Why Ariad Pharmaceuticals, Inc. Stock Catapulted Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ariad Pharmaceuticals , a biopharmaceutical company focused on developing therapies to treat cancer, catapulted higher by as much as 13% after it was announced before the opening bell that AP26113 received the breakthrough therapy designation from the Food and Drug Administration.

Source: Ariad Pharmaceuticals.

So what: If you're scratching your head and wondering what AP26113 is,  that's because its study involving AP26113 is the only one of nine ongoing trials in Ariad's pipeline not tied to FDA-approved Iclusig. The approval from the FDA is in regard to AP26113 as a treatment for ALK-positive non-small cell lung cancer patients who are resistant to Xalkori. The FDA granted the breakthrough designation after phase 1/2 results demonstrated sustained anti-tumor activity in ALK+ non-small cell lung cancer patients. This designation could allow Ariad to bring its drug to market quicker since it may have the ability to submit its drug for approval utilizing earlier stage trial data. In addition to an expedited review process it can also save a lot in filing and trial costs, as well as put Ariad in closer contact with the FDA to ensure that AP26113's development stays on track.

Now what: This is really what investors needed: A positive news event beyond Iclusig. Though Iclusig has shown significant promise as a cancer-fighting agent, it also comes with the risk of an increase in vaso-occlusive events, likely limiting its usage to last-resort status in a number of indications (if it's eventually approved in those indications). Late-stage NSCLC, however, is an indication that is greatly in need of additional options, especially with a five-year survival rate of just 17% according to the American Cancer Society's statistics from 2002-2008.

Investors should be pleased with this indication from the FDA, but would be wise to not get too carried away. Ariad isn't expected to be profitable for many more years, and is liable to burn through $100 million-$200 million in cash each year in the meantime (it currently has $310 million in cash on hand). Eventually, in my opinion, Ariad is either going to need to sell shares to raise cash, which would be dilutive to existing shareholders, or it may consider licensing out AP26113 to boost its cash balance. Either way, we're in about the second inning of a nine-inning game with AP26113, so patience is likely going to be rewarded.

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The article Why Ariad Pharmaceuticals, Inc. Stock Catapulted Higher originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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