Ariad and Merck Face Tough FDA Review of Sarcoma Pill

3/20/12Follow @arleneweintraub

[Updated 3/20/12, 4:30 p.m. See below.] On Friday, investigators at the FDA released a report raising a serious question about a sarcoma drug co-developed by Merck and Ariad Pharmaceuticals that’s now up for approval: Does its modest effect on tumors justify its potentially toxic side effects? This afternoon an advisory panel to the FDA will meet to discuss that quandary and vote on whether the drug, called ridaforolimus (Taltorvic), should be approved on or before its scheduled verdict date of June 5. The agency doesn’t have to follow the advice of its advisory panels, but it usually does.

Ridaforolimus would be Ariad’s (NASDAQ: ARIA) first approved drug, and investors are clearly antsy: Shares of the Cambridge, MA-based biotech fell about 4 percent on Friday to $14.75 before recovering to $15.23. Shares of Whitehouse Station, NJ-based Merck (NYSE: MRK), which has plenty of other products to cushion the blow of a disappointment, were largely unchanged at a trading price of about $38.

Prior to Friday, Ariad’s stock had been on a tear, rising from $6 to nearly $16 in the last year, partly on hopes for ridaforolimus, a pill that the company has been developing with Merck under a 2007 deal that has generated nearly $200 million in up-front and milestone payments to Ariad. Last January, the companies said the drug increased “progression free survival”—meaning it kept tumor growth in check—for a median period of 17.7 weeks, vs. 14.6 weeks for patients on placebo. The FDA calculated the numbers a bit differently, figuring the drug kept the sarcoma under control for 16.1 weeks, vs. 14 weeks for the placebo arm.

No matter how you slice the numbers, its fair to say the drug offers only a modest effect on the prognosis for patients: Overall survival in the pivotal trial was 20.8 months in the ridaforolimus arm of the study and 19.6 months in the placebo arm, the FDA says in the briefing document. Take into account the risk of serious side effects—which included lung infections and kidney failure in some study patients—and the FDA’s hesitance becomes more clear.

What would a worst-case scenario look like for Ariad? To get a sense of that, you need to look at the market opportunity for ridaforolimus. Sarcoma is a cancer of the connective tissues in the body. Merck and Ariad are applying for FDA approval of the drug to treat metastatic soft-tissue sarcoma or bone sarcoma in patients who have already been treated with chemotherapy. An estimated 11,000 patients in the U.S. were diagnosed with soft-tissue sarcoma and 3,000 with bone sarcoma in 2011, according to the National Cancer Institute. Because of the relatively rare nature of this cancer, ridaforolimus was granted orphan status, which gives Ariad and Merck seven years of market exclusivity if the drug is approved.

Ariad is set to receive tiered, double-digit royalties on ridaforolimus from Merck, which is funding 100 percent of the development, manufacturing, and marketing of the drug. Howard Liang, an analyst for Leerink Swann, estimated in a February 29 report that if the drug is approved in this summer, it will bring in about $26 million in global sales this year, and Ariad will get $4.7 million of that. By the end of 2016, he projects, the drug could be bringing in $320.7 million in annual sales—of which Ariad would receive $60 million.

Even if ridaforolimus is approved, Wall Street will be banking on Ariad’s follow-up drug, ponatinib, to drive its sales and profits into big-biotech territory. Ariad is developing ponatinib to treat some patients with chronic myeloid leukemia and acute lymphoblastic leukemia—and so far the company has retained 100 percent of the rights to the drug. Ponatinib is currently in late-stage trials. Liang predicts it could be on the market in 2013 and generating more than $800 million in annual sales for Ariad by the end of 2016. He expects the company, which has been laboring to build its cancer pipeline since 1991, will turn its first profit in mid-2015.

For now, though, all eyes are on ridaforolimus. The FDA’s discussion of the drug is slated to begin at 1 today. (Information on accessing the webcast is here.) No doubt a thumbs-up from the FDA on ridaforolimus would reassure investors that Ariad is on the right path.

[Paragraph added to provide results of FDA advisory panel vote.] After a tense afternoon discussion, during which advisory panel members questioned whether it would be wise to recommend ridaforolimus to patients in light of the study’s unconvincing results, the panel voted 13-1 against approving it. Ariad’s stock dropped 2 percent to $14.74 in after-hours trading, while Merck’s stock was down 3 cents (less than a percent) to $37.73.

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