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.
AI
