This from Rachel McMinn and Merrill Lynch yesterday. A price objective change. She went from 16 to 17. Stayed neutral.
ARIA continues to execute on its objectives
ARIA reported 1Q12 results and provided a comprehensive overview of its
development pipeline that is consistent with our expectations, and show continued
execution: (1) updated results from the PACE Phase 2 study for lead drug
ponatinib (PON) for last line CML will be presented at the June ASCO meeting,
with limited new information in the abstract available next week (2) ARIA remains
on track to file for approval of PON in 3Q12 in both the US and EU; ARIA remains
committed to launch PON globally on its own and is continuing to build
infrastructure (3) PON Phase 3 for newly diagnosed CML remains on track to start
3Q12 (4) ALK/EGFR inhibitor ‘113 is progressing through the dose escalation
Phase 1 trial, now in a fourth cohort of 120 mg, and ARIA continues to expect the
Phase 2 portion of the study to start mid-year following dose selection (5) initial
data from the ‘113 study is planned for the ESMO meeting this fall, and ARIA
plans to present as much data available from the Phase 1/2 study at that time.
Minor model changes, our focus is ALK landscape
Operating expenses were consistent with our model, although we had
overestimated the share count slightly which drove the variance in EPS vs our
estimate. We believe that the stock is keyed to updates on the ALK inhibitor
program. Competitor data will become available at ASCO this year (Chugai and
Novartis), both at the same early stage of development as ARIA. This meeting
and ESMO will provide the first look at second generation ALK inhibitors. We
have increased our PO from $16 to $17, based on a slightly increased probability
of success from 15% to 25% for ‘113 based on the program continuing to
progress.
Price objective basis & risk
Ariad Pharmaceuticals, Inc. (ARIA)
Our $17 PO is based on a risk-adjusted sum-of-parts DCF analysis that includes
$16/share for ponatinib, $3/share for 113 and $2/share for cash, which is further
adjusted for 18% dilution. We use the following assumptions in our DCF: 1)
WACC of 11%, 2) peak PON global sales of $442M in 2016, 3) sales out to 2030
and no terminal value, and 4) 18% dilution from outstanding warrants, dilutive
options and potential future equity financing. We see potential upside to our
valuation from: 1) pipeline expansion, and 2) partnership for ponatinib in EU and /
or Asia. Downside risks to valuation are: 1) disappointing results in the PACE
study that could put accelerated approval at risk, 2) execution risks following the
ponatinib launch in the resistant/intolerant settings, 3) data disappointments for
ongoing/anticipated ponatinib trials, and 4) unexpected clinical strategy
requirements for future ponatinib trials |
