ARIAD Jeffries January 2011

1. January 18, 2011
Healthcare ARIAD Pharma (NASDAQ: ARIA)
Biotechnology
Ph3 Ridaforolimus Study Meets Endpoint in Sarcoma
United States of America
Investment Summary
We view positive ridaforolimus Ph3 data in sarcoma as a
transforming event for ARIA. Now with potential approval of
ridaforolimus in 2012 (sarcoma), generating milestones/royalty
Company Update revenue, and ponatinib pivotal Ph2 data in ~2H12 (CML;
Price Target Change well-defined/proven market), we see continuing upside to ARIA
Estimate Change shares.
Rating: BUY Event
Price: $5.25 Positive Phase 3 sarcoma data for ridaforolimus; partner MRK to file
Price Target: $11.00 for approval in 2011; raising PT to $11 from $8 previously
Previous: $8.00
Key Points
Bloomberg: NASDAQ: ARIA
• A nice surprise for positive Phase 3 data for ridaforolimus in
Market Data sarcoma. Ridaforolimus demonstrates a 3.1-week increase in
52-Week Range: $5.58-$2.06
median PFS (p=0.0001, hazard ratio 0.72; ridaforolimus 17.7 weeks
Total Entprs. Value (MM): $533.8 vs. placebo 14.6 weeks). However, full analysis of PFS determined
Market Cap. (MM): $581.7 by investigative sites showed a 7.7-week improvement in PFS (22.4
Insider Ownership: 19.7% weeks for ridaforolimus vs. 14.7 weeks for placebo). In this pivotal
Institutional Ownership: 35.7% randomized Ph3 SUCCEED study (n=711), ridaforolimus (mTOR
Shares Out. (MM): 110.8 inhibitor) was administered as a maintenance therapy in
Float (MM): 104.5 chemo-sensitive patients with metastatic bone and soft-tissue
Avg. Daily Vol.: 1,042,280
sarcomas. The trial was under the FDA's SPA with a primary
Financial Summary endpoint of median progression-free survival (PFS); secondary
Book Value (MM): $35.5 endpoints include overall survival (OS), anti-tumor response,
Book Value/Share: $0.32 change in cancer related symptoms, and safety and tolerability.
Net Debt (MM): ($47.9) ARIA expects full data including secondary endpoints to be
Long-Term Debt (MM): $11.4 presented at a medical meeting later this year.
Cash/Share: $0.54 • Median PFS improvement in advanced sarcoma modest;
Cash (MM): $59.3 however, we see this as an unlikely hurdle for regulatory
approval. The 3.1-week PFS improvement (7.7-week by
USD 2009A 2010E 2011E 2012E
investigative sites) is less than what the ODAC (FDA's Oncologic
Rev. (MM) 8.3 178.5 0.5 58.1
Drugs Advisory Committee) wants to see (at least 3 months PFS
Prev. -- -- -- 1.0
benefits or OS benefits). However, based on the highly statistically
EV/Rev. 64.3x 3.0x NM 9.2x
significant benefits (meeting primary endpoint under SPA), we view
EPS likely low regulatory hurdles. While potential reimbursement issues
Mar (0.26) (0.21)A (0.16) — remain, given the limited current therapeutic options for sarcoma
Jun (0.24) 1.44A (0.17) — (tumor resection with ~60-65% of patients progressing to multiple
Sep (0.21) (0.18)A (0.17) — rounds of chemotherapy) and small # of patients population
Dec (0.17) (0.17) (0.17) — (~20K-30K in the U.S.), reimbursement may not pose significant
FY Dec (0.86) 0.84 (0.66) (0.24) hurdle for ridaforolimus.
Prev. FY -- -- -- (0.55) • Now with potential revenue for ridaforolimus, we're raising our
FY P/E NM 6.2x NM NM PT to $11 from $8. Our NPV analysis puts ~$3/sh for ridaforolimus
Consensus — 0.84 (0.37) (0.27) (new) and ~$8/sh for ponatinib (previously). For ridaforolimus, we
Diluted assign a 90% probability to our $517M WW peak sales estimate in
sarcoma in 2020 and 70% probability to our $647M WW peak sales
Eun K. Yang, Ph.D. estimate in endometrial cancer in 2022, with 20% royalty on total
(212) 284-2264, eyang@jefferies.com sales to ARIA. For ponatinib, our assumptions include WW sales of
Kimberly Smith $543M in 2018 (90% probability), patent expiry in 2029-2030 and
(212) 284-2192, kimberly.smith@jefferies.com discounting at ~11% annually.
Rohit Vanjani
Valuation/Risks
(212) 284-2378, rvanjani@jefferies.com
We arrive at our price target of $11 based on NPV of ponatinib and
ridaforolimus. Risks associated with ARIA shares include, but are not
limited to: (1) delay/failure in pivotal Phase 2 for ponatinib; (2)
regulatory delay/failure for ridaforolimus; (3) distant profitability.
Please see important disclosure information on pages 4 - 7 of this report.

2. (NASDAQ:ARIA)
• We assume MRK to submit regulatory filings for ridaforolimus by end-2011 after full data
analysis/presentation, with potential approval in 2H12. ARIA views the highly significant median PFS p-value
(p=0.0001) and hazard ratio (HR=0.72; 28% reduction in risks) on full analysis of 552 PFS events (in 711 patients) as
most important to the FDA under the SPA agreement. Given the wide distribution in patient responses, ARIA does
not view the modest point difference in median PFS will impact ridaforolimus' approvability in sarcoma.
• We assume $50M in milestone payments from partner Merck in 2012. ARIA is now positioned to receive $65M in
potential regulatory milestones from partner Merck (MRK, $33.82, Hold) upon NDA acceptance in the U.S. ($25M),
U.S. approval ($25M), EU approval ($10M), and Japan approval ($5M). For royalty revenues for ridaforolimus, we
now assume $7M in 2012 (on $35M in sales), $14M in 2013 (on $71M in sales), and $29M in 2014 (on $146M in
sales).
• Pivotal Phase 2 for ponatinib (AP24534) in CML/Ph+ ALL began in Sept. 2010; data in 2H12 with potential
approval in 1H13 (by our estimate). ARIA expects to enroll 320 patients in 6 cohorts, including CP (chronic phase),
n=160, AP (accelerated phase), n=80, and BP (blast phase) of CML (n=80; Ph+ ALL grouped w/ blast phase), +/- the
T315i mutation (roughly 50/50 in each cohort). This registration study, PACE (Ponatinib Ph+ ALL and CML
Evaluation), is single-arm enrolling 2nd-line (T315i mutation following BCR-ABL therapy) and 3rd-line patients (dosed
1x daily, 45mg). ARIA expects to complete patient enrollment by end-2011 and collect 6-month FU response data for
filing by mid-2011. Thus, we expect data in 2H12 and potential approval in 1H13 (vs. ARIA's estimate of its market
launch in late-2012/early-2013). ARIA expects >$600M in sales 5 years from launch in 2nd- and 3rd-line CML, with
peak sales at >$900M. In 2018 (5 years from our estimated launch in 2013), we assume $543M in WW sales in 2nd-
and 3rd-line CML.
• Large market opportunity for marketed BCR-ABL drugs, with total sales of ~$4.5B in 2009 for all indications.
For CML, estimated sales were ~$3B for Gleevec (imatinib), ~$400M for Sprycel (dasatinib), and ~$200M for
Tasigna (nilotinib). Thus, we view our annual sales assumption of $543M for ponatinib in 2018 as reasonable.
• Estimated current cash of ~$100M sufficient through 2H12. Including $57.4M in net proceeds from the recent
raise on 10/26/10 (16M shares at $3.70/sh), ARIA expects to end the year with $102M in cash, which it estimates to
be sufficient to fund the completion of the Phase 2 ponatinib registrational trial (350 patients enrollment completion in
4Q11) and NDA filing preparation 2H12. This does not include any milestone payment from a potential partnership
for ponatinib (for certain territories) or the current MRK partnership for ridaforolimus.
• Upcoming events include: (1) regulatory filing for ridaforolimus by partner MRK by end-2011; (2) completion of
patient enrollment in pivotal Phase 2 study for ponatinib in advanced CML/Ph+ ALL by end 2011; (3) pivotal Phase 2
data/potential NDA filing for ponatinib in advanced CML/Ph+ ALL in 2H12; and (4) potential approval of ridaforolimus
in 2H12.
Company Description
Founded in 1991, Ariad Pharmaceuticals focuses on drug discovery and development for cancers by regulating cell
signaling with small-molecule drugs. Its lead drug candidate, ridaforolimus (a potent mTOR inhibitor), is in a Phase 3
trial for metastatic sarcomas, licensed to Merck. Its two proprietary products include ponatinib in pivotal Phase 2 for
CML/Ph+ ALL and AP26113 entering Phase I for cancer in 2H11. Targeted cancer therapy market, such as Ariad's
products, is estimated at ~$30 billion in 2009. Ariad's business strategy includes: (1) to build a pipeline portfolio of
targeted cancer therapies; (2) to establish an oncology-focused specialty force in the U.S.; and (3) to leverage its
cell-signaling technologies (ARGENT, NF-kB intellectual property) for further revenue opportunities. Ariad has a strong
intellectual property position, covering its mTOR inhibitor (ridaforolimus), various families of kinase inhibitors, and
cell-signaling regulation technologies.
Please see important disclosure information on pages 4 - 7 of this report.
Eun K. Yang, Ph.D. , eyang@jefferies.com, (212) 284-2264 Page 2 of 7

3. (NASDAQ:ARIA)
Ariad Pharmaceuticals, Inc. (ARIA)
Income Statement
($ in thousands except per share)
2008 2009 1Q 2Q 3Q 4QE 2010E 1QE 2QE 3QE 4QE 2011E 2012E 2013E 2014E 2015E
Revenues
Product Sales (U.S.)
Ponatinib (AP24534; BCR-ABL inhibitor) 22,425 86,283 116,916
% growth y/y
Others
Royalty on ponatinib (ex-U.S.) 5,986 22,022 32,841
Royalty from MRK on ridaforolimus 7,050 14,171 29,147 43,146
% growth y/y
Total license revenue 7,082 8,302 2,154 175,049 1,242 55 178,500 125 125 125 125 500 51,000 11,000 1,000 1,000
Total Revenues 7,082 8,302 2,154 175,049 1,242 55 178,500 125 125 125 125 500 58,050 53,583 138,453 193,903
% growth y/y 97.7% 17.2% 2050.1% -99.7% 11510.1% -7.7% 158.4% 40.1%
Expenses
Cost of Goods Sold - - - - - - - - - - - - - 4,485 8,628 5,846
% gross margin 80.0% 90.0% 95.0%
Royalty on ridaforolimus sales from MRK - - -
R&D 50,841 63,447 14,835 13,814 13,168 15,920 57,737 16,050 16,450 16,550 16,770 65,820 70,427 73,949 77,646 81,528
% growth y/y 28.5% 24.8% -16.4% -12.6% -8.5% 2.7% -9.0% 8.2% 19.1% 25.7% 5.3% 14.0% 7.0% 5.0% 5.0% 5.0%
% of total revenues 32.3% 13164.0% 121.3% 138.0% 56.1% 42.0%
SG&A 28,092 16,888 4,574 4,001 3,670 4,255 16,500 4,300 4,350 4,400 4,440 17,490 20,988 30,433 39,562 49,453
% growth y/y 13.7% -39.9% 10.9% -16.9% 5.7% -4.9% -2.3% -6.0% 8.7% 19.9% 4.3% 6.0% 20.0% 45.0% 30.0% 25.0%
% of total revenues 3498.0% 36.2% 56.8% 28.6% 25.5%
Total Expenses 78,933 80,335 19,409 17,815 16,838 20,175 74,237 20,350 20,800 20,950 21,210 83,310 91,415 108,866 125,837 136,827
Income (loss) from Operations (EBIT) (71,851) (72,033) (17,255) 157,234 (15,596) (20,120) 104,263 (20,225) (20,675) (20,825) (21,085) (82,810) (33,365) (55,284) 12,616 57,076
% growth y/y 18.4% 0.3% -244.7% -179.4% -59.7% 65.7% -122.8% 352.4%
Other income, net (int. income/expense) 799 (7,975) (6,143) 2,114 (4,804) 33 (8,800) (750) (750) (750) (750) (3,000) (500) 100 1,000 2,000
Earnings (Loss) Before Taxes (71,052) (80,008) (23,398) 159,348 (20,400) (20,087) 95,463 (20,975) (21,425) (21,575) (21,835) (85,810) (33,865) (55,184) 13,616 59,076
Provision for Taxes
Tax Rate
Net Income (loss) - GAAP (71,052) (80,008) (23,398) 159,348 (20,400) (20,087) 95,463 (20,975) (21,425) (21,575) (21,835) (85,810) (33,865) (55,184) 13,616 59,076
EPS (LPS) - Basic (1.02) (0.86) (0.21) 1.44 (0.18) (0.17) 0.85 (0.16) (0.17) (0.17) (0.17) (0.66) (0.24) (0.39) 0.10 0.41
EPS (LPS) - Diluted (1.02) (0.86) (0.21) 1.35 (0.18) (0.17) 0.84 (0.16) (0.19) (0.17) (0.17) (0.66) (0.24) (0.39) 0.09 0.39
% growth y/y (diluted)
Shares - Basic 69,791 93,330 109,016 110,290 110,810 121,364 112,870 128,578 129,221 129,867 130,516 129,545 140,908 141,330 142,037 142,747
Shares - Diluted 69,791 93,330 109,016 116,079 110,810 121,364 114,317 128,578 129,221 129,867 130,516 129,545 140,908 141,330 152,037 152,747
Cash, cash equivalents & investments 39,068 40,362 25,442 61,755 59,305 101,618 101,618 84,393 66,718 61,693 43,608 43,608 118,743 78,560 107,176 181,252
Source: Company reports and Jefferies & Company, Inc.
Please see important disclosure information on pages 4 - 7 of this report.
Eun K. Yang, Ph.D. , eyang@jefferies.com, (212) 284-2264 Page 3 of 7

4. (NASDAQ:ARIA)
ANALYST CERTIFICATIONS
I, Eun Yang, Ph.D., certify that all of the views expressed in this research report accurately reflect my personal views
about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will
be, directly or indirectly, related to the specific recommendations or views expressed in this research report.
I, Kimberly Smith, certify that all of the views expressed in this research report accurately reflect my personal views
about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will
be, directly or indirectly, related to the specific recommendations or views expressed in this research report.
I, Rohit Vanjani, certify that all of the views expressed in this research report accurately reflect my personal views
about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will
be, directly or indirectly, related to the specific recommendations or views expressed in this research report.
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An individual involved in the preparation of this report owns shares of Merck & Co. common stock.
Jefferies makes a market in ARIAD Pharmaceuticals, Inc.
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Please see important disclosure information on pages 4 - 7 of this report.
Eun K. Yang, Ph.D. , eyang@jefferies.com, (212) 284-2264 Page 4 of 7

5. (NASDAQ:ARIA)
which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow
(DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium
(discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value,
dividend returns, and return on equity (ROE) over the next 12 months.
Risk which may impede the achievement of our Price Target
This report was prepared for general circulation and does not provide investment recommendations specific to
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Rating and Price Target History for: ARIAD Pharmaceuticals, Inc. (ARIA) as of 01-17-2011
11/06/08 05/07/09 05/05/10 01/05/11
B:$6 B:$4 B:$6 B:$8
6
5
4
3
2
1
0
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1
2008 2009 2010 2011
Created by BlueMatrix
Rating and Price Target History for: Merck & Co. (MRK) as of 01-17-2011
09/16/10 10/25/10 11/15/10 01/11/11 01/14/11
I:H:$39 H:$39.8 H:$37.8 H:$37 H:$34.5
48
40
32
24
16
8
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1
2008 2009 2010 2011
Created by BlueMatrix
Please see important disclosure information on pages 4 - 7 of this report.
Eun K. Yang, Ph.D. , eyang@jefferies.com, (212) 284-2264 Page 5 of 7

6. (NASDAQ:ARIA)
Distribution of Ratings
IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [BUY] 580 51.60 44 7.59
HOLD [HOLD] 498 44.30 25 5.02
SELL [UNPF] 46 4.10 5 10.87
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7. (NASDAQ:ARIA)
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Please see important disclosure information on pages 4 - 7 of this report.
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