Merck scuttles a $700M-plus Ariad deal and hands back a once-vaunted cancer drug

Dr. Harvey Berger, chairman and CEO of Ariad

Back in 2010, Ariad Pharmaceuticals' ($ARIA) ridaforolimus was a promising cancer therapy worth up to $700 million in the eyes of Merck ($MRK). Now, in light of an FDA rejection and some dimming development prospects, Merck has quietly washed its hands of the drug, handing it back to its former partner.

Ridaforolimus, an mTOR inhibitor with potential in various cancers, made its way through a Phase III trial in advanced sarcomas, but the resulting data weren't enough to sway regulators, who in 2012 took issue with the drug's risk-benefit profile and demanded another trial. In the lead-up to ridaforolimus' FDA rebuke, Merck paid Ariad roughly $200 million of a deal that could have reached about $708 million had everything gone according to plan.

And now the drug is Ariad's problem, the company disclosed in its annual report, expecting to regain full control of ridaforolimus by November and inherit "a new clinical and business opportunity."

But apparently not a very promising one: Of the up to $150 million Ariad plans to spend on R&D in 2014, not one dollar is committed to ridaforolimus. Instead, drug's only near-term potential would seem to be in the hands of a third party: Medinol, a medical device company, is developing a ridaforolimus-eluting stent, and Ariad is in line for a slate of payments tied to its clinical and regulatory milestones.

Instead, Ariad is pouring 75% of its R&D spend into Iclusig, its recently reauthorized leukemia drug, funding a Phase II trial in patients with gastrointestinal stromal tumors and an FDA-mandated study to keep tabs on the treatment's safety profile now that it's back on the market.

Behind Iclusig is AP26113, a treatment for ALK-positive non-small cell lung cancer that Ariad believes could win an FDA nod based on Phase II data. However, the agency declined to grant its breakthrough designation to the drug last year, and Novartis ($NVS) has rocketed ahead with its similar LDK378, filing for an FDA nod in January with only mid-stage results to make the case for its BTD'd treatment.

Meanwhile, Ariad is still climbing back to its feet after getting Iclusig back on the U.S. market in January. The months of angst over Iclusig's clotting risks cleaved about $2.5 billion off of Ariad's market cap, and despite CEO Harvey Berger's claim that the biotech is now right back where it was a year ago, the company is facing investor pressure to boost the value of its still-flagging shares. Last week, activist investor Alex Denner made his way onto Ariad's board after making some noise in the fall, a sign the company might be in for a shake-up.

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