ARIA

ARIAD Pharmaceuticals, Inc. (ARIA)

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Ariad Pharmaceuticals (ARIA)

Q4 2012 Earnings Call

February 25, 2013 8:30 am ET

Executives

Maria E. Cantor - Senior Vice President of Corporate Affairs

Harvey J. Berger - Principal Founder, Chairman of the Board, Chief Executive Officer, President and Chairman of Executive Committee

Edward M. Fitzgerald - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Martin J. Duvall - Senior Vice President of Commercial Operations

Timothy P. Clackson - Chief Scientific Officer and President of Research & Development

Analysts

Matthew Harrison - UBS Investment Bank, Research Division

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Howard Liang - Leerink Swann LLC, Research Division

Y. Katherine Xu - William Blair & Company L.L.C., Research Division

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Michael G. King - JMP Securities LLC, Research Division

Jim Birchenough - BMO Capital Markets U.S.

Ying Huang - Barclays Capital, Research Division

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Eun K. Yang - Jefferies & Company, Inc., Research Division

Rachel L. McMinn - BofA Merrill Lynch, Research Division

Bret Holley - Guggenheim Securities, LLC, Research Division

Nicholas Bishop - Cowen and Company, LLC, Research Division

Ryan Martins - Lazard Capital Markets LLC, Research Division

Presentation

Operator

Thank you for holding for ARIAD Pharmaceutical Fourth Quarter and Full Year 2012 Investor Conference Call. [Operator Instructions] Please be advised that this call is being taped at the company's request and will be archived on the company website for 3 weeks from today's date.

At this time, I would like to introduce Ms. Maria Cantor, ARIAD's Senior Vice President, Corporate Affairs. Please go ahead.

Maria E. Cantor

Good morning, and thank you for joining us. This morning, we report on financial results and corporate developments for the fourth quarter and full year of 2012 and provide financial guidance for 2013.

With me on this call are Dr. Harvey Berger, our Chairman and Chief Executive Officer; Mr. Ed Fitzgerald, our Executive Vice President and Chief Financial Officer; Dr. Tim Clackson, our President of R&D and Chief Scientific Officer; and Mr. Marty Duvall, our Senior Vice President of Commercial Operations.

During this call, we'll be making forward-looking statements. These statements are subject to factors, risks and uncertainties, including those detailed in our Form 10-K for the year ended December 31, 2011, and other SEC filings that may cause actual results to differ materially from the results expressed or implied by such statements.

The format of today's call will differ from those in the past. In order to move as quickly as possible into the Q&A section, we will not be repeating most of the information that was included in this morning's press release.

Now, here's Dr. Berger with our opening remarks.

Harvey J. Berger

Good morning, everyone. In 2012, we achieved the goal that we set for ourselves several years ago: To establish ARIAD as a fully integrated global oncology company.

This past year, we received U.S. approval of Iclusig 3 months ahead of its PDUFA date. We established our commercial organization in the U.S. and hired our European leadership team. We continued to advance the development of AP26113. In addition, the global Phase III EPIC trial of Iclusig in patients with newly diagnosed CML and a Phase I/II trial of Iclusig in Japan progress on plan.

Our focus for 2013 will be on the successful commercialization of Iclusig in both the U.S. and Europe while broadening its developments within CML and Philadelphia-positive ALL and to other forms of cancer. We have several important updates to share with you this morning. First, however, Ed Fitzgerald will cover a few aspects of our financials.

Edward M. Fitzgerald

Good morning, everyone. Please refer to our press release issued earlier this morning for a summary of our financial results for the 3-month and 12-month periods ended December 31, 2012. I will focus my comments this morning on an overview of our financial guidance for 2013.

We anticipate cash used in operations in 2013 to be $255 million to $265 million. We anticipate R&D expenses in 2013 of $238 million to $248 million, encompassing further expansion of development activities for Iclusig and AP26113 as well as expanded discovery research activities. We expect to spend approximately 8% to 10% of this amount on discovery research with the remainder split between Iclusig and AP26113, about 75% to 25%. Spending on Iclusig includes medical affairs in the U.S. and Europe.

We anticipate SG&A expenses in 2013 of $108 million to $116 million. This includes growth in global commercial operations and supporting activities for the commercial launch of Iclusig in the United States and anticipated commercial launch of Iclusig in Europe. Approximately $70 million of the SG&A expenses relates to commercial activities for Iclusig, split between the U.S. and the rest of world approximately 80% to 20%.

Our R&D and SG&A operating expense guidance for 2013 includes estimated noncash expenses of $35 million to $41 million, consisting primarily of stock-based compensation and depreciation and amortization expenses.

We ended 2012 with $164 million on our balance sheet, and in January, we raised an additional $310 million in an underwritten public offering of our common stock. We expect that our cash, cash equivalents and marketable securities at December 31, 2013, will be $195 million to $205 million, sufficient to advance our programs into the fourth quarter of 2014. We have a strong balance sheet and are well positioned to advance our key programs as planned.

Let me make a few remarks on the accounting treatment related to the launch of Iclusig in the United States. We are currently using the sell-through method for revenue recognition, which means we now recognize revenue when we ship Iclusig to the patient. We are using a select number of specialty pharmacies and specialty distributors to distribute Iclusig throughout the United States. We expect that as sales of Iclusig continue to ramp up, these pharmacies and distributors will be holding very little inventory. We expect to transition to the sell-in method of revenue recognition, recognizing revenue upon shipment of Iclusig to the specialty pharmacies and distributors when we have sufficient experience to support this approach.

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