See Update from Friday Morning: ARIAD UPDATE
1. Ariad Pharmaceuticals (owned Lottery Ticket): One reason, among many, that I never invest much money in these small biotech companies is their frequently inexplicable price action. Ariad doubled in price from last Friday's close to its intra-day high on Tuesday. Based on the after hours action tonight, with the stock almost giving up all of this week's gains, it appears that some investors did not like what they heard on the conference call this afternoon. I can only state my point of view, recognizing as usual no expertise whatsoever in this field.
I do not believe the fall after hours has anything to do with the amount of the losses or the revenue. Those issues are not relevant to the current pricing of a small biotech with all of its products still in development. The cash burn rate, while too high, was probably something generally known to investors. The company ended the quarter with 39.5 million in cash after receiving a 22.5 million dollar milestone payment from Merck tied to the start of two clinical trials. Most of the second quarter report dealt with how Ariad hoped to fund its operations for the remaining part of 2009 and in 2010.
If there was something both negative and new, it was the announcement that Merck did not want to proceed with a Phase 3 trial of ridaforolimus in combination with trastuzumab (Herceptin) in patients with metastatic breast cancer, "based on Merck's evaluation of the expected future market environment". That explanation sounded like a bunch of crap to me. Part of the news that drove the stock up on Tuesday, the day before I bought 100 shares, was the news about early stage clinical results on this very subject matter, the combination of ridaforolimus with trastuzumab for the treatment of metastatic breast cancer. Reuters So, a mere two days after releasing this news, ARIA and Merck say forget about that potential use of this key ARIAD drug, because of some garbage about Merck's evaluation of the market, whatever that means. The only legal question is whether Ariad knew or should have known of Merck's reaction when issuing a press release which omitted this extremely material information. Possibly, some of the sellers on Tuesday that drove the price back down from its highs had inside material information. Maybe I am missing something, but I am not pleased with this chain of events. If I do comprehend the events this week correctly, then I will never pay any attention to anything said by Ariad's management again. No matter, I still can not find anything about Merck's decision in this Ariad release from Tuesday: ARIAD
The most important trial is the ongoing Phase 3 trial of ridaforolimus for the treatment of Sarcoma. Here is what Ariad said about that pivotal trial: Ariad "believes that there is a reasonable possibility that the available clinical data at the time of the second interim analysis of efficacy by the independent Data Safety Monitoring Board would be sufficient to demonstrate a statistically significant difference in the primary endpoint of the trial, progression-free survival, when comparing the ridaforolimus and placebo treated patients." So, that was barely a reassuring statement. If that possibility comes to fruition, then Ariad hopes to submit an NDA to the FDA in mid 2010 and then would anticipate FDA approval, hopefully, in late 2010 or 2011. The company expects an interim report on efficacy from the independent monitoring board in September. So that is the key. It was the key a week ago and it remains so now.
I do not want to devote too much time to this lottery ticket investment. I will read the earnings transcript, if seekingalpha prepares one, and the Barclays report on these most recent events,which I would expect to be out soon. I am not about to listen to an hour conference call. I will briefly comment on any new matter gained from reading those documents, including any information on when Ariad learned about Merck's decision on the combo trial with herceptin for breast cancer. I really do hope that I have just failed to understand what really happened, and there is an innocent and honest explanation.
2. Bonuses For Losing Money: After reading Ariad's report, which put me in a foul mood, I then read about Cuomo's disclosure about how the Masters of Disaster paid themselves billions even though their firms lost money. The NYTimes reported this evening that 4793 bankers received more than a million dollars in bonuses last year as their employers accepted billions of dollars from the government. Some of those firms lost money, or paid out more in bonuses than the firm earned.
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