Ariad Pharma Falls On Weak Leukemia Drug Prescriptions

CAMBRIDGE, Mass. ( TheStreet) -- Ariad Pharmaceuticals ( ARIA) has been hit with a wave of selling in the past two weeks tied to investor concerns about the commercial launch of the company's leukemia drug Iclusig. The selling has erased all the gains made in the Ariad since the beginning of the year.

For the past two weeks, Iclusig scripts have been soft, up 8% for the week ended March 8 and down 17% for the week ended March 15, according to IMS Health. Say what you will about the reliability and meaningfulness of a week's worth of prescription data, but Wall Street follows this stuff closely. A down week in scripts for a drug like Iclusig -- with high sales expectations already baked into Ariad's $3.4 billion market valuation -- raises alarm bells.

Ariad shares have closed in the red for eight straight trading days -- a streak that finally appears to be ending Wednesday. Still, Ariad is down 17% during this time period.

I spoke with a healthcare investor Wednesday who's short Ariad and believes the stock is still significantly over-valued because Iclusig's peak sales will never match current expectations. On average, analysts are projecting Iclusig sales to grow from $47 million in 2013 to $611million in 2016.

According to this fund manager's checks with doctors, Iclusig is being prescribed primarily for the small percentage of chronic myeloid leukemia (CML) patients no longer treatable with first generation ( Novartis' ( NVS) Gleevec) and second-generation (Novartis' Tasigna and Bristol-Myers Squibb's ( BMY) Sprycel) drugs. The small number of CML patients with the T315I mutation -- specifically targeted by Iclusig -- are also receiving the drug.

Ariad's efforts to position Iclusig as a first or second-line CML treatment -- necessary to capture enough market share to meet sales expectations -- are failing because of the drug's significant side effects, the fund manager believes.

"Iclusig is a dirty drug. Patients get all of the toxicities of the competing CML drugs without any meaningful improvement in efficacy," he said.

FDA approved Iclusig with a black box warning alerting doctors to watch for blood clots that have caused fatal heart attacks and strokes, and liver toxicity including reports of liver failure and death.

Ariad expects to complete enrollment by the end of the year in a study comparing Iclusig to Gleevec in first-line CML patients. The company believes positive results will help convince doctors to use Iclusig with newly diagnosed CML patients. Ariad shorts, including the aforementioned fund manager, believe this study will fail and may even be stopped early because Inclusig's safety and tolerability will be significantly worse than Gleevec.

On Wednesday, BMO Capital Markets analyst Jim Birchenough reiterated his outperform rating on Ariad and defended the company's outlook following a conversation with CEO Harvey Berger. Here's what Birchenough told his clients:

We had the opportunity to talk with Ariad's CEO Dr. Harvey Berger late yesterday to review recent concerns regarding IMS prescription data for ICLUSIG, breadth of proposed ICLUSIG labeling in the EU, and expectations for ALK/EGFR inhibitor AP26113 in NSCLC. Importantly, while the shares have been under pressure on this week's IMS TRX data, Dr. Berger highlighted good visibility on ICLUSIG daily data to the patient level, confidence in continued launch momentum, and breadth of ICLUSIG use across community and academic centers, by line of therapy and independent of mutation status. Dr. Berger acknowledged that the EU indication for 2nd -line ICLUSIG use after 2nd -generation TKI's was narrower than in the US, but highlighted 40% of front-line EU patients treated with 2nd -generation TKI's. Finally, with additional focus on ALK/EGFR inhibitor AP26113, Dr. Berger highlighted activity in brain metastases as key for favorable positioning in ALK+ patients where 50% of XALKORI failures have brain metastases, and importantly confidence in a similarly deliberate process of dose optimization to achieve blood levels that should consistently inhibit EGFR mutations in patients selected for proximal Tarceva failure in the phase 2 expansion study.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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