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The Drive Behind Ariad Pharmaceuticals' (ARIA) Partial Recovery

CAMBRIDGE, Mass. (TheStreet) -- Ariad Pharmaceuticals (ARIA) is making a slow recovery from its 86% loss in value over the past month. Shares are up 0.6% to $2.60 by early afternoon, adding to Friday's 17.3% gain.

In response to plummeting market value, the drug company adopted a shareholder rights plan in order to preserve its tax assets. The poison pill is designed to protect Ariad's net operating loss carry-forwards of $307.7 million and research tax credits of $17.8 million, both substantial assets on the company's balance sheet as of Dec. 31, 2012.

"Ariad's ability to use these tax assets and others which may be generated would be substantially limited in the event of an ownership change," the company said in a statement. "The shareholder rights plan is intended to reduce the likelihood of an unintended ownership change occurring through the buying of Ariad common stock."

The plan will be put to a shareholder vote at the company's 2014 Annual Meeting. The rights issued in the plan will expire on Oct. 31 2014 if not approved beforehand.

Shares of Ariad sank on Thursday after the company suspended U.S. marketing of its leukemia drug Iclusig. In a statement, Ariad said the Iclusig marketing halt was a temporary measure while it "continues to negotiate updates to the U.S. prescribing information." The move comes after the U.S. Food and Drug Administration raised concerns about blood clots and other side effects reported by Iclusig-treated leukemia patients.

Earlier in the month, further trials of Iclusig revealed higher prevalence of side effects in patients, causing shares to plummet. Sales of the drug, Ariad's sole approved product, generated $13.9 million in revenue for the second quarter 2013.

TheStreet Ratings team rates Ariad Pharmaceuticals Inc as a Sell with a ratings score of D-. The team has this to say about their recommendation:

"We rate Ariad Pharmaceuticals Inc (ARIA) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Ariad Pharmaceuticals Inc's earnings per share declined by 19.4% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, Ariad Pharmaceuticals Inc reported poor results of -$1.34 a share vs. -93 cents a share in the prior year. For the next year, the market is expecting a contraction of 20.9% in earnings (-$1.62 vs. -$1.34).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 34.4% when compared to the same quarter one year ago, falling from -$51.31 million to -$68.99 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Biotechnology industry and the overall market, Ariad Pharmaceuticals Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to -$45.69 million or 21.53% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Looking at the price performance of ARIA's shares over the past 12 months, there is not much good news to report: the stock is down 89.80%, and it has underperformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

Stock quotes in this article: ARIA 

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