At the end of September, Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) went for a little over $14 a share. The company is currently on offer for less than $10 a share – a close to 25% discount. The decline comes on the back of Democratic Senator Bernie Sanders putting out – of all things – a Tweet pointing out the company’s pricing structure for its lead (and only commercially available) asset – Iclusig.
We saw something similar impact the wider biotech space last year, albeit to a much higher degree, with Hilary Clinton’s Tweet concerning price gouging. This time around, Sanders has focused solely on Ariad, and we think he couldn’t have picked a more inappropriate, or undeserving, target. In turn, we think the company will quickly recover, and further, if the company is forced in to a congressional hearing and gets a chance to defend itself, there’s a large potential upside medium term.
Here’s our thesis.
The Orphan Drug program, under which Ariad operates, is designed to bring life saving medication to individuals with no options. This isn’t the crux of it, however. There’s a reason these patients have no options, and it’s that in today’s shareholder (and in turn, results) driven pharmaceutical space, there’s no incentive for companies to develop a drug that costs billions to bring to market, yet only has a tiny patient population. Without Orphan Designation, this sort of thing simply wouldn’t happen. And Ariad, in our opinion, is one of the best – if not the best – example of a company operating under an Orphan framework.
For those not familiar with the company, it’s got one approved drug, the above mentioned Iclusig, targeting a very rare form of leukemia. It’s got another near approval, Brigatinib, targeting ALK resistant lung cancer. Without these drugs, the patients in question will die. Ariad has spent billions in development dollars to bring an option to market for these patients, and is set to spend billions more on pipeline maturation. Last year, the company spent more than 140% of revenue on R&D. It’s never turned a profit, and won’t, near term, because of both the above mentioned R&D spend and – and here’s the kicker – its access programs that are in place to ensure patients that need Iclusig get it, economic viability aside, at a loss to the company.
For a tiny portion, of the already tiny patient population for Iclusig, the drug will cost the price points referenced by Sanders. Even for these patients, however, insurance companies will bear the brunt of the payment, and Ariad has programs in place to limit the patient outlay. It’s PASS program limits copay to $10 monthly for eligible patients, up to a maximum of $8000 per 30-day prescription and up to a maximum total of $24,000 per calendar year. Its Patient Assistance Program provides free medication for up to 1 year for eligible patients without insurance. Its Quickstart PASS program provides access to Iclusig if there is a reimbursement delay. A one-time, 30-day supply is given to patients to ensure that they can start their medication free of cost. Its Assurance PASS program ensures that patients who start their treatment are able to continue treatment for up to 90 days, even if there is a temporary lapse in their insurance coverage status.
If the company gets in front of Congress and has the opportunity to explain this to what will undoubtedly be a media waiting with baited breath for an explanation, it could be one of the best marketing opportunities the company has ever had. Even without a hearing, we are going to see mainstream media scrutinize the company near term, and assuming objective representation (although this seems unlikely given the state of US reporting) the company will be able to go above and beyond defending itself, and should be able to turn the scrutiny into an opportunity to attract support, both financially and politically.
The bottom line here is that Sanders couldn’t have chosen a less accurate representation of what he is trying to illustrate than Ariad. In a space that does require an overhaul in pricing policy, Ariad is something of a shining example of how to do things right. Yes, its drug is expensive. Yes, it would be nice for everyone if it was cheaper, or even better, free. If it was, however, it wouldn’t exist. Until the US government starts to directly subsidize the development of these sorts of drugs (and not just through programs like Orphan, but by literally handing over cash to cover research and development expenses) its representatives have no place hijacking companies like Ariad to better their personal political agendas. It’s only a matter of time before markets switch on to this fact, and Ariad reverses as sentiment shifts.
Subscribe below and we will bring you more of these sorts of contrarian plays going forward!
Disclosure: We have no position in ARIA and have not been compensated for this article.