Ariad Could be Summer’s Breakout Biotech

tdp2664
InvestorPlace
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.