Ariad CEO Leaves Amid Proxy Battle with Hedge Fund Sarissa, Inc.
April 29, 2015
By Mark Terry and Riley McDermid, BioSpace.com Breaking News Staff
Cambridge, Mass.-based Ariad Pharmaceuticals, Inc. announced today that Harvey Berger, founder, chairman and chief executive officer, will retire at the end of the year or when a replacement is found, whichever comes first.
In a related story, also announced today, Ariad has settled a proxy battle with Sarissa Capital Management. The search committee for Berger’s replacement will be chaired by Alex Denner of Sarissa Capital. Also under the agreement, Anna Protopapas, chief executive officer of Mersana Therapeutics, Inc. , has been appointed by Ariad’s board to fill an existing open director’s seat.
Market watchers are continuing to argue over the potential fate of Ariad Pharmaceuticals (ARIA), as its activist investor Denner and his hedge fund continue to fight a proxy battle, and the list of suitors for the company grows longer.
“The Board believes this settlement is in the best interests of shareholders, as it allows us to focus on conducting the search for Ariad’s next CEO while continuing to execute on our critical commercial and pipeline initiatives,” said Wayne Wilson, lead independent director of the board in a statement. “We welcome Anna to the Board and look forward to working together constructively with Sarissa for the benefit of all shareholders.”
Sarissa is run by former Carl Icahn protégé Denner, and another well-known associate of both men, Richard Mulligan. Together the two have upped Sarissa’s stake in Ariad to 6.9 percent, a significant amount of ownership that could give it leverage to institute the changes it wants to see made without a bruising proxy war. Denner received his seat of Ariad’s board in February 2014 and appears to be marking his anniversary by mounting a campaign for massive change.
In late 2012, the company’s blood cancer drug, Iclusig, was approved for use by the U.S. Food and Drug Administration (FDA). However, in 2013 the company halted marketing of the drug after the FDA warned about toxic side effects. This started something of a downward spiral for the company, which laid off 160 people, reapplied for Iclusig’s use for a narrower patient population and reevaluated its plans for a new Kendall Square headquarters.
The company’s stock plummeted and Connecticut-based Sarissa bought shares cheap and immediately demanded that Berger leave the company.
“It’s been a rough ride for Ariad shareholders,” said Phil Nadeau, analyst and managing director of Cowen and Company in New York in a note to investors. “That is what’s drawn the shareholder activists. They want a voice in the future of the company.”
Berger asserts that he had always planned to retire at the age of 65, which will occur around the same time as the company’s upcoming annual meeting.
Ariad stock has been on a long and tumultuous journey. It had a high of $25.12 per share on Oct. 5, 2012, then it fell off a cliff on Nov. 8, 2013, dropping to $2.32. It has since rebounded slightly to today’s current price of $8.87.
Last week, the Boston Business Journal speculated that five companies could be in the running to snap up Ariad: Roche , Celgene Corporation , Amgen , AbbVie and Gilead Sciences, Inc. . But after withering criticism from well-known biotech blogger Adam Feuerstein at The Street (who called the list “BS,” the BBJ is pushing back, saying it stands by its original roster of names.
Ariad’s future has been up in the air for months after a nasty proxy battle for control of the company mounted by its largest shareholder, activist fund Sarissa Capital, continues to heat up. An analyst at Stifel Nicolaus & Co., Brian Klein, said this week he estimates Ariad could sell for between $2.2 billion and $2.8 billion.
Analysts have mixed ratings Trade-Ideas called it a “dead cat bounce” candidate, which means it was down big yesterday, but up big today. The Street indicates that four analysts have it listed as a buy, nobody rated it as a sell, and four rated it as a hold.
In an interview, Berger states that “a long drawn-out proxy battle would not be in the interest of the shareholders, the employees, or the patients” who used Iclusig for the treatment of chronic myeloid leukemia (CML). He did note, however, that the Sarissa battle for control of the company he founded took up a lot of his time and energy, and although he will leave the company, he will always be available for consultation with the company’s employees.
“I’ll always be there,” Berger said in a statement. “There won’t be a single employee who can’t call me for advice or help. I’m there for them and I’ll be there for the company. I’ll live on the legacy I left and the products and patients they serve. We created a culture that’s valuable and that focuses on patients.”
But Feuerstein wrote last week that he doubted any of those companies would be interested, primarily because Ariad still raises significant safety concerns for buyers.
“Ariad sells a leukemia drug (Iclusig) with limited efficacy due to a worrisome safety profile. A competing leukemia drug is going generic soon,” wrote Feuerstein. “Ariad’s lead pipeline drug, brigatinib, is a me-too ALK inhibitor for a small subset of lung cancer patients that might be the third or fourth drug in its class to reach the market. There’s nothing at Ariad compelling enough to garner interest from Roche. I suspect the same goes for the rest of the companies on Seiffert’s list.”
Still, the BBJ took issue with that point, arguing Wednesday that Ariad still has plenty of value to an acquiring company, saying that both drugs are either being tested in lower doses or have analysts excited about their prospects.
“All that suggests the two drugs are far from being ‘me-too drugs, as Feuerstein describes them. Investors lobbying for an acquisition believe that a larger sales team and trials of the drug as a second- or first-line treatment could cause an increase in revenue from Iclusig to at least $350 million and possibly more than $1 billion, according to one investor’s analysis,” said columnist Don Seiffert. “Factoring in possible brigatinib revenue, that could well spur a large drug firm to bid as much as double the current value of the company’s shares.”
Ariad has long been on Sarissa’s To Do list, ever since it struggled to get American regulators to reinstate its leukemia drug Iclusig, a process which took two separate tries in 2013 before finally being approved. During that period, the share price of Ariad tanked as much as 90 percent, although it has since rebounded on the strength of a roaring biotech sector and solid sales. Iclusig only brought in $56 million, a wincingly low number from the $1 billion a year it was projected to earn when it was launched.
Ariad now is a prime target for both change and profit. The company inked a $77.5 million deal with Japanese firm Otsuka Pharmaceutical in December, giving Otsuka the rights in 10 Asian countries to Iclusig. In addition to Japan, the rights will incorporate China, South Korea, Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.
Sarissa said in a Feb. 19 filing that it is “extremely concerned with the conduct of certain members of the board, particularly with respect to compensation, governance and financial matters.”
That could be setting Sarissa up for a proxy fight for control of Ariad, “It's pretty interesting there is some quote-unquote activism here, but it's been pretty quiet," RBC Capital Markets analyst Michael Yee told CNBC in February, when Denner began pushing for changes. "Typically activists come in and start to make noise, write an open letter, demand changes, send tweets, whatever it is; none of that has actually happened."
Denner made BioSpace ’s list of “The Biggest Biotech VC Vampires” in October because of how actively he’s managed to agitate in the sector.
“Since 2006, he has helped effect the sale of four biotech firms — including Genzyme Corporation — for a total of more than $37 billion, and was a part of a plan to replace Biogen's former CEO, James Mullen, with its current one, George Scangos, in 2010,” wrote the Boston Business Journal. “The change at Biogen, Inc. helped result in a 400 percent increase in that company's share price over the past five years to become one of the world's top biotech companies.”
No biotech investor list would be complete without significant mention of Denner, who first met Icahn while trying to flip the troubled but promising ImClone.
After Denner was able to shepherd the company’s marquee-name experimental drug ramucirumab into Phase III development, he quickly capitalized on the market’s good will and brokered ImClone’s $6.5 billion exit to Eli Lilly and Company . Denner rolled from that success right into engineering Genzyme Corporation’s sale to Sanofii to the tune of $20 billion.
More recently, Denner was front and center when obesity-drug maker VIVUS, Inc. found itself in his crosshairs when major shareholder First Manhattan, which controls 9.9 percent of the company, criticized its solo launch of weight loss panacea Qsymia, which has met with sales disaster after disaster.
So far Denner has been stymied finding a partner or even an offer for VIVUS, which is currently the fourth most shorted stock on the NASDAQ.
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