Ariad Pharmaceuticals Inc fka ARIA

[Whosetosay]

Question for the Ariad Board of Directors

*** iHub formatting didn't get the punctuation and para breaks ***

ATTN: Secretary
Ariad Pharmaceuticals
26 Landsdowne Street
Cambridge, MA 02139-4234

October 1, 2015

Re: Questions for the Ariad Board of Directors, et al

Dear Ariad Board of Directors and Management,

Science has always been a great strength of Ariad. Sadly, it has become clearer than ever to major investors and retail alike, that the business decisions around the science have failed the science time and again. As Dr. Berger recently said something like this to analysts, ‘…he wishes Ariad had tested a second (lower) dose for Ponatinib approval’. We all wish Ariad had, but in the final analysis, Ariad management failed on that basic, pivotal approach. Then Ariad made many more decisions in furtherance of that error that brings Ariad and its shareholders to the place where the company is today: determined by most to be a company essentially struggling to survive long enough until it can be bought out.

For that and many other reasons, there remains among shareholders an ever-heightening concern about the quality of the management of the company and its Board of Directors (BoD). Ariad’s share price (related market cap) weakness and volatility is much worse than any peer company and is usually ranked by those metrics in the lowest 4% of all biotechs on many given days. Rumors or promise of buyouts remain the only mover of the stock since 2013. No net real measurable share price shareholder value has been delivered by management in that period.

The state of the company value reflects the dramatically worsening of the open dysfunction on the BoD. Serious charges have been alleged amongst board members in proxies. Subsequent agreements have been made by the board to silence investigations into the internal allegations of self-dealing and “breaches of fiduciary duties”. Members of the BoD are clearly hiding out from shareholders and even avoiding each other at the Ariad Annual Meeting(s) of Shareholders (AGM)s. All that speaks directly to the absolutely failed leadership of the company, and its BoD members, but it is especially the failings of Dr. Berger and Lead Director Wayne Wilson.

As bad, in an industry known now every day for corporate greed by senior executives, Ariad has paid its CEO and BoD members ‘egregiously’ (was term used by a BoD member), all with borrowed money, for absolutely abysmal performance on behalf of all shareholders, and in fact, all stakeholders’ interests.
No BoD member was physically present at the AGM, and all have remained otherwise silent on the pertinent proxy questions asked at the AGM. I am therefore submitting those same and other written questions consistent with the “Stockholder Communications” policy (Page 25, DEF 14A June 25, 2015). Per that policy, I expect written responses directly from you or prepared by you. Specific scientific questions may be answered by the appropriate executive management leaders.

The questions relate to: 2015 Proxy Items 1 and 2, elections and compensation; other questions about corporate direction that could have been asked but were not due to the clearly stated AGM limitation permitting questions only on the Proxy items; other questions related to recent corporate actions and recent events.
The foundations for questions are rooted in facts presented by Ariad in SEC filings, my personal realizations after the 2014 AGM about the causes of the disaster of 2013, and by my experience and conversations with those in physical attendance at the 2015 AGM.

The questions are aggressive and purposefully challenging, yet respectfully submitted. However, compared to the Sarissa allegations and the subsequent Agreement hammered out to quiet them, these questions are relatively mild and should be quite easy to address.

I suggest the BoD have a look at the “iHub ARIA” forum. As one of the moderators of that group of mostly very loyal retail investors, 80-85% of investors there share these same concerns. (We take surveys.) The questions asked below include many from those on the forum. Further, for perspective, you should have an interest in the results of those opinion surveys that are found there, notably surveys number 16 and 17 titled AGM 3 and AGM 4. (Folks may register for free on the site and follow the first post which is also ‘yellowed” as a ‘sticky’. You will find the surveys there. I believe one must answer at least one question in each survey to see the results.) These questions will be immediately posted on the forum; likewise will be your responses.
The shareholders invested in good faith, and I expect the BoD and Ariad management to respond fully and in similar good faith. All Shareholders deserve access, respect, truth and transparency from this BoD. Next year, if the company is not completely sold in the interim, I would look forward to meeting with the BoD in person at the 2016 AGM. If my math is near correct, your annual attendance rate would improve to near ‘80% of meetings attended’.

Submitted on behalf of dozens of shareholders of Ariad common stock,

/s/ signed

Questions: (Note: questions requested to be addressed are either preceded by foundation or embedded in foundation, and all the questions are followed by a “?” ).

1. For the Audit Committee regarding the Corporate Code of Conduct and Ethics and other Ariad Governance, specifically addressed to Wayne Wilson, Jay R. LaMarche, Massimo Radaelli, and as applicable, Robert M. Whelan, Jr., the following questions.
Dr. Denner and Sarissa in their (dated) February 19, 2015 13D assert the following:

“In addition, the Reporting Persons are extremely concerned with the conduct of certain members of the Issuer’s board, particularly with respect to compensation, governance and financial matters. For example, the Reporting Persons are especially disturbed by the decision to renew Harvey Berger’s employment contract in October 2013 and, given the egregious terms of that employment agreement, urge the Issuer to immediately disclose to shareholders any discussions of the board and the compensation committee regarding the decision to renew this agreement. In this regard, the Reporting Persons may seek to compel such disclosure and may ultimately initiate court proceedings to seek to remove one or more directors for cause based on potential breaches of their fiduciary duties. “

Everyone should read these allegations slowly a few times to absorb the full gravity of their nature and implications.

These extremely serious allegations, made publically, speaking to possible criminal felony SEC violations on the board, are wide ranging in scope and involve the corporate duties of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Dr. Berger and perhaps others, i.e. virtually the entire BoD. The veracity, legality, ethics, capabilities and personal integrity and character and every BoD member and the BoD collectively was challenged. It is not at all possible that BoD Alex Denner was simply ‘blowing smoke’.

It is noteworthy that reelection of Dr. Berger and Audit and Governance committee member and Lead Director Wayne Wilson were 2015 Proxy Item 1 to be voted. Neither was physically present at the AGM or responsive on the phone, if present there.

In fact, I am unaware of either responding publically in any way to the allegations, including denying them, except through a presumed negotiation to apparently silence Alex Denner/Sarissa through the April 28, 2015 Agreement (Agreement).

The conclusion by way of the Agreement suggests there is a high risk in the probability that the Corporation has not adequately dealt with the issue as regulatory risk remains.

The Agreement made with Sarissa clearly addressed just that one shareholder. So for others, the following is asked of the BoD:
• Were any of the actions of the type alleged against BoD members in the Denner/Sarissa February 19, 2015 13D SEC filing committed? Were such actions permitted under the Ariad Code of Conduct and Ethics?
• Is there a ‘cover-up’ by the BoD addressed in part by the Agreement executed to silence Sarissa? If so, silence them from saying what?
• Did the BoD “Audit committee” or any Ariad BoD member investigate any or all of these allegations? If so, what exactly was found and determined? What happened exactly? If the allegations were not investigated, why not?
• Regarding these allegations, were the Ariad Conflict of Interest Policies for Board of Directors Effective April 28, 2011 followed and/or were minutes of the Board and of the Governance Committee recorded per the Conflict policy? What conduct did those minutes describe? If there are no minutes, why not?
• How was the resignation of Audit and Compensation committee member Robert M. Whelan related in any way to these allegations?
• As the Audit Committee and/or Governance Committee and/or various other committees or individuals (such as CAO who is subordinate to the CEO and the BoD) would have to be in the position of having to investigate themselves or their superiors of whom they are not independent, a prima facie conflict of interest situation arose. Was an Ariad-independent investigation considered or commissioned? If not, why not? If not, how would any determination be considered impartial, valid or beyond reproach?
• Relatedly, if the Sarissa allegations were unfounded, why was any agreement then necessary with Dr. Denner and Sarissa at a cost of $150,000 barring them from ever mentioning such allegations again (except as noted), as described in the 20150428 8-K, Ariad related Settlement and Retirement Agreements, Item 4 Covenants? With the limitations imposed by the Agreement, can a muzzled Dr. Denner truly be considered an effective, ‘independent’ BoD in every sense of the word?
• CAO DesRosier stated at the AGM, ‘speaking only on his own investigation’ (not the BoDs, if any) that according to his investigation there ‘was nothing to the allegations’ and the extensive agreement with Sarissa and Dr. Berger’s retirement ‘were all unrelated’. If his statements are true, then why was the Agreement with Denner and Sarissa executed or necessary at all? Why therein was Sarissa rewarded with the BoD seat for Ms. Protopapas? Conversely, why was Sarissa and Alex Denner not somehow investigated for alleging of his fellow board members serious and possibly criminal SEC violations that were eventually determined to not have occurred, allegations that clearly could damage the reputation of the CEO, and the effectiveness, ethics, propriety and veracity of the BoD, and perhaps even Ariad itself? Was there any substance whatsoever to the Denner/Sarissa claims?
• Does Ariad have any concerns that a regulatory agency might investigate the matter?

2. For Lead Director Wayne Wilson

Every investor to whom I have relayed the fact that no Ariad BoD member was physically present at the AGM, or otherwise engaged in Q&A via a speakerphone, reacts with the same disbelief I had while at the meeting. That conduct is unheard of for a public company AGM. I presume the BoD approved and actually read and understood the proxy, as did many shareholders. Given the Sarissa allegations, I thought Proxy item 1 as described in Question 1 above important enough that despite palpable discouragement on a phone call from IR about attending the meeting, I drove 9 hours with my wife, the kids and the dog. One shareholder flew in from Germany. Most others traveled hours. Yet, not one BoD member managed even hail a taxi across town, Nor did anyone address any questions even while apparently cowering quietly in some sort of imagined ‘electronic defilade’ via a speakerphone, I’m told, that was in a corner of the meeting room. I note I did address questions at the AGM to you and Dr. Berger, but only heard silence.
In addition, among the many 2015 Proxy BoD shareholder accommodations articulated in the “Responsiveness to Shareholder Concerns” pg.7, Corporate Governance Highlights on pg.8, and elsewhere, there is this irony found on pg. 25:

_________________________________________________________
Director Attendance at the Annual Meeting

Under our Corporate Governance Guidelines, we expect all incumbent directors, as well as all nominees for election as director, to attend our annual meetings of stockholders. All of our incumbent directors attended the annual meeting of stockholders in 2014.
_____________________________________________

Most presume the BoD means what it says when published in proxies. Apparently, this is not the case. The BoDs faithlessness to the simplest of expectations they set for themselves indicates volumes about their lack dedication to protecting shareholder assets and value, while doing so at about 75% of mandated meetings with that agenda.

Realistically, no one should be expected to believe at all, nor do they, that every BoD member was unavailable on July 23, a date known well in advance, and a day that really could not be planned deliberately or so perfectly as to ensure no BoD member attendance or availability.

One would think that those standing for election would attend the meeting. Even the newly appointed Ms. Protopapas passed on her first opportunity to meet with shareholders, making an unfortunate first impression as to what shareholders might expect of her contribution to our interests.

As for Ariad, a company with big troubles struggling by every means possible to fund its massively loss-generating, cash depleting operations, there are questions about this meeting.

• As Lead Director, I ask simply, ‘where the heck was everybody’? Do you or other BoD members consider Ariad’s issues so unimportant and well in hand, or the proxy discussions so perfunctory that there is no need to be available to discuss them? What are your thoughts on that?
• Why did you or whoever was responsible for BoD attendance fail to sufficiently lead and counsel all BoD members in actually meeting this simple AGM expectation, one that the BoD set for itself and published in the proxy that actually defines the day’s business?
• Did any party encourage or conspire with any BoD members to not attend? If so, why? Regardless, what excuses or reasons did each BoD member offer you for missing the meeting?
• Folks I speak to cannot name a single well managed publicly-traded corporation at whose AGM most, if not all, of the BoD does not physically attend. As Lead Director, would you agree that BoD attendance is a best practice for corporations? If so, why was it not practiced so decisively at Ariad in 2015?
• Can you understand why some shareholders distrust Ariad’s BoD leadership to deliver on more challenging tasks when they fail to just show up for this rather important, annual meeting?
• What was the roll call of BoD members, if any, who were listening in on the phone at the AGM?
• As the BoD very much expects BoD members to attend the AGM, but does not actually require them to, does their participation, even if silently on the phone conference, count towards the BoD attendance statistic, (75%)? For compensation purposes, were any BoD paid for the AGM meeting? How much? How does Ariad measure their participation and contribution to that meeting, if any?
• Was the en masse absence of the BoD at the AGM because the plan is to sell the company before the next AGM? (as many have speculated)
• When considering the fail of the BoD at the AGM, and the allegations made by Alex Denner and Sarissa against virtually every BoD member, how would you defend the personal and collective character of the individuals on the BoD?

3. For Anna Protopapas: I could not find Mersana’s policy on BoD attendance at investor meetings, reasonable given the private nature of Mersana.
• Being on the BoD of Mersana, are you permitted to skip AGM-equivalent investor meetings, if any? Do you think personally meeting stakeholders at meetings for stakeholders important? Were you misled by anyone or have any thoughts on the impression that not attending the AGM might have had on shareholders? Is it your practice to opt out of any meetings with the private shareholders of Mersana?

4. For the BoD. The explanation of ‘convenience’ to not have a corporate presentation at the AGM, with or without the second quarter results, made absolutely no sense to many shareholders. Additionally, CFO Fitzgerald confirmed to me that the books take only days or less to close (as they should for such a small company), certainly to be able to release basic financials.
• What other reasons influenced the no presentation decision?

5. For the BoD Compensation Committee. In 2013, the year of the Ariad and shareholder catastrophe, each BoD member received a minimum $328,320 in compensation. Dr. Berger was compensated at $5.8Million, even without a bonus or raise.
• How does the BoD justify these extraordinary payouts (extraordinarily high even without bonuses or raises) to itself when in 2013 the company states it “lost 87% of its value”? Will the company clawback any of that money?
In 2014, the BoD set goals for the CEO and themselves on repairing some of the mostly permanent damage from the very activities the BoD had responsibility in approving, monitoring and risk managing in the first place. Also, in 2014, Dr. Berger claimed it the ‘year to rebuild shareholder value’. The only real metric to measure that was Ariad’s price per share, shares outstanding remaining stable. Not only did Dr. Berger fail in 2014 to build that value, the company hammered its balance sheet with added debt and diluted it further with asset sales. Even as of this date our pps sits below our 2013, and 2014 close. Yet, Dr. Berger was rated as “Exceeding Expectations”. The BoD paid Dr. Berger $3.4 Million and themselves a minimum $295,150.
I assure the BoD, many are hard pressed to fully understand the logic and justification for those rewards, save perhaps for the BoD and Dr. Berger.
• In the thirty or so 2015 Proxy pages of paid, pure, unadulterated consultant speak dedicated to compensation (nearly half of the proxy materials), I could not find one ‘shareholder value’ scorecard metric, i.e. hard value, and performance measurement to applied to the measurement of share price improvement and maintenance. Why isn’t there one given that one of the BoDs primary responsibility is to protect the shareholder assets and their investment, and as it succeeds in that endeavor, the company would maintain a healthy and relatively stable share price?
• I note, as a management consultant myself, I recognize the high-end nature of the compensation sections. Still, the high gloss quality of the veneer of the compensation justifications was only superseded by the inappropriateness of the comparison made of Ariad’s relative position to any peer. I’m not sure anyone can find many peers whose management has lost so much of its market cap for any reason, and still kept its CEO, much less pay him so ‘egregiously’. In that regard, Alex Denner’s allegations ‘kinda’ make a whole lot of sense. Will any clawbacks of anyone’s compensation be made for any year through 2014?
• In 2015, Dr. Berger, who has been the CEO for nearly a quarter-century, managing the company to a share price well below its IPO, never having managed the business to sustaining itself, having blown out the shares outstanding to nearly 200 million and taking on $500M in debt, will receive nearly $6 Million in total, plus stock, on his way out the door. How was that reward determined, especially given the company’s poor performance, and knowing the money is all borrowed at rates well beyond 10%.
• Does it concern the BoD that their decision on pay has them certifying such a reward for a CEO with that record in a struggling company given the recent revelations and politics surrounding Biotech largess in such matters?
• The BoD having failed to meet there own rather easy hurdle to attend the AGM, shareholders doubt the appropriateness or veracity and of any shareholder protections in the proxy, especially the lengthy justifications for ‘egregious’ compensation standards, prepared by consultants bought and paid for that have been admittedly inaccurately constructed the comps in past years. How can any of the compensation plans be considered by shareholders as reasonable or fair, much less not ‘‘egregious’?

6. For the BoD. From the 2014 Ariad Annual Report, pg 49:

...........In connection with our October 2013 announcements concerning the safety, marketing
and commercial distribution and further clinical development of Iclusig in the United States, our stock price declined by 87 percent, from a closing price of $17.14 per share before on the day the first announcements to a low of $2.15 per share following the announcements..............

If one considers the September 2013 $22.31 high closing price of Ariad shares, just 20 trading earlier at the beginning of the slide before the catastrophic drop, the actual drop was 90%+,
• In light of Ariad’s nearly total collapse in 2013, who in Ariad failed in their responsibilities that resulted in that catastrophic drop? Did the BoD place all blame on the FDA? Who was responsible for the FDA relationship? Who was responsible for monitoring the very data that was provided to the FDA by Ariad that formed the basis of the obviously forced ‘voluntary’ Ponatinib withdrawal? Who in Ariad, if anyone, took responsibility for losing 90% of the market cap, and what consequence for that accountability resulted?
• Which BoD committee in 2013 was charged with Risk Management? Why did the BoD Risk management fail so completely?
• Given the short hiatus of the drug off-market, does the BoD believe in any way that the entire episode was avoidable had Ariad taken action earlier? If not, why not?
• In terms of accountability, apart from the generous payouts to the CEO and BoD and others in 2013 and since, what were the consequences for Ariad management and BoD members (save no bonuses on top of the other compensation paid out to the CEO, and the BoD)?
• Alex Denner is the only BoD member that was ‘disturbed by the decision to renew Harvey Berger’s contract in October 2013’. Understanding Alex Denner wasn’t on the board at that time, why did the BoD (those on the board in 2013) renew the contract after the Dr. Berger managed catastrophe of 2013?
• As peer compensation has been relied on by the BoD, what other biotech’s, peers or otherwise, who have had such catastrophic 90% losses of market cap in the $B kept their CEO, much less gave him a golden parachute? How does the BoD justify keeping and rewarding management that steered the company to such failure and failed to protect the assets and investment of the shareholders?
• Regarding the clawbacks, the measures seem all at the discretion of the BoD? If 2013 was the high water mark for compensation, and no pps value gain was achieved in 2014, what specific metrics or scorecard ratings beyond ‘discretion’ might the BoD use in discretionary decisions going forward?

7. For the BoD. At the 2014 Ariad AGM, I had a conversation with a BoD who I believe was Wayne Wilson. He rejected out of hand my suggestion to raise Ponatinib prices to true orphan status pricing level, instead claiming reliance on consultants the BoD utilized in determining pricing. Given the recent developments around Turing Pharmaceuticals and Valeant and the emerging politics, the window for that sort of move may have closed somewhat. Still, Ponatinib is still limited to very small patient population and that won’t change for several years. Fortunately, it is still on patent. On a recent piece about Turing, CNBC published a list of more than 10 on-patent orphan drugs (not compounds), each purported to serve many more chronic patient populations than Ponatinib, and costing in the neighborhood of $500,000/year. In the nearly 2 years that have passed since the more limited Iclusig label, $50M-$100M or more revenue could have been achieved by Ariad.
• Given that Ariad can always lower the price, why hasn’t Ariad yet raised significantly the price of Iclusig in the U.S to higher permissible orphan drug levels?
At the 2014 AGM in the same conversation, the BoD member also said that the company would again raise more funding through equity sales as the pps was expected to rise with news on ‘788 and ‘113. Those rises have clearly not happened. There has been no news on either drug that has moved the needle. Our WACC is not really calculable, but we must pay for funding and debt at effective rates far in excess of 10%. Yet the company has announced it sees b/e in 2018 primarily on the back of Ponatinib, whose sales numbers are sluggish at best, to be boosted presumably in 2015 by an unsustained, one-time recognition of past European sales.
• Is the company goal truly to remain independent? If so, what is the long term funding plan? (Please be specific, because the math and current path suggested by Ariad just doesn’t add up for seasoned financial analysts who see a buy out as the only hope for survival.)
• The CEO has claimed no more equity dilution will occur in raising cash. Has the plan as related by the Board Member changed? If not, how is the CEO correct?
• The CEO has claimed no more equity dilution will occur in raising cash. How are the shares from the exercisable warrants to be considered as somehow “not dilutive?”


8. For the BoD.
• Regarding Sarissa’s attempt to acquire more shares, why won’t an exemption be granted? If Sarissa were to not vote those additional shares, or vote them with the majority board, what objections would remain?
• Can Ariad confirm the recent BXLT buyout offer (and if so, please provide details)? Hypothetically, what price would a minimum acceptable starting point for any bidder to consider offering to buy the company today?
• How goes the CEO search? Will one be named in 2015? Is a search actually on-going (many believe one is not)?
• In the absence of news, the share price has recently and unexpectedly unbuckled from its relatively close relationships to indices and the IBB, down nearly a whopping 40% from July highs. Purported buyout events aside, can the BoD explain this development? Has bad news leaked? If so, what news? Why is the company so quiet?
• Apart from the BoD which claims a solid 75% participation effort in their responsibilities and roles, who else in senior management with broad corporate responsibility is permitted by their employment contract to participate/show up 75% of the time and keep their job?
• Curiously, how was it the SVP of Corporate Affairs Maria Cantor, who I understand heads up IR, did not attend the AGM? Is her attendance at the AGM part of her job description? If not, should it be? What are her leadership duties as they pertain to all shareholders?


9. For Dr, Clackson. By most estimations, ‘113 is 2 years behind original schedule due much in part to extension of the Phase 1/2 trial as dose escalation should have been more of a dose reduction. Now data expected to be released later this year has been moved out mid-next year.
• Why this delay now? Are there problems emerging with the data? Is the drug exhibiting AEs in longer duration patients? What does the BoD project for the ultimate annual revenue for Brig and what year will that occur?
At the 2014 AGM, a plan to reduce AEs in Ponatinib patients using various screening, dosing and treatment techniques was unveiled.
• What progress has since been made in identifying the actual mechanism or chemistry of AEs? In the 15, 30 and 45 dosed patients, what trend in reductions in SAEs, if any, have been noticed in the data? What does the FDA now say about that data trend?
• Does Ariad management still see broad 1st line CML approval (beyond T315I) and if so, how do they support that view?
• What are the plans for the future of the Ponatinib GIST trial?
Regarding ‘788.
• Does ‘788 remain on track? What is the timeline for more news on ‘788? How would you characterize its commercial potential to that of Ponatinib when at this stage?
• Dr, Clackson and the BoD: Does the company still plan to approve a broader, perhaps US partnership for ‘113 given that such a move makes a competitive buyout scenario nearly impossible?