Ariad Pharmaceuticals (ARIA) founder and CEO Harvey Berger is exiting the struggling cancer drug company in a settlement with Sarissa Capital, the activist hedge fund led by Alex Denner, the company said Wednesday.

Denner's fund, which owns almost 7% of Ariad, started a proxy fight last February to wrest control of the board and force Berger's ouster. Ariad shares tumbled in 2013 because safety problems tied to the company's leukemia drug Iclusig led to restrictions on its use and cut into sales growth significantly.

Despite efforts to turn the company around, Ariad's market value never fully recovered from the Iclusig blowup. Sarissa took a sizable stake in Ariad and pushed for Berger's ouster in order to accelerate change at the company.

Under the settlement announced Wednesday, Berger will "retire" from Ariad as soon as a CEO replacement is found but no later than the end of the year. Denner is leading the company's search committee for a new CEO.

"I am excited to work with the board members to optimally position Ariad as it embarks on its next stage of development," said Denner in a statement.

As part of the settlement, Ariad also appointed Mersana Therapeutics CEO Anna Protopapas to fill a vacant seat on the board and Sarissa withdrew its proposed slate of directors.

Ariad shares are up 3% to $9.15 in early trading. 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.