12:00 AM
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Jul 12, 2010
 |  BioCentury  |  Strategy

Biogen Idec's Agenda

New CEO must revive Biogen Idec's commercial performance, streamline its R&D

Of all the first generation big cap biotechs, Biogen Idec Inc. has always been known as the stodgy one. Ironically, it has taken the intervention of activist investors - generally thought of as green eyeshade wearers with a singular focus on the short-term bottom line - to finally bring in a quintessential biotech CEO with the kind of R&D background that is still at the heart of what biotech is all about.

At the end of June, the company announced it was hiring George Scangos as CEO. Scangos, who had been president and CEO of Exelixis Inc. since 1996, is a microbiologist by training. He was previously president of Bayer Biotechnology.

The hiring brings to a close the first chapter in Carl Icahn's involvement in the company, which began when he made an initial investment in August 2007. Soon thereafter, the company put itself up for sale, a process that proved unsuccessful.

In February 2008, Icahn proposed three nominees for the board of directors and proposed to restructure the board in hopes to restarting efforts to sell the company. He also said that if the company "failed to act to enhance shareholder value" he would come back the following year to nominate four more directors.

Icahn didn't get his initial slate elected and indeed came back the following year with four more nominees, two of whom were elected to the board in June 2009. Among Icahn's critiques at the time were that the 2004 merger of Biogen Inc. and Idec Pharmaceuticals Corp. failed to create shareholder value and that the biotech might need to be split up into a neurology company and a cancer company.

He also noted that the company hadn't introduced a new product since 2004, saying the R&D group needed to be reinvigorated, and called for an examination of Biogen Idec's cost structure.

In June of this year, a third Icahn nominee was elected to the board.

With three Icahn directors, several new directors chosen by Biogen Idec, and a new CEO, chapter two now begins.

Leadership

After three years of fights between investors and management, both in public and in private, of aborted efforts to sell the company, of changes to the board, of talk of splitting up the company, it finally looks - at least from the outside - as if everyone left standing is on the same page.

Given where Biogen Idec was in 2007 before the turmoil began, the facts argue that the company was in need of more than a little shaking up.

The company has produced far less over the years than its brethren from the first biotech generation. Its nearest comps are Amgen Inc. and Genentech Inc., and Biogen Idec has under-performed both of them.

In terms of products on the market, Amgen has seven marketed drugs for which it breaks out sales, including five that sell more than $1 billion annually. Genentech has nine marketed products, including four with more than $1 billion in sales. Biogen Idec has only four products on the market, two of which sell more than $1 billion a year (see "Blockbuster Drug Counts").

The company has not had a commercial launch since 2004, and 2009 revenue growth was only 7%. Non-GAAP EPS growth was 13%, reflecting stock buybacks and a reduction in SG&A. For 2010, the company has been guiding for revenue growth in the mid-single digits.

Biogen Idec also has let its key Avonex franchise slip. In 2008, Copaxone glatiramer from Teva Pharmaceutical Industries Ltd. became the world's best-selling multiple sclerosis therapeutic, even though most observers would argue that Biogen Idec's Avonex interferon beta-1a is the better drug. In the U.S., Copaxone sales grew an average of 25% annually during 2005-09 vs. 11% for Avonex (see "Avonex vs. Copaxone").

Meanwhile, Biogen Idec has been spending about 30% of revenues on R&D, with less to show for it. Amgen and Genentech spend about 20%. Amgen has 28 NCEs in its pipeline, Genentech had 21 prior to being acquired by Roche, and Biogen Idec has 19 (see "Pipelines and R&D" ).

Thus it would not take an activist to suggest that someone needed to take a fresh look at the company from top to bottom, to revive its commercial fortunes, to fill the leadership void in the R&D organization that has been vacant since October 2009, and to rationalize R&D spending.

While many of Biogen Idec's problems are commercial, the board has clearly concluded this does not mean the company needs a CEO with a commercial background.

Not surprisingly, Scangos agrees.

"A question I get a lot is that I don't have any commercial experience," he told BioCentury last week. "I find that question misguided. It's a CEO position - not a head of sales and marketing. The right person needs to know how to manage things that are not in their background."

At the same time, he added, "my coming here shouldn't be interpreted as Biogen Idec emphasizing R&D. It is an R&D-based business, but the first priority is expanding and protecting the commercial franchise. A CEO has to manage the whole company."

Alex Denner, one of Carl Icahn's representatives on the board, echoed this view.

"George is an excellent manager who will focus on execution in the commercial operations and bringing value to Biogen Idec shareholders," Denner told BioCentury. "For instance, I think that he will demand that shareholders get a good return from R&D investment."

Notably, Scangos agreed to work for a board that is now clearly focused on getting investors a return on their money.

"When I started the process this obviously was an issue of considerable concern," Scangos told BioCentury. "But I talked to every member of the board, many of them more than once. I think most of the acrimonious stuff is behind them and they're trying to work together to take the company forward. Everybody is looking forward to a new start."

He added: "Some people are representatives of Carl Icahn and others are not. But if I didn't know that going in, I wouldn't have been able to tell. They're all concerned with the same issues."

Kurt von Emster of venBio LLC, who doesn't...

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