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Ariad (ARIA) Could Be Potential Takeover Candidate For Pharma Giants

 February 16, 2012 03:17 PM

Biopharma company Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) could be a potential acquisition candidate as its strong oncology pipeline is attractive to several pharma giants.

Ariad's product pipeline includes Ponatinib, a pan BCR-ABL inhibitor in phase 2 clinical trial for applications in various hematological cancers and solid tumors; and AP26113, an anaplastic lymphoma kinase (ALK) inhibitor in preclinical studies for the treatment of various cancers.

RBC Capital Markets estimate Ponatinib is a potential $700-million franchise with a long-term opportunity to grow globally into earlier stages of use, which offers an attractive multi-year upside growth opportunity for Ariad.

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In addition, the company's AP26113 is said to have more potential than Ponatinib and could drive further stock upside as it is expected to generate revenues in the range of $500 million to $1 billion.

"When we are asked which mid-cap companies could one day grow up to become the next "large cap" biotech, the profile of Ariad often comes to mind," RBC Capital Markets analyst Michael Yee wrote in a note to clients.

Though Incyte Corp. (NASDAQ:INCY), Seattle Genetics (NASDAQ:SGEN), and Pharmacyclics Inc. (NASDAQ:PCYC) are similar mid-cap cancer peers, Yee thinks Ariad is a more likely takeout.

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The noticeable difference is that Incyte and Pharmacyclics are partnered and thus already more "encumbered" with an existing partner on high-value drugs. Meanwhile, Seattle Genetics has attractive drugs pipeline with more modest market potential.

In contrast, Ariad is a traditional small-molecule structure-based cancer company with potential $1 billion drugs and no worldwide sales force or real global infrastructure just yet. 

Thus, it has more synergy with traditional cancer companies like Celgene Corp. (NASDAQ:CELG), Amgen, Inc. (NASDAQ:AMGN), Eli Lilly & Co. (NYSE:LLY), Merck & Co., Inc. (NYSE:MRK), Johnson & Johnson (NYSE:JNJ).

Ariad is also attractive to European and Japanese pharma majors such as Astellas and Takeda, which are building out their oncology franchises and remain highly acquisitive.

The situation was similar when Abraxis, OSI, Cougar, ImClone, Millennium, were acquired. The potential acquirers may try to strike a deal before the stock becomes too expensive. Shares of Ariad have already surged 139 percent in the last one year. Shares of the company have soared from about $6 to $16 and market capitalization surpassed $2 billion in last one year. They ended Wednesday's regular trading session at $15.05. Yee has a price target of $20.

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