Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) blew the doors off its price the last two days. The small-cap biotech is up more than 10% thanks in part to an upgrade from Chardan Capital Markets.
Analyst Ling Wang upped ARIA to a "Buy" from a "Neutral" recommendation and increased her price target to $9 – potential upside of 27.12% as of this keystroke.
She says, "Last Friday, ARIA announced that the FDA approved the revised label for Iclusig, which is now indicated for the treatment of adult patients with either T315I mutation or chronic phase, accelerated phase, or blast phase CML or Ph+ ALL patients for whom no other tyrosine-kinase inhibitor therapy is indicated. The starting dose of Iclusig remains at 45 mg/day. Management indicated eligible patients number to be ~1,300 vs. decreasing from prior estimate of 2,500, and expect the U.S. commercialization of Iclusig to be cash flow positive from the onset."
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Wang tells clients the updated label means a narrower reach and sees Iclusig "as a preferred second line therapy for patients with T315I mutation." As a result, the analyst believes Iclusig will "reach sales of ~$220MM and $240MM by 2019."
Before we move forward, let's unwind some of the alphabet soup:
CML = Chronic Myeloid Leukemia (CML), which is a cancer of the white blood cells. It is a form of leukemia characterized by the increased and unregulated growth of predominantly myeloid cells in the bone marrow and the accumulation of these cells in the blood.
PH+ stands for Philadelphia chromosome or Philadelphia translocation, which is a specific chromosomal abnormality that is associated with CML.
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T315I is a mutation that is resistance to all approved Bcr-Abl inhibitors, which is usually the first line of therapy for patients with CML.
CML has three phases, from least worse chronic phase (abnormal white blood cells make up less than 15% of total), accelerated phase (abnormal white blood cells >15 and <30% of total), or blast phase (>30%).
iStock doesn't know about you, but we always hated the industry jargon minus the explanations when reading research reports. We hope our attempt to define Iclusig's intended treatment helps.
As it stands now, ARIA generated $37.2 million in revenue for the nine months ended
September 30, 2013. That's up from $484,000 for the same timeframe in 2012. Meanwhile, Ariad trades with a market-cap (shares outstanding X current price) of $1.3 billion.
Not including any future approvals, ARIA would have to trade at 7.73 times Wang's high-end 2019 Iclusig's revenue estimate of $240 million to hit $10. That might sound high, but it is not that crazy as the average pharma/biotech trades with a price-to-sales-ratio of 15.49. At that level, the current Iclusig approval would be worth $17.77 to $19.39 with Chardan Capital Markets' 2019 revenue range.
According to Ariad's website, Iclusig is in Phase II studies for seven other applications/treatments. Additionally, the company has AP26113 in Phase II for non-small cell lung cancer (NSCLC).
Overall: Wall Street's reaction to Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) Iclusig's labeling news is a reflection of the potential ARIA shares offer; however, it could be a bumpy ride as – like with many emerging biotechs – shares are richly priced; any hiccup, large or small, could send shares reeling.
In our view, Ariad Pharmaceuticals is appropriate for the type of investors who like to ride the wildest of Wall Street roller coasters.
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