Flailing Ariad swallows poison pill to fend off takeovers

With a plummeting share price and grim prospects for its lead drug, Ariad Pharmaceuticals ($ARIA) is adopting a shareholder rights plan to deter would-be corporate raiders, a move to protect what little value it has left.

Under Ariad's poison pill plan, if any investor buys more than 5% of its common stock, new rights kick in allowing other shareholders to buy up stock at twice the market value, effectively diluting the bidder's percentage and thus scuttling an "unintended ownership change," as Ariad puts it. In keeping with most poison pills, the company retains the right to make exceptions and can ditch the plan at any time if it hears an attractive buyout offer.

However, unlike recent poison-pillers like Forest Laboratories ($FRX) and the now-defunct Savient, Ariad doesn't have much to protect. The company's shares have dropped a staggering 87% since Oct. 8, the beginning of dark days for its leukemia drug Iclusig. It all began when the FDA imposed a partial hold on enrollment in a study of Iclusig after investigators charted an alarming rate of blood clot development among patients in the treatment arm. Ariad eventually called off the trial altogether and finally pulled Iclusig from the market on Thursday in response to an FDA request.

Ariad said it's committed to working with the agency to get its sole product back on shelves in a timely fashion, but things don't bode well for the Massachusetts biotech. Looking at the history of drugs suspended by the FDA, Leerink Swann analyst Howard Liang figures it would take more than a year to bring Iclusig back to life, and there's a good chance the cancer drug will be permanently withdrawn.

That October downward spiral has swallowed up more than $3 billion in Ariad's market cap, and the company's inventory of assets paints a sad picture: Ariad said it's mounting the poison pill defense to preserve $307.7 million in net operating loss carryforwards and research tax credits of $17.8 million.

- read the statement

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