Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) announced that it will receive $100 million in cash – $50 million upon deal execution late yesterday and an additional $50 million in one year – through a synthetic-royalty financing from PDL BioPharma, Inc. (NASDAQ:PDLI) in exchange for paying PDL a mid-single-digit royalty on future sales of Iclusig® (ponatinib) until PDL receives a fixed internal rate of return (IRR). ARIAD also has an option, in its discretion, to receive up to an additional $100 million at any time between 6 and 12 months from the date of the agreement, in one or two tranches on comparable terms.
ARIAD intends to use the base funds to conduct a front-line trial of brigatinib, its investigational ALK inhibitor, in patients with non-small cell lung cancer (NSCLC) and to support brigatinib commercial readiness, as well as to continue its ongoing Iclusig initiatives. ARIAD is on track to complete enrollment in the pivotal ALTA trial of brigatinib in third quarter 2015, to file for approval in the U.S. next year, and subject to regulatory approval, to launch brigatinib by early 2017. Brigatinib has Breakthrough Designation from the U.S. Food and Drug Administration.
“This financing allows us to accelerate initiation of the front-line trial of brigatinib and to ensure launch readiness as early as possible, while retaining strategic flexibility with respect to partnering and long-term commercialization of brigatinib,” said Harvey J. Berger, M.D., chairman and chief executive officer of ARIAD. “We are confident based on the latest clinical data on brigatinib and other ALK‐inhibitors, that brigatinib may be an important new cancer medicine for patients with ALK+ lung cancer. With the funding provided by this royalty transaction, we expect to start the front-line trial by early next year, ahead of our expected filing for initial marketing approval of brigatinib in patients with refractory ALK+ NSCLC.”
Dr. Berger added, “This synthetic-royalty financing allows us to access the needed capital at low cost without selling any equity and gives us the greatest flexibility in implementing our corporate strategy.”
Royalty Interest Financing Terms
Pursuant to the agreement, ARIAD will pay PDL 2.5% of global net revenues of Iclusig for the first year of the agreement, 5.0% after the first year through the end of 2018, and 6.5% from 2019 until PDL receives a specified very low double-digit IRR. The 6.5% royalty rate would increase to 7.5% if the Company draws down more than$150 million. In all cases, the royalty no longer is payable once PDL receives its predefined IRR.
ARIAD may also buy out the royalty at any time by making a payment to PDL that will, together with royalties paid, provide a specified return to PDL. Furthermore, if after five years from receiving each payment tranche, PDL has not received total payments that are at least equal to the total amounts it has paid to ARIAD, then ARIAD will be required to pay to PDL an amount equal to such a difference.
Upon the occurrence of specified events, such as a change of control of ARIAD, PDL has the right, but not the obligation, to terminate the agreement by requiring ARIAD to repurchase the revenue interests owed to PDL at a predefined price.
Houlihan Lokey acted as sole placement agent and financial advisor for this synthetic-royalty financing transaction.Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC represented ARIAD in this transaction. (Original Source)
Shares of Ariad Pharmaceuticals closed yesterday at $8.22. ARIA has a 1-year high of $9.89 and a 1-year low of $4.90. The stock’s 50-day moving average is $8.34 and its 200-day moving average is $8.18.
On the ratings front, Ariad has been the subject of a number of recent research reports. In a report issued on June 3, William Blair analyst Tim Lugo reiterated a Buy rating on ARIA, with a price target of $11, which represents a potential upside of 33.8% from where the stock is currently trading. Separately, on May 14, BMO’s Jim Birchenough reiterated a Buy rating on the stock and has a price target of $14.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Tim Lugo and Jim Birchenough have a total average return of 1.2% and 41.8% respectively. Lugo has a success rate of 47.2% and is ranked #2069 out of 3718 analysts, while Birchenough has a success rate of 67.2% and is ranked #10.
Overall, 2 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $10.50 which is 27.7% above where the stock closed yesterday.
ARIAD Pharmaceuticals Inc is an oncology company. The Company is engaged in transforming the lives of cancer patients with breakthrough medicines. It commercializes & develops products and product candidates including Iclusig, Brigatinib, and AP32788.