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Ariad Pharmaceuticals, Inc. (ARIA), Pfizer Inc. (PFE), Novartis AG (ADR) (NVS): Does This Orphan Leukemia Treatment Have Blockbuster Potential?

When most biotech investors think of cancer treatments, they tend to think of large established players like Roche and Amgen. However, more speculative investors who have an appetite for risk often favor smaller plays in the sector, such as budding orphan drug makers that produce effective treatments at premium prices. One such company on the move is Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), which has risen nearly 18% over the past month.

Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA)

Treating two rare types of leukemia with a single treatment
Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) only has one approved drug, Iclusig, on the market. Iclusig treats adults with chronic-phase, accelerated-phase, or blast-phase chronic myeloid leukemia, or CML, that is resistant to tyrosine kinase inhibitor therapy. It also treats TKI-therapy-resistant Philadelphia chromosome-positive acute lymphoblastic leukemia. Both types of leukemia are extremely rare, with only 5,000 new cases of CML reported annually in the United States.

However, CML is well understood compared with other cancers. Therefore, Iclusig was the third CML treatment approved last year, following the approvals of Pfizer Inc. (NYSE:PFE)‘s Bosulif and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)‘s Synribo. Due to the rarity of the cancers it treats, Iclusig is expensive and costs $115,000 per year for a once-a-day dose, approximately 15% more than Bosulif and Synribo.

Focusing on a drug-resistant orphan market
Tyrosine kinase inhibitors like Novartis AG (ADR) (NYSE:NVS)‘ Gleevec — which also include Bristol-Myers Squibb‘s Sprycel and Novartis AG (ADR) (NYSE:NVS)’ Tasigna — are the most common treatments for CML. Bosulif is forecast to generate $341 million in annual sales by 2016, according to analysts surveyed by Thomson Reuters.

Meanwhile, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s Synribo competes with Iclusig since it also treats cases where two or more traditional tyrosine kinase inhibitor treatments have failed. Iclusig is a multi-targeted tyrosine kinase inhibitor, whereas Synribo is a protein translation inhibitor.

Therefore, treatments like Synribo and Iclusig are focusing on capturing a small slice of an already narrow patient group. CML treatments like Gleevec, Bosiluf, Synribo, and Iclusig are all designated as orphan drugs by the FDA, due to the rarity of the disease.

Solid second-quarter earnings
Last quarter, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) reported $13.9 million in revenue, a huge jump from the $320,000 it reported in the prior year quarter, which was wholly attributed to the FDA approval of Iclusig last December. The company’s top line growth surpassed the analyst estimates of $11 million. However, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) is still unprofitable, reporting a second-quarter loss of $0.37 per share, down from a loss of $0.31 per share but topping the consensus estimate by $0.03.

At the end of the quarter, more than 610 patients in the United States were taking Iclusig. Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) has the stated goal of treating 1,000 to 1,100 patients by the end of the year. That lofty goal could cause revenue to nearly double — a prospect that has fueled the stock’s recent rally. Expectations for Iclusig are high, with Credit Suisse analyst Jason Kantor expecting annual Iclusig sales to hit $1.44 billion by 2023. Other positive catalysts for the company include a European approval in July and testing of Iclusig on other forms of cancer.

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