Replies to post #130913 on Biotech Values

[mcbio]

ARIA strikes me as a potentially profitable short. Reasons:

• The enterprise value is a whopping $1.5B (fully-diluted).

• Even knowledgeable posters claim that Ponatinib is a “lock” for FDA approval based on interim data, so hugely bullish expectations are already baked in.

• The CEO is untrustworthy and has a propensity for pumping that goes beyond what you typically see for a small biotech.

• At least one and possibly two generic competitors for Ponatinib will be on the market in the next few years.

• Expensive cancer drugs for niche markets are, by and large, a bad business proposition; they will be among the easiest targets for government-mandated price controls in the US (and around the world).

Feedback welcome.

I wouldn't short ARIA personally but all of your points, especially the first one, are why I continue to be on the sidelines and have no intention of taking a long position. I think the expectation is that ponatinib will be a more potent drug than the generics that will be on the market in the next few years, and will work on the mutation that the generics will not, but it's a reasonable question to ask if that market alone is enough to support current valuation, let alone any reasonable upside. And what are the chances ponatinib will make any reasonable headway into the rest of the market served by the soon-to-be generics. Seems like a fair question, especially at current valuation. There is still rida and the ALK drug but I haven't seen enough convincing data on rida yet and the ALK drug is a bit too early itself.

[iandy]

[biomaven0]

>Aria as a short

Well you and I would be on the opposite sides of this trade, as ARIA is by far my biggest position (as it was when it was below $2).

I agree Ponatinib approval is baked in now - that is primarily what has taken the stock from low single digits to where it is now.

Ponatinib looks to be best in class - not only most potent, but also potentially having a very good side effect profile. Note that in 1st line therapy they will likely be able to use a lower dose than they are now. So sales of $500m in a few years are essentially a lock (assuming generic Gleevec), and the likelihood is that sales in excess of $1b are achievable. Cancer treatment is not like high cholesterol - managed care can encourage the use of Gleevec, but they can't require it. The generic filing on Sprycel I view as noise.

Ariad wholly owns ponatinib - look at the revenue multiple CELG currently gets on its wholly-owned drugs (EV is currently 5.6X revenues), 15X for ALXN.

Rida is worth a couple of bucks a share - I expect approval and there is some potential upside from the multiple combination trials Merck is running.

Finally you ignore '113 - potentially the most valuable asset ARIA has. If its preclinical promise gets fulfilled (something we will almost certainly know one way or another within a year), then ARIA will climb dramatically from here. In the ALK space (like CML) the preclinical results should prove highly predictive of efficacy, so in my view this happens to be one of the exceedingly rare cases in biotech where preclinical results have a substantial impact on valuation. This drug has the potential to be a multi-billion dollar drug within a few years - I'll leave as an exercise for the reader what ARIA's stock price would be if it had a wholly-owned drug that sold $2 bilion a year.

So I'd say this would be an exceedingly risky short.

Peter

[nolo contendere]

Upon approval for 3rd line/T315I pos patients - many will actually use ponatinib in the second line to prevent the development of compound resistant mutations (2+ mutations 'in cis' or in same molecule). These are more likely to arise in patients who have seen multiple TKIs sequentially...

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1940237/

Regardless of marketing approval, I think this will quickly become de facto second line.

[BTH]

I am currently long ARIA after selling (pure luck? some skill) above $13.40 earlier in the summer. I still do believe, just on the ponatinib data alone and "potential" partnership opportunties, etc., the stock has a lot more upside from here. '113 truly is the wild card. If you start seeing data on '113 as highly positive (much in the same light that some astute investors were witnessing on AP24534 aka Ponatinib when ARIA was trading in the $1-2 range), we could see ARIA tack on an additional $1 billion market cap (in a similar matter as what P has done for the stock). Without P, IMO, ARIA is nothing more than a <$500 million market cap.

What I can see happening is a ramp going into ASH, possible gap higher at the conference, and then the stock settling in a range (sort like the chart in INCY) until '113 becomes the second part of the story.

Over time, this company does have the makings of an biotech animal. Rida, Pona, '113, and their equity interest in Bellicum (AP1903)(which isn't even looked at, at all, now, ....by anyone on the sellside).

As I have said here before, the biggest reluctance I have in holding biotech stocks AFTER the data is out, approval etc., is that they become a revenue story which can really pop a bubble quick (see DNDN and HGSI). Then again, there are exceptions.

Another thing that concerns me is there are a LOT of whackos invested in ARIA right now who literally have no clue what they are talking about. To be honest, that was a big factor in my decision to sell my position over the summer---a position I had for a few years.

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Everything right now is really driven by macro events, and this will depend on if things get really driven higher (or lower) in the next 6 months. A big beta trade could be on, or off. It's tough to say, and it depends on two things: our imbeciles in congress who can't even agree on a budget deal, and 2. the other imbeciles on the other side of the ocean. If, by chance, those two things go away and something positive happens on both of them, the market is going to go higher because our markets are the strongest globally at this point. You can see it, clear as day: when Europe is NOT on the minds of traders the market goes higher----every single day. When the EZ becomes a problem, the market goes lower...ergo, take out EZ problems, we go higher.

[DewDiligence]

Further to the short thesis for ARIA:

The instances of pumping by ARIA executives continue to expand. We saw in #msg-68259377 how management hyped the fact that the Ponatanib NDA was “already being written,” notwithstanding the fact that all drug/biotech companies prepare certain modules of an NDA well in advance of the actual submission.

Now, we have the tautological tout in #msg-69013537 that “no patient failed” in the PACE trial if they were a complete responder.

While the kind of behavior cited above is far from probative, in my experience it does have a mild negative correlation with ultimate success.