A View on Ariad Pharma's Bloated Valuation

Ariad Pharmaceuticals ( 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) 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.

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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