Ariad Pharmaceuticals ($ARIA) just relaunched its leukemia drug Iclusig last week, but already buyout rumors are buzzing. The U.S.-based biotech saw its shares jump this morning on reports that Eli Lilly ($LLY) is leading a field of several potential buyers.

M&A buzz is just that, and in this case, it's a bit odd, given that Ariad has been suffering since safety questions sidelined Iclusig. Even more odd is the fact that London's Daily Mail says its sources suggest a price of up to $20 per share, which would be more than double yesterday's close.

What's the rationale for that, given Iclusig's spectacular slide? In October, the FDA forced it off the market temporarily, while it reviewed life-threatening blood clots that cropped up in a late-stage trial. In early November, the company laid off nearly half its U.S. workforce as it waited for the FDA to clear Iclusig for relaunch.

And though Iclusig is back to market, it's now subject to restrictions that reduce the size of its potential market. Previously approved for patients who had either failed on treatment with a tyrosine-kinase inhibitor, or couldn't tolerate it. Now, Iclusig is limited to CML patients with a T315I mutation, and the drug carries stepped-up warnings about potential blood clots and heart failure. And Ariad's ability to study the drug in other patient groups--and thus expand Iclusig's market--could be hampered by safety questions. Meanwhile, regulators in Europe put their own limits on Iclusig sales and are further studying the drug's risks.

But Eli Lilly might be willing to roll the dice. The company is in a world of hurt right now. Already suffering from generic competition for its former star, Zyprexa, Lilly now faces generic rivals for last year's top seller, the antidepressant Cymbalta. That drug went off patent last month. Lilly execs promise that 2014 will mark the nadir of its sales trough, but the company needs new sources of revenue, and quickly. Its own drug development efforts have been hit-or-miss.

The Mail reports that GlaxoSmithKline ($GSK) and Shire ($SHPG) are both circling Ariad at a distance, waiting to see whether Lilly moves in for a deal. Whether this supposed buyer interest is serious remains to be seen; the talk could simply stem from the fact that Ariad is a lot cheaper now that it would have been last fall, when its stock was trading above $18. Yanking Iclusig took a $2.5 billion bite out of its market cap, and Ariad shares are now trading at around $7.30 pre-market. The stock closed yesterday at $6.71.

- read the Daily Mail story