New Biogen pick for CEO inherits tough job; markets aren’t exactly enthralled–yet

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Biogen Inc. (Cambridge MA) said Monday (December 19, 2016) it has named veteran biopharmaceutical executive Michel Vounatsos, head of the company’s commercial organization, its next chief executive. Mr. Vounatsos will succeed George Scangos, who announced earlier this year his intention to step down after his replacement was found.

@Biogen hires Michel Vounatsos as head of the company’s commercial organization Click To Tweet

Vounatsos inherits a company that’s the world leader in multiple sclerosis drugs, but faces eroding revenue and limited near-term prospects for the launch of new blockbuster medicines, says the Boston Globe.

While the Food and Drug Administration is reviewing the company’s application for approval of an experimental drug to treat spinal muscular atrophy, a rare neurological disorder, its development program for Alzheimer’s disease–considered crucial to Biogen’s future–remains years away from yielding results that could lead to a product on the market.

The appointment of Mr. Vounatsos, who joined Biogen in April 2016 after 20 years at Merck & Co., is effective Jan. 6, says the Wall Street Journal. In his current post, Mr. Vounatsos has steered Biogen’s commercial strategy.

“Our near-term priorities are clear,” Mr. Vounatsos said in a prepared statement, adding that the company intends to “reinvigorate our pipeline in the areas of neurology and neuro-repair” and advance an experimental treatment for Alzheimer’s disease, among other initiatives.

Mr. Scangos, who has served as CEO since 2010, led Biogen through a turnaround, taking over when the company’s stock was trading in the low $50s. Shares hit a high of $480.18 in March of last year, but have since sagged around 40% as worries over growth prospects mount.

Among other moves, Scangos restructured Biogen, divested its Idec cancer-drug division, refocused the company’s research on neurology and hematology, and moved its headquarters back to Kendall Square from Weston. He also presided over the rollout of a half-dozen new drugs, including the multiple sclerosis pill Tecfidera, one of three MS medicines in its portfolio that each generate more than $1 billion a year in sales.

He’s also had to make some more difficult moves. Last year, Scangos detailed a plan to cut about 880 jobs, including 400 in Massachusetts, in recognition of Biogen’s slowing sales growth. And, in May, he disclosed plans to spin off its hemophilia drug franchise, which sells two drugs to treat the bleeding disorder, as a separate publicly traded company.

The decline in Biogen’s stock may be seen as an opening for prospective suitors. Merck & Co. and Allergan PLC have each sounded out Biogen on the possibility of a takeover, the Wall Street Journal previously has reported.

Biogen has focused research and development on multiple sclerosis (MS) and other neurodegenerative conditions, including some to treat Alzheimer’s and Parkinson’s disease.

The company dominates the lucrative market for MS drugs, now worth nearly $20 billion a year. Biogen had sales of $10.8 billion last year, up 11%. Its Tecfidera treatment for the condition had one of the best new-drug launches after its 2013 approval. Tecfidera sales have slowed as competitors like Roche Holding AG develop rival treatments.

Steve’s Take:

The announcement of Biogen’s pick for a new CEO landed on Wall Street Monday with a “clunk.” After a five-month search, Biogen finally found a successor to outgoing CEO George Scangos: chief commercial officer Michel Vounatsos, a former head of Merck & Co.’s primary-care business, who joined the company just in April.

No one seems all that excited about the choice. Biogen shares plunged nearly 5% on the news Monday afternoon before bouncing back somewhat. Investors may have assumed the pick meant Biogen was less likely to be bought in the near term or disliked Vounatsos’s lack of a well-known track record for R&D or turnarounds.

As someone principally with a product marketing and sales background, he isn’t thought by analysts to be particularly qualified or raring to hunt for blockbuster smaller acquisitions to bolster company’s product offerings and revenues, or find a buyer that will pay dearly for the Biogen cachet.

But even a more-exciting pick would have a difficult time restoring Biogen’s fortunes.

Problem number one is Tecfidera, Biogen’s leading drug, Max Nisen of Bloomberg points out. Sales volume has been flattening in the US, the company’s most important market. Essentially all recent sales growth for the drug has come from price increases–revenue has increased even as volumes have been flat or falling.

That’s unsustainable and has to change. Competition is coming, from generic versions of Teva Pharmaceutical Industries Ltd.’s Copaxone and new drugs such as Roche Holding AG’s Ocrelizimab, that will make it harder for Biogen to benefit from price hikes or grow volume for its drug.

Biogen also faces challenges to Tecifera’s patents from a Danish pharmaceutical company and a hedge-fund manager, another threat to future sales. The discounts Biogen is offering to keep market share in the US already appear to be rising.

Tecfidera’s slowdown and broader pressure on the company’s portfolio of multiple sclerosis drugs–which provide more than 60% of Biogen’s sales–mean the company’s once-stellar sales growth has slowed.

Biogen is set to spin off its hemophilia drugs, some of its fastest-growing treatments, early next year. Analysts expect sales growth to continue its downward trend in 2017.

Biogen’s once exceedingly healthy sales growth is slowing to a crawl, says Nisen.

Spinraza, a treatment for a rare muscle-wasting disease developed with Ionis Pharmaceuticals Inc., may be approved next year and could be a blockbuster. But estimates of its potential vary wildly; the high estimate for 2019 sales is $2 billion, and the low is $363 million. If the skeptics are right, then the drug may not make up for Biogen’s MS woes.

Outside of Spinraza, Biogen’s pipeline is a mix of disasters and prayers. This year brought high-profile failures in experimental treatments for MS and inflammatory bowel disease.

The rest of the pipeline likely won’t hit the market until 2018 or later, and includes risky bets such as the Alzheimer’s drug aducanumab. It would be a blockbuster if approved, but the track record for Alzheimer’s treatments generally is not encouraging. Eli Lilly & Co.’s effort, solanuzemab, using a thesis similar to Biogen’s, failed a Phase 3 study in November.

Meanwhile, many analysts Tuesday were constraining expectations for a buyout of the big biotech as they pondered what it meant for Biogen to let its top salesman start calling the shots. Still, as several indicated, there is always hope.

In a call Tuesday, Vounatsos, in a heavy French accent, ticked off some goals, like getting the company’s candidate for spinal muscular atrophy approved and successfully launched, and to turn around and continue to grow its core multiple sclerosis business. But the topic of whether Biogen might be a buyout candidate never came up.

Still, that didn’t stop analysts from addressing it with many investors, for which it continues to be a first priority, says FiercePharma.

In a note to investors, Leerink analyst Geoffrey Porges, said that an $80 billion plus transaction, which is what it would take to buy Biogen, “is always a low probability, and remains so in our view.” Nevertheless, Porges said, with a “scarcity of assets in the industry, it could happen.

While some analysts suggested Vounatsos was an uninspiring choice to lead the company, Porges also thought Vounatsos’s credentials provide investors with some hope of financial improvements at the company in the near term.

Hopeful Biogen investors will have to bank on an unlikely run of upside surprises, both from Vounatsos and the business he inherits. The French national doesn’t strike anyone–yet–as another Scangos in the offing.

But when the former CEO began his tenure at the company, coming over from Exelixis in 2010, he was a relative unknown and not given a prayer of accomplishing the feats he later amassed for his shareholders.

Steve's Take: Let's give @Biogen Michel Vounatsos his fair chance at #biotech stardom Click To Tweet

Let’s give Mr. Vounatsos his fair chance at biotech stardom. He won’t have long to either shine, or go “clunk.”