Ariad Sells Off Europe Hub, Drug Rights in $140M Incyte Deal

Xconomy Boston — 

Ariad Pharmaceuticals has been in the midst of a strategic overhaul under a new management regime, and today that effort has resulted in a big transaction. Incyte has just cut a deal to acquire all of Ariad’s assets in Europe, and some rights to the Cambridge, MA-based company’s flagship drug as well.

Incyte (NASDAQ: INCY) of Wilmington, DE, will pay Ariad (NASDAQ: ARIA) $140 million up front for the rights to the company’s 125-employee division in Europe. In the transaction, Incyte will also get rights in Europe and certain other countries to Ariad’s cancer drug ponatinib (Iclusig), the company’s only marketed drug, which is approved for a few forms of blood cancer. Ariad will also get royalties on sales of ponatinib in Europe, and up to $135 million in future payments if the drug is approved in these countries for additional cancers or other diseases.

The arrangement brings Ariad some needed cash while allowing it to focus on selling ponatinib in the U.S., the company said in a statement. Incyte, by contrast, wants a bigger footprint in the Europe, which it’s getting through both Ariad’s subsidiary and ponatinib. Ariad had about $231 million in cash at the end of 2015, according to a regulatory filing. Ponatinib generated $112.5 million in net sales worldwide last year. The buyout is expected to save Ariad $65 million in operating expenses in 2017.

Still, Ariad appears to be keeping its eye on a larger deal. The buyout includes an option in which anyone who buys all of Ariad can gain back Incyte’s rights to ponatinib. The buyer would have to repay the $140 million, plus kick in any milestone payments Incyte makes and some more cash depending on how the drug sells. This option can only be exercised between two and six years after the Incyte deal’s expected June 1 closing date, however.

The Incyte buyout is the latest step in an ongoing strategic review of Ariad being run by CEO Paris Panayiotopoulos, who came aboard after founding CEO Harvey Berger retired in April 2015 following a proxy fight. That proxy fight surfaced in the wake of a rocky few years for Ariad, which suspended all clinical trials of ponatinib in 2013 due to safety concerns—namely, serious blood clots were piling up in patients at a higher than expected rate. The FDA instructed Ariad to yank the drug off the market shortly thereafter, and Ariad was in limbo for a few months before it was cleared to once again begin selling the drug—as a last-resort therapy for patients with chronic myeloid leukemia for whom “no other tyrosine-kinase inhibitor” like Novartis’ imatinib (Gleevec) can be prescribed, as well as patients with specific subtypes of acute lymphoblasic leukemia. Ariad had once been hoping ponatinib could beat imatinib head to head and become a frontline treatment for CML.

Ariad has since restructured, laid off much of its workforce—it axed 25 percent of its employees in March—and tried to beat a new path forward. It’s since been trying to build ponatinib back up, gaining clearance to sell it in other countries and testing a second drug, brigatinib, which has a “breakthrough therapy” designation from the FDA for lung cancer. Panayiotopoulos, the former president of EMD Serono, was hired in December, and began a strategic review that has resulted in layoffs and now, a deal with Incyte. The company also started a Phase 3 trial of brigatinib in April.

“The decision to divest our European operations and out-license the commercial rights to Iclusig in Europe is one of the key outcomes of our ongoing strategic review,” Panayiotopoulos said in a statement.  “We are delighted to have Incyte as a committed partner to continue Iclusig’s strong revenue growth in Europe, while significantly strengthening our financial position and maintaining future strategic optionality with a potential buy-back of Iclusig.”

Ariad will hold a conference call later this morning to discuss the deal. Shares closed on Friday at $6.98 apiece, and climbed slightly to $7.40 in pre-market trading on Monday.