Rachel McMinn report. Positive, but lowers price target.
Iclusig continues to gain steam
ARIA reported 2Q US end-user sales of $13.9M, ahead of our $11.5M estimate but
consistent with projections based on the latest US prescription data. Underlying
trends are directionally positive: (1) an increasing number of chronic phase patients
starting (70% 2Q vs. 60% 1Q), which will drive longer avg. duration; (2) an
increasing number of resistant second line patients starting (40% 2Q vs. 25% 1Q),
also a driver of longer duration; (3) guidance of 1,000-1,100 patients by YE
assumes continued steady demand in 2H13. ARIA has also launched Iclusig in the
EU on track with prior guidance, and expects to be in six territories by YE. In
addition to our model changes, we are taking the opportunity to lower our PO from
$28 to $24 on revised prospects for '113 due to increased competition in ALK+ lung
and no value for EGFR T790M given a higher competitive bar.
Iclusig pipeline updates
Of the various Iclusig pipeline updates, MD Anderson's decision to open up a
lower dose cohort in an ongoing frontline CML study is of particular investor
interest. ARIA is cautioning against over interpreting a negative read through on
Iclusig safety, highlighting two key points: (1) the study enrolled much more
quickly than comparable Tasigna/Sprycel studies (underscoring high demand)
and (2) 30mg is the standard step down dose in Iclusig trials and could be
effective as a starting dose. The Phase 3 frontline EPIC study remains on track
for data 3Q14; proof of principle data in GIST is expected early 2014.
Negative '113 news shouldn't impact timing
ARIA disclosed the FDA did not grant ARIA's ALK inhibitor Breakthrough status
due to the small number of patients and short follow up. Despite the negative
news, it doesn't appear to have a fundamental impact on development timing;
ARIA is advancing '113 into a pivotal study this quarter in crizotinib failures and
believes it could be best in class. Meaningful T790M EGFR data is expected to be
available by YE to make a go/no-go decision.
?? Estimates (Dec)
(US$) 2011A 2012A 2013E 2014E 2015E
EPS (0.93) (1.34) (1.65) (1.56) (1.43)
GAAP EPS (0.93) (1.34) (1.65) (1.56) (1.43)
EPS Change (YoY) NM -44.1% -23.1% 5.5% 8.3%
Consensus EPS (Bloomberg) (1.66) (1.25) (0.45)
DPS 0 0 0 0 0
Key Changes
(US$) Previous Current
Price Obj. 28.00 24.00
2013E Rev (m) 48.8 59.0
2014E Rev (m) 113.2 117.5
2015E Rev (m) NA 211.8
2013E EPS -1.68 -1.65
2014E EPS -1.54 -1.56
2 015E EPS NA -1.43
Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $24 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$21/share for Iclusig and $4/share for 113, further adjusted for 8% dilution. We
use the following assumptions in our DCF: Iclusig global sales in CML of $1.1BM
in 2018, sales out to 2030, no terminal value and WACC of 11%. We see
potential upside to our valuation from pipeline expansion.
Downside risks to valuation are: 1) disappointing Iclusig launch, 2) data
disappointments for ongoing/anticipated Iclusig trials, 3) unexpected clinical
strategy requirements for future Iclusig trials, 4) failure to be significantly active in
EGFR lung cancer, and 5) financing risk.
