Ariad Pharmaceuticals Takes An Axe To Its Expenses

ARIA Net Income (Annual) Chart

ARIA Net Income (Annual) data by YCharts

Getting its financial house in order

Reports of a potential sale of the company last year fizzled out by year end and the board installed Panayiotopoulos in the top spot at the company in January.

Panayiotopoulos first order of business is to right-size the company's expenses and restore confidence in shareholders.

CEO Paris Panayiotopoulos

During Ariad Pharmaceuticals first quarter conference call, Panayiotopoulos said that there would be no sacred cows in his hunt for cost savings and yesterday, the CEO outlined his first cost-savings measures.

Specifically, Panayiotopoulos is eliminating 25% of its workers at its U.S. and European headquarters. Overall, 90 positions are being eliminated with all of the planned cuts coming from parts of the business that aren't responsible for direct sales to customers.

The workforce reduction is the first part of Panayiotopoulos five-part strategic review of Ariad Pharmaceuticals' business. Therefore, more news could be coming related to the company's efforts to boost sales, its geographical presence, its R&D program, and other business development activities.

Panayiotopoulos didn't spell out how much he expected these job cuts will save the company in the coming year, but a straight line 25% cut to its SG&A expenses would bring those costs to a bit below where they were in 2014. However, since cuts don't appear to include highly compensated members of its sales team, it's probably safe to guess-timate that SG&A expenses will be a bit higher than that back-of-napkin calculation.

Steps in the right direction

Cutting costs to the tune of tens of millions of dollars is a good start toward profitability, but these cuts alone won't be enough to put the company in the black. Panayiotopoulos targets Iclusig sales of only $190 million this year and since R&D spending isn't likely to drop until after the company puts the wraps on the development of its second drug, brigatinib, more losses are likely.

Overall, its good to see that management is finally taking the initiative to rein in spending, but absent more cuts or until we get more insight into brigatinib's commercial potential, there are probably better investment ideas out there.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. 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 may not 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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