A View on Ariad Pharma's Bloated Valuation
(ARIA) reported $8 million net sales of the leukemia drug Iclusig in the first quarter. well short of the $10 million consensus estimate. If you want to be generous, give Ariad credit for the $1.3 million in deferred Iclusig revenue tied to inventory. Sales still came up short.
This is the first full quarter of Iclusig sales since Ariad re-launched the drug following last year's epic toxicity-driven implosion. Investor expectations were probably on the low end. Still, I fail to see any reason to believe Iclusig makes a full recovery. Doctors have relegated Iclusig to third and fourth-line therapy in CML patients, with a smattering of second-line thrown in. Even expansion into other cancer indications like GIST (where competition also exists( won't make up for the shortfall.
I'll take the under on the $86 million consensus sales estimate for Iclusig in 2014. It's only a matter of time before analysts cut their numbers. (Some analysts, like RBC's Michael Yee, are forecasting $100 million in Iclusig sales this year.) Analysts vastly over-estimated Iclusig peak revenue before the drug was yanked temporarily from the market. They haven't learned from their mistakes with the relaunch.
Ariad lost almost $50 million in the first quarter, too. A painful financing looms. Ariad will need to raise money.
Even at $86 million in 2014 Iclusig sales, Ariad trades at a lofty and unjustified 13 times enterprise value. For comparison's sake, Medivation's (MDVN - Get Report) EV/sales multiple is 9 -- and that's only counting U.S. sales of its growing prostate cancer drug Xtandi.
Medivation's future looks a lot brighter than Ariad's, yet trades at a discount? Something's wrong with that picture.