone follows here? Is it worth looking into?