Ariad Directors Resign En Masse, Accuse CEO of “Grossly Inappropriate” Behavior

12/5/08Follow @xconomy

A boardroom dispute at Cambridge, MA-based Ariad Pharmaceuticals exploded into public late today. Four of the biotech company’s nine directors quit over “vigorous disagreements” with CEO Harvey Berger, accusing him of “grossly inappropriate” and “manipulative” conduct in pushing through a merger with a gene therapy operation, according to a filing today with the Securities and Exchange Commission.

Ariad, (NASDAQ: ARIA) was founded in 1991 and has no marketed products. Its cancer drug candidate deforolimus is in the final stage of clinical trials, in a partnership with Merck.

The dispute, as described in a letter of resignation from the four directors, sounds like downright Shakespearean tragedy. The letter was addressed to Berger, dated Dec. 1, and written by Michael Kishbauch, Sandford Smith, Burton Sobel, and Elizabeth Wyatt. The directors accuse Berger of “self-interested, combative and obstructionist actions” over the last month regarding a merger with Ariad Gene Therapeutics. They focus on a board meeting on Nov. 3, in which they accuse Berger of recomposing the board to allow his allies to control the decision to merge without the other directors’ input; removing the vice chairman of the board; installing a close family friend as lead director, and for violating agreements the board approved that he disagreed with.

“The acts of unfair dealing against the four independent directors by you and the current Board majority have created a toxic environment within the company’s leadership ranks and inside the boardroom,” the directors wrote in their resignation letter. “Regrettably, you are now responsible for causing the departure of four more independent directors, as well as the prior departures of officers and other directors who were not full supporters of what we now recognize to be your personally motivated agenda for running Ariad.”

They don’t say specifically what they objected to about the merger, other than to say they worked to ensure a “level-playing field for all Ariad shareholders” and that Berger and director Jay LaMarche had a “clear conflict of interest.” The group of resigning directors includes, by their description, “a senior officer of a sizeable publicly traded biopharmaceutical company and former vice chairman of the Board who has served Ariad since its inception, a long-serving director who was a nationally respected member of Ariad’s scientific advisory board, a CEO of a publicly- traded biotech company, and the former head of technology transfer of a major pharmaceutical company.”

“In our many decades of public company experience, we have never before witnessed the egregious misbehavior in which you have engaged during recent weeks,” they added.

Ariad’s continuing directors, including Berger, added their side of the story in the filing. The continuing directors “strongly disagree” with the resigning directors, and added that they see the resignation letter as a false attack. “The independent directors believe that the comments and characterizations of Dr. Berger’s leadership, actions, behavior, motivations and dealings with the resigning directors are inflammatory and false, and contrary to one of the company’s key corporate values—mutual respect.”

The continuing directors go on to explain that the Nov. 3 meeting was called in accordance with the company’s bylaws, and proper notice was given for all directors. It says the board appointed Athanase Lavidas, the CEO of Greece-based Lavipharma Group, as lead director, replacing Sandford Smith, “in an effort to strengthen the leadership of the non-management directors and their ongoing interactions with management.” The continuing directors add that the resignations will help the board, and that they support Berger, who founded the company more than 15 years ago. The remaining directors are Berger, Lavidas, Jay LaMarche, Massimo Radaelli, and Wayne Wilson.

Raedelli and Wilson joined the board in October, just one month before the disputed board meeting.

The resigning directors, in their closing line of their resignation letter, said the scientific team and programs at the company “are first-rate, and we continue to hope that they will be commercially successful.”

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  • Jim Jones

    I think Berger is a two-bit snake who needs to permenantly be barred from ever running a public company. If he’s so interested in himself, maybe he should take the company private. He is everything that is wrong with corporate america these days – he is NO better than all the other awful CEOs who have been caught – it’s just that no one cares enough to throw this guy out!!!!!

  • Simon Gregory

    Dr. Berger is setting himself up for a huge class action lawsuit by shareholders due to his gross misrepresentations now and over the years since the company’s inception. After being burned by this company, most former shareholders just shook their heads, chalked it up to experience and moved on. But the current and former shareholders will soon get a chance to hold the good doctor’s feet to the fire via the legal avenue. If Berger cared anything at all about shareholders, he would remove the poison pill and allow the company to be taken over by a competent pharmaceutical company which would finally reward long suffering shareholders.

  • Jim Carson

    Dr. Berger needs to be fired from Ariad. The value of Ariad’s franchise for it’s pipline of Defro and ’534 has just been cut in half due to this Chairman’s actions (now worth $.60 per share). I have emailed Merck’s Invester Relations dept, expressing my total lack of trust in Ariad’s leadership at the top, and asked that they launch their own investigation in the ethics of Ariad’s leadership. New partnerships for their kinase inhibitor, ’534? That will now not happen. Berger must go.

  • Tim

    GREED IS GOOD

    I’ve got friends in low places

  • Aster Oidinsky

    “The continuing directors add that the resignations will help the board, and that they support Berger, who founded the company more than 15 years ago.” I can not wait to read how these resignations will help the board … or maybe they meant that it will allow Berger to load it up even more with friends and relatives. I guess what ever the “CEO for Dummies” book says he should do next he will do.

    One just has to look at the number of quality people who have left the company this year alone and one will see that this isn’t just a few people upset about stocks or their stock options. Ariad is a company with promising products but with Berger’s guideance they have been slow in coming and how many lives have been lost waiting for Berger to be a good CEO? Berger and others seem to not care about people lives…only their own inhumane greed.

  • DL

    Not a good year for Ariad. Key people walking away from the comapny; Losing the Amgen case; The NF-Kb patent being rejected by the USPTO; the BOD turning on Berger for his mismangement of the company.

  • DRL

    This is the main problem with corporate America. This guy is no better than Ebbers, Lay or any of the other crooks on Wall Street – he’s just a different kind of crook. One that only cares about what is good for him, good for his bank account, and good for his ego. The fact that so many people over the years have abruptly left a company with apparent promise just goes to show the lengths this guy will go through to suit his personal needs. The sad thing is, if it wasn’t for him, this company would be prospering right now and saving lives, rather than floundering along and rummaging through the pile of trash in the biotech sector.

    It’s apparent this guy needs to “go”. And it needs to happen quickly.

    I strongly suggest emailing the CEO, Richard T. Clark, at Merck and email him the 8-K as well as the Directors’ letter and let him know that not only is this guy ruining the company, he is potentially going to ruin the entire future of their collaborations and product lines.

    I believe this is his email:

    richard.clark@merck.com

  • b

    Can anyone describe, with specifics, what Dr Berger did wrong?

  • DRL

    “Can anyone describe, with specifics, what Dr Berger did wrong?”

    Yes. He’s been screwing shareholders for years now.

    That’s what he has, and continues to “do wrong”.

    Not only that, but according to the 8-K, it sure sounds like he was pissed off he didn’t get more money for his AGTI shares, and created an atmosphere of hate similar to what would be expressed on a 4th grade playground.

    Look at all the people that have left this once promising company over the past few years.

    Unfortunatey, Dr. Berger wasn’t one of them. Hopefully, there will be pressure for him to resign over this – before the company fails because of him and his pathetic leadership.

  • rbj

    The resigning directors, in their closing line of their resignation letter, said the scientific team and programs at the company “are first-rate, and we continue to hope that they will be commercially successful.”

    Berger founded the company and has run it for 15 years and as such, gets the credit for the “first-rate scientific team and programs” and that is all that is important in the long run!

  • JK

    Is it “important” for Berger that he wanted to screw shareholders in the process of the AGTI transaction? Harvey wanted to dilute shareholders not 2:1 (which is what Harvey is crying like a little baby over – and is the dilution level that the Board implemented), but, Harvey wanted to dilute the company 10:1 (10 shares of Ariad for every share of AGTI).

    Harvey didn’t get his own way, (this after Oppenheimer and several other people other than himself came to the conclusion that 2:1 was the appropriate level) so, he pulled out of the stops of a 10 year old. The guy is a real piece of work – looks like all he cares about is filling his own bank account, even if it means screwing all shareholders other than himself!

  • DL

    You think the conference call tomorrow is about the NF-Kb patent being rejected by the USPTO and how Ariad will never see any money from Lilly and how they have to return funds to BMY or him spinning how 4 quality members left the BOD because of his mismangement of the company.

    Oh wait according to some idiots on a certain board Berger has never done anything wrong…ever!!

  • CP

    Dr. Berger has mislead shareholders since, literally, close to the IPO. This company is trash because of him and only him. Look at the amount of personnel that has left Ariad in the last year alone. Its a disgrace.

    I can’t wait to hear what new lies are told in tomorrow’s conference call. I cannot believe no large shareholders have ever called a proxy vote to kick this trash out of this public company.

  • JP

    And what about cancer patients like myself who are actively participating in an ARIAD trial? We certainly are entitled to a say in this scenario as well.

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