Biotech Values

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Rachel McMinn wrote this about Ariad on December 23.

? Iclusig returns in US for T315I and last line
ARIA announced on Friday that it and the FDA have agreed on a revised product label
for the company’s leukemia drug Iclusig, and that a re-launch of the product would
begin early next year. The timing of the product re-launch was quicker than we had
anticipated, but the end result was as expected: warnings around the safety profile
have been further strengthened, the patients for whom Iclusig is recommended are
significantly narrowed compared to the original label, and the FDA is mandating a risk
mitigation plan (REMS) to limit access to the drug. While we are increasing our 2014
sales estimates to include US Iclusig sales (we had previously removed pending
clarity on market re-entry), our overall outlook for Iclusig is not materially changed. We
are increasing our PO modestly from $2 to $3 to include a higher probability of
success in reaching our projections. We believe the recent steep rise in ARIA shares
over-values the co, and expect shares to decline once the euphoria of bringing Iclusig
back to market fades and investors realize that the co is unlikely to be cash flow
positive in the next several years (and will likely need additional funding in 12 months)
and that Iclusig has limited external strategic appeal.
Iclusig a last line option, niche drug
Iclusig is now indicated as a treatment option for the rare CML patients with T315I
disease or in patients in which no other tyrosine kinase inhibitor is indicated, and the
black box warning describes vascular occlusions of “at least 27%” of Iclusig treated
patients, including the need for urgent revascularization procedures in patients with
and without pre-existing CV risk factors under the age of 50 years. We model $45M
in US 2014 sales, based on exiting 1Q14 with 375 patients on drug, adding 15 net
new patients/month (50% of prior growth rate before label revision). We model EU
sales of $28M in 2014, with global sales reaching $256M in 2018.
Cash needs in 2014-2016
We estimate ARIA ends 2013 with $224M in cash, burns $135M in 2014, $95M in
2015, $55M in 2016, requiring external funding in 2014, 2015, and 2016 to maintain
working capital through what we anticipate will be a slow product launch. We model
a 26% reduction in opex in 2014, with flat R&D expense from 2014 through 2018,
with model increases in SG&A to support an EU launch.