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Ariad Pharmaceuticals Inc (NASDAQ:ARIA): Ignore The Noise

Ariad Pharmaceuticals Inc (NASDAQ:ARIA): Ignore The Noise
Written by
Chris Sandburg
Published on
October 11, 2016
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Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) is taking some flack at the moment, with a lawsuit circling rooted the company's pricing policy on its chronic myeloid leukemia (CML), Iclusig.There's likely to be a bit of a fallout from a market capitalization perspective, and we think any pullback is a perfect opportunity to pick up a discounted exposure to the company's maturing pipeline. Specifically, there's one major upside catalyst slated for early next year that could not only inject some upside momentum into Ariad, but could also finally turn the company into a valid takeover target.First up, let's quickly address the litigation. It's come about on the back of a bit of a hit piece by Feuerstein over at The Street, which highlights the company's price boosts of the above mentioned Iclusig. There's no substance to the lawsuit, and we're not concerned about its implications. Ariad got its drug approved, then the FDA limited its potential market considerably, and the company has raised the price in an attempt to mitigate some of the impact of this market limiting. That's the long and short of it. Of course, it's not great that the price of a drug is rising, but we're not here to discuss the ethical side of the space. Many companies do the same thing, and why Feuerstein chose now, and why Ariad, is unclear.The situation will blow over, and for us, the deeper its short term impact, the better, as the cheaper our position becomes.So that's out of the way, let's get to catalysts. The drug we are focusing on is called Brigatinib, and it's an ALK+ non-small-cell lung cancer (NSCLC) target. The current lead in the space is a drug marketed by Pfizer Inc. (NYSE:PFE) called Xalkori, but this sort of treatment has a time factor attached to it. Basically, it can be effective for a while, but start to deteriorate in efficacy after a number of months.Ariad is attempting to get its candidate approved as a second line – basically, an option for patients who have taken Xalkori for a while and it either didn’t work, or has stopped working. The company just completed a rolling New Drug Application (NDA) submission for Brigatinib, which means the FDA should get to it at some point early next year, and it's essentially a shoo-in for approval. Efficacy from a phase II global trial (the one on which the NDA is based) demonstrated a progression free survival (PFS) of 12.9 months – vastly superior to the 6.9 months of the other players in the space.The initial market for the drug is a bit limited, based on the second line indication, but there's an ongoing trial (a global phase III) that looks set to support an application for a first line. With this first line approval in its pocket there's between $500 million and $1 billion on offer in peak sales. This phase III is set to close out in 2018.Our only real issue right now with Ariad is its long term debt, which clocked in at a little over $466 million at June 30. However, it's serviceable, and with the revenue stream expansion that should come with a Brigatinib approval, shouldn’t weigh too heavily on the company's balance sheet going forward.Cash on hand is a little over $273 million, and this will cover the marketing costs come approval, so there's no real financing risk near term.Let's bring this together. We've got a company that is picking up a bit of bad press, with some great near term catalysts and some strong assets in its pipeline. Regardless of what other outlets are saying, this is a nice opportunity for a contrarian entry, and the smart money is probably loading up on Ariad as we speak.Subscribe below and we will keep you updated as to how this thing plays out!Disclosure: We have no position in ARIA and have not been compensated for this article.

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