Ariad Could be Summer’s Breakout Biotech

Biotech stock Ariad Pharmaceuticals Inc.'s (NASDAQ: ARIA ) goal is to produce
breakthrough cancer medicines, and it is focusing first on aggressive cancers
where current therapies are inadequate. The biotech company has two potential
new drugs in clinical trials, and a third is expected to begin trials later this
year. These compounds target cell signaling, which management believes not only
makes them potentially very effective, but means they may end up being
treatments for multiple cancers. Ariad is an exciting story because its
compounds have broad, game-changing potential in treating cancer. I like that
the company is concentrating on patients most in need and cancers with few
treatment options, rather than going the easier route of developing "me-too"
drugs. That is how game changers are born. With the incidence of cancer likely
to increase significantly over the next two decades, companies that develop
breakthrough treatments have huge potential. We are still early in the game, but
Ariad has that kind of potential. The furthest along and most important of its
treatments is ridaforolimus (drugs in development have the worst names, don't
they?), and as you would expect, it's also the one investors are paying most
attention to. It works by blocking a protein (called mTOR), which, as Ariad
describes it, "creates a starvation-like effect in cancer cells by interfering
with growth, division, metabolism, and angiogenesis" (the growth of blood
vessels that feed the tumor). Merck Sees Big Opportunity in This Biotech Ariad
has partnered with pharmaceutical giant Merck & Co. (NYSE: MRK ) to help develop
ridaforolimus and bring it to market. Merck paid Ariad $75 million up front, and
then added two $53.5 million milestone payments at the start of Phase II and
Phase III trials. In addition, Merck paid half of the development costs. The
deal was reworked last year, giving Merck exclusive license to develop,
manufacture and commercialize ridaforolimus in oncology (excluding other
potential areas of treatment that may be discovered down the road). Merck now
funds all development, manufacturing and commercialization costs, and Ariad also
received $50 million up front and $19 million to retroactively cover costs from
January to April 2010. Ariad, of course, is eligible to receive future payments
as regulatory and sales milestones are met (up to $514 million), and the company
would also receive tiered double-digit royalties on eventual global sales of
ridaforolimus. You know Merck would only enter into a deal like this if they see
big potential, and so far, clinical trial results have indeed been encouraging.
Ariad received good news in January from a Phase III trial of ridaforolimus in
patients with metastatic soft-tissue and bone sarcomas (a type of cancer that
develops in certain tissues like bone or muscle). Data showed the trial met its
primary endpoint on progression-free survival (PFS), with a 28% reduction in
risk of the cancer's progression compared with placebo.