ARIA: Over-reaction to FDA Announcement

Ariad Pharmaceuticals Inc. (NASDAQ: ARIA) took a beating last Friday (Dec 14, 2012) after FDA approved Iclusig (formerly known as Ponatinib). The FDA approval came with a precautionary warning causing the massive selloff – shares fell more than 20% with heavy trading volume (20.67MM) to end the day at $18.93.

Iclusig is an oral drug candidate for the treatment of chronic myeloid leukemia (CML) and acute lymphoblastic leukemia (ALL) – both are rare blood cancers. Theoretically, the early FDA decision should have been great news for Ariad. However, the FDA approval required inclusion of warning labels for side effects pertaining to liver toxicity and blood clots. Investors reacted to Iclusig’s side effects.

Ariad has an Underperform rating based on Market IQ’s proprietary Fundamental and Sentiment metrics. The company has poor Financial Strength, and Quality numbers are worse than 90% of the companies within the peer group. However, Ariad is relatively less risky compared to it’s peers, as illustrated in the Quality, Value, Risk chart below. 

We expect to see some volatility in the short term. Social Velocity was recorded at 6.25X, indicating higher than usual social buzz for Ariad. Additionally, the stock is currently trading close to its Daily 200 period Moving Average ($19). Hence, further down movements in the short term are less imminent. Further, Citigroup reaffirmed its price target on Ariad at $31 which could possibly act as a catalyst for a short term bounce in price.

We expect some short term profit-taking opportunities with Ariad. But, for the long term prefer to hold 3SBio (SSRX) or Emergent Biosolutions (EBS) over Ariad. 

Commentary by:
Fahad Kamr, CFA
Adil Yousuf

This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.