Ariad Pharma: Dismantling The Short Thesis

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CAMBRIDGE, Mass. (TheStreet) -- Last week, Adam Feuerstein explained the Ariad Pharmaceuticals (ARIA) bear thesis. I appreciate a bear thesis when I'm long a stock as it highlights the risks of the investment (and every investment has risks.) While short sellers make some legitimate points about Ariad, I remain undeterred. Here's what I find unconvincing about the short's take on Ariad:

Changes to EPIC exclusion criteria mean Iclusig's heart risk is real.

This is wrong on two levels. First, if there was a chronic myeloid leukemia (CML) patient who had a history of heart disease, took Iclusig and reported a cardiac adverse event, was the cause the underlying condition or Iclusig? This is a trick question because you cannot know either way. How can the cardiovascular risk of Iclusig be scientifically quantified? Ideally, you want patients with limited cardiovascular risk because you can then more easily attribute heart-related adverse events to the drug. Ariad's decision to exclude patients with pre-existing heart conditions from the EPIC study does not mean Iclusig's heart risk is real or illusory. There is a black box warning on Iclusig already and it makes sense to fully and completely define the safety risk. Obviously, the trial could still show a significant cardiovascualr risk but the exclusion criteria defined in the EPIC trial are most likely related to hypothesis testing.

Second, Iclusig is not the only front line phase III trial to have a large amount of exclusion criteria related to pre-existing cardiovascular issues. Bristol-Myers Squibb's (BMY) Sprycel has some blanket statements excluding anyone with uncontrolled cardiovascular disease or bleeding disorder. Novartis' (NVS) Tasigna also excludes patients with cardiovascular and bleeding disorders. Pfizer's (PFE) Bosulif actually has very few exclusion criteria but it seems to be the exception to the rule. Again, the point is not that this means Iclusig is a clean drug but that the bear thesis centered around the exclusion criteria is questionable because the EPIC cardiovascular exclusion criteria do not seem significantly different than the other CML drugs. The testing of the Iclusig 30 mg dose in the MD Anderson "Cortes" study means the 45 mg dose was too toxic. Most of the drugs used to treat CML are administered at doses lower than what was studied in phase III trials. Iclusig is once again not unique. Studying lower doses of Sprycel, Tasigna or Gleevec doesn't mean these drugs are dirty, just like looking at a lower dose of Iclusig in the Cortes study doesn't mean Ariad's drug is dirty. The 30 mg dose in the Cortes study was planned and is simply meant to test a dose that is closer to actual clinical practice. It has nothing to do with the 45 mg dose being too toxic. The average dose of Iclusig in the pivotal PACE trial was 32 mg. The EPIC trial is a ticking time bomb that can be stopped at anytime because of a safety issue. This is simply speculation and is not rooted in evidence. The trial has completed a number of data safety monitoring board reviews with no issue. The PACE trial was not halted for safety issues nor has any other Iclusig trial. If there was a massive imbalance in adverse events, you would expect to have seen it in clinical practice and show up in the adverse event reporting system (AERS). Last April, a JMP Securities analyst analyzed the FDA adverse-event reporting database and found reports of cardiovascular adverse events in only three Iclusig patients. In each case, the patients had pre-existing heart-safety risk factors. If Iclusig is a ticking time bomb waiting to trigger massive heart safety problems, why are we not seeing evidence of this in previous clinical trials or in the daily use of the drug by doctors treating CML patients? Iclusig sales are flattening. This is the most reasonable element of the Ariad bear thesis, although Iclusig sales are still tracking 40% higher than Tasigna's launch. I have previously discussed the potential of slowing sales and what it means. Iclusig could be approaching peak saturation of CML patients with the T315 mutation, which is therefore slowing new prescriptions. Also, many of the early CML patients on Iclusig were sicker, meaning they would have shorter treatment duration. This should change as Iclusig makes progress into earlier lines of CML therapy. The next leg of real growth for Iclusig is into second-line treatment but uptake will be slower than what we observed with the T315 patients. Data from the Cortes study and the interim analysis of the EPIC study next year will be key to the rate of adoption in the second and first line. In general, the Ariad bull/bear debate revolves around the adverse event profile of Iclusig. The data will be the ultimate arbiter. That being said, the evidence bears rally to support their claim is not compelling. The Iclusig study exclusion criteria are similar to other CML drugs in their front-line trials. The lower dose in the Cortes study is a common practice. Finally, there has been no evidence from Iclusig's commercial launch that adverse events are a significant issue despite repeated claims to the contrary. Sobek is long Ariad.