"Ariad Pharmaceuticals’ chief fights to hold on; As firm seeks rebound, key investor calls for shakeup" by Robert Weisman Globe Staff April 08, 2015
CAMBRIDGE — The move pits a veteran biotech chief with a stubborn streak against a protege of New York corporate raider Carl C. Icahn in a face-off that illustrates the risky nature of the drug industry and the growing role of self-styled “activist investors” focused on short-term returns.
He's an Icahn in some parts.
“It’s been a rough ride for Ariad shareholders,” said biotech analyst Phil Nadeau, managing director at investment bank Cowen & Co. in New York. “That is what’s drawn the shareholder activists. They want a voice in the future of the company.”
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While many Ariad employees continue to have affection for chief executive Harvey J. Berger, a Yale-educated doctor and biochemist, some fault him and other Ariad executives for how they handled the fallout from the FDA warning and the decision to pull Iclusig, which treats thousands of people with chronic myeloid leukemia, from the market in late 2013.
Ariad’s shareholder base changed dramatically as a result of those events and the sharp decline in the company’s stock. Many long-term investors bailed out or reduced their stakes and more hedge funds and other short-term investors accumulated shares.
Icahn disciple Alexander J. Denner, who formerly led Icahn’s biotechnology investment team and now leads Sarissa Capital Management LP, a 2-year-old Greenwich, Conn., hedge fund, has experience leaning on the top executives of life science companies. While working for Icahn, he pressed Biogen Idec Inc. to refocus its drug pipeline and for the sale of Genzyme to French drug giant Sanofi SA in earlier battles involving Cambridge drug makers.
His playbook has been to buy shares at a deep discount, often after a problem at the company, and lobby to replace management, sell the company, or take other steps that would push up the stock price quickly. Stock owners at Biogen and Genzyme benefitted from those campaigns, and both companies have continued to introduce drugs for multiple sclerosis and rare genetic disorders.
Still, the rise of shareholder activists at biopharma companies is being watched with concern among academic researchers and patients who depend on the companies’ life-extending drugs.
“I worry about the tendency to drive out long-term decision making,” said Harvard Business School professor Gary Pisano, noting that companies must be able to forgo profits for many years to make drugs for diseases such as cancer. “It’s a time horizon issue. Drugs take a long time to develop. And if you’re dealing with an activist who’s operating on a short-term scale, it can be a distraction and it can pressure management into not making certain investments.”
Beth Galliart, a leukemia patient who works at a California financial firm and began taking Iclusig in a 2009 clinical trial, said the management struggle at Ariad raises serious questions.
“I don’t understand why Ariad is constantly under fire,” Galliart said. “What is the [activists’] end goal? Are they just trying to make money? Are they just trying to bundle the drug and sell it to another company? This is a real company, and it’s got to have an impact on their drug development. It’s got to slow them down. This is the conundrum of for-profit medicine.”
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UPDATE:
"Ariad CEO steps down amid hedge-fund pressure" by Robert Weisman Globe Staff April 29, 2015
Harvey J. Berger will step down as chief executive of Ariad Pharmaceuticals Inc., the Cambridge biotech he founded in 1991, after reaching a settlement with the Connecticut hedge fund that has been trying to push him out.
In a separate statement, Ariad said its board had reached a settlement with Sarissa Capital Management, the Greenwich, Conn., investment firm that has been working for the past two months to remove Berger. Sarissa owns about 7 percent of the company, which has struggled over the past two years.
Under the settlement, Berger will receive a severance payment next January of $4.2 million, three times the sum of his annual salary and 2014 bonus, according to a regulatory filing....
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