Ultimately, new Iclusig prescriptions must reverse the downward trend for total prescription growth to continue. If prescriptions number don't pick up within the next couple of weeks, some analysts may start lowering their Iclusig sales estimates.

Over the medium term, Ariad's stock performance will be driven less by Iclusig sales and more by the results from the phase III "EPIC" study comparing Iclusig to Novartis' Gleevec in newly diagnosed chronic myeloid leukemia (CML) patients.

Iclusig is expected to demonstrate a statistically significant benefit over Gleevec, but by how much? A clear win for Ariad would be a major molecular response (MMR) for Iclusig exceeding 50 percent. That would demonstrate clear superiority over Gleevec and Tasigna and be on par with Sprycel.

The magnitude of the benefit matters because a generic version of Gleevec will be launched soon. Generic Gleevec is the most important long-term worry for Ariad. Despite having a clear MMR benefit and competing against brand-name Gleevec, Sprycel still only has about a 20 percent share of new CML prescriptions. (Gleevec has about 55 percent.) What happens to these market shares when a cheaper Gleevec is on the market?

Obviously, It is still an unknown how the launch of a generic Gleevec would affect sales of Iclusig and competing drugs. Will insurance companies be willing to reimburse for branded drugs when a significantly cheaper and effective generic drug is available? In other words, will generic Gleevec retain significant first-line use as the more expensive branded drugs are held in reserve for when CML patients progress?

This last question will be the ultimate arbiter of the long-term success of Iclusig and Ariad. Unfortunately, this issue is unlikely to be resolved anytime soon. Despite the prospects of a long and winding road, Ariad offers a nice risk/reward for bulls, with the understanding that it will take years for the long-term thesis to completely develop.

Sobek is long Ariad.
David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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