Here's Rachel:
Incremental update from
management meeting
?? Key updates from management
Overall feedback from our management meeting was incremental to commentary
in December. Noteworthy points: (1) Management remains highly optimistic that
the blackbox warning will not limit Iclusig uptake (2) the company is estimating a
gross to net sales reduction of <10%, which compares favorably to 13% est in our
model (3) ARIA plans to present more detailed cardiovascular data for Iclusig at
the June ASCO meeting, which should help clarify issues raised in the product
label (4) ARIA has not finalized its financing plans, but expressed significant
interest in a similar non-dilutive debt structure to the recently completed IRWD
financing where debt is tied to future product revenues (5) Additional '113 data in
NSCLC will be presented at the June ASCO meeting but a more definitive update
on activity in EGFR patients seems more likely at the Sept ESMO meeting; the
company believes it is nearing the end of the dose escalation phase of the study
(6) additional Iclusig studies are getting underway this year, with new data
possible in GIST and newly diagnosed CML possible before YE.
Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $27 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$20/share for ponatinib, $11/share for 113 and $2/share for cash, which is further
adjusted for 17% dilution. We use the following assumptions in our DCF: 1)
WACC of 11%, 2) PON global sales in salvage CML of $425M in 2016, 3) sales
out to 2030 and no terminal value, and 4) 17% dilution from dilutive options and
potential future equity financing. We see potential upside to our valuation from
pipeline expansion. Downside risks to valuation are: 1) disappointing ponatinib
launch, 2) data disappointments for ongoing/anticipated ponatinib trials, 3)
unexpected clinical strategy requirements for future ponatinib trials, 4) failure to
be significantly active in EGFR lung cancer, and 5) financing risk.
