Cash worries we raised about Ariad now look even worse (ARIA, MRK)
The cash situation we were worried about at Ariad Pharmaceuticals Inc. (Nasdaq: ARIA) looks even worse after its second-quarter earnings report.
Earlier this week, we raised concerns about the cash burn at Ariad that threatened to derail the optimism for early-stage candidates that were igniting a rally in the stock. We warned about the potential of a secondary stock offering, and how that might hurt the stock price.
Now, partner Merck & Co. (NYSE: MRK) does not want to proceed with a Phase III trial of Ariad’s lead candidate in combination with Herceptin in breast cancer patients. As a result, a $27 million milestone payment expected from Merck in the first half of 2010 likely will be delayed, making an already tight cash situation significantly tighter.
The company used up about $19 million in operating activities in the second quarter, more than the $11.7 million average it used in the previous five quarters. Now, the company has about $39.5 million in cash left.
Even at a conservative cash burn, it’s likely enough for only the next three quarters. A secondary offering or some type of cash-raising now appears much more likely.
The company is still moving ahead with its Phase III trial of its lead candidate ridaforolimus for the treatment of sarcoma. Data is expected in the first half of 2010. But now, it appears that Ariad will have to do something to raise cash ahead of that trial data.
Other than a secondary, the company could theoretically get funds if it were to start a partnership for its less-mature candidates such as the investigational compound that showed anti-cancer activity in drug-resistant blood cancer patients earlier this week. But that particular candidate is fairly early stage; prospective partners might want to see more data before jumping in.
Another possibility is that the company taps a credit facility from Merck that could help keep it going, although living on credit probably isn’t likely to inspire much Wall Street confidence. Also, that credit facility only applies to what they are developing in partnership, so it could not be used for other candidates or for general corporate purposes.
Then there’s always a secondary — something that would have been more appealing to the company a few days ago, when the stock was juiced. — Mike Tarsala
