Keeping Biogen Idec Innovative: Jim Mullen Interview (Part 2)

Jim Mullen is being a little reflective. A CEO’s job goes through a couple of phases as a company grows, he says. “The first bridge you walk over is the day that you don’t know the name of everybody in the company. Once that day happens, suddenly all the very informal interactions, they just have to become different.” Then comes the time when the firm reaches around 700 employees. You’ve given up on knowing everybody’s name. And the sheer complexity of the business, the number of projects, the geographic distribution of operations, reach “a point where you actually have to put in more professional processes or you don’t know what’s going on anymore.”

As one of the world’s largest and most successful biotechnology companies, Biogen Idec (NASDAQ: BIIB) has long ago passed such milestones, and so has Mullen, its CEO. Now, though, the company is at a new juncture, as are other leading biotechs. Here’s the dilemma: with some 20,000 employees, Biogen is too big to be super-nimble like the startups nipping at its heels. But it’s too small to match the R&D operations and other assets of a 100,000-person-strong pharmaceutical company. Worse, Big Pharma is encroaching on biotech’s turf. Until recently, traditional drugmakers have done mostly small-molecule work, with biotech specializing in large molecules. Now, Pharma is increasingly thinking big molecules. So, the newer challenge in biotech is to figure out how to leverage your strengths to avoid being squeezed out. Or, put another way, how can you be innovative about being innovative?

That’s one of the key topics I explored in a conversation with Mullen last week. Yesterday I wrote about his take on the state of the biotech industry and the major challenges it faces. Today I’ll focus more on what Biogen is doing to make sure it comes out on top.

First a few impressions of Mullen. He’s pretty laid back, with a ready smile and quick sense of humor. He’s tall—basketball tall. He came to Biogen in 1989, from SmithKline Beckman (now GlaxoSmithKline). He rose through the ranks and took over as CEO in 2000. He retained the CEO title after the merger with IDEC Pharmaceuticals in 2003. Main impression: approachable. Other words I’ve heard to describe him include down-to-earth, pragmatic, practical, strategic.

Which should be a major asset, because it takes an ever-more-complex strategy to stay innovative in today’s climate. In fact, you pretty much have to change your definition of innovation. It doesn’t necessarily have to come from within, for one thing—and so a critical question is how do you tap into outside innovation, so that your company shares in the fruits of other people’s advances rather than falling victim to them?

Biogen’s annual R&D budget now tops $750 million. It has more than 700 scientists working on discovering and developing new drugs, based mostly in Cambridge and a San Diego facility acquired in the merger with Idec. This internal innovation machine, focusing chiefly on neurology, oncology, and immunology, is nothing to sneeze at. But Mullen and I focused our conversation on Biogen’s newer strategies to cultivate external sources of innovation. Small companies pose a serious threat, he says. When it comes to being nimble, “They will beat big biotech and big Pharma pretty much every day. It won’t look pretty, but…they’ll get to the essential point of knowledge creation faster.” His quandary, in his words: “How do you capture that? And can you capture that and still have it in-house?”

On the latter question, Mullen’s answer is yes—and no. What he calls the “bigger experiment” in the company’s innovation strategy does not involve trying to replicate a startup-type environment, which “I think is impossible to create inside a big company.” Rather, it centers on building more relationships and stronger relationships with other companies and outside researchers, and then trying “to nurture those, monitor those, and capitalize on those when those things are appropriate.”

This effort takes several forms. One is acquisition. Biogen has acquired two firms in the last 15 months. One was Conforma, a privately held San Diego-based company, specializing in developing cancer drugs, that Biogen purchased for $150 million (plus incentives) in May 2006. Then, this January, Biogen announced it was paying up to $120 million for Syntonix, of Waltham, MA, which develops long-acting treatments for chronic diseases such as hemophilia.

What’s especially interesting about these acquisitions is the different way Biogen approached each company. Conforma was immediately integrated into Biogen’s San Diego operations. “I’d have to say we retained most of the key people,” says Mullen. “The programs have moved along at a nice pace. That experiment worked.”

With Syntonix, Biogen took a completely different approach: it left the entire firm pretty much alone. Mullen says the strategy was to integrate the financials and the IT infrastructure, and to help the Syntonix staffers access Biogen resources. But that was it. “You see anybody from corporate, lock the door,” is how he describes his instructions to the Syntonix team. “And that’s worked, so far, really well,” he says. “It’s early days, [but] we’ve lost nobody. In fact we found more value there than we thought we’d bought.”

Biogen the VC
Acquisition, of course, is just a piece of the puzzle. Another piece is a $100 million venture capital fund called New Ventures that Biogen created in San Diego about three years ago to invest in early-stage companies. It was a good time to launch such an effort, Mullen says. “There was a time in the ’90s when if you could spell ‘gene’—and you could spell it any way you wanted—you could walk down Wall Street and get a hundred million dollars,” he quips. Around 1999, he says, the biotech bubble burst. “The consequence of that was the window for IPOs got very small, and that’s really persisted to this day.”

That, in turn, has made traditional VCs more reticent to back biotech startups, he says, leaving the door open for Biogen’s fund, which currently has about $50 million invested. Unlike a venture firm, Biogen isn’t just looking to make as much money as possible, but to strengthen its drug war chest and strategic position. Both Conforma and Syntonix started out as Biogen venture investments. For a variety of reasons, says Mullen, “we decided we’d rather own than rent.”

A twist on the venture capital idea is Biogen’s incubator, which I wrote about last month. To quote myself, “The incubator is not a venture arm looking to spawn great new companies. It’s more like a farm system, backing promising ideas that might some day be called up to the big leagues: namely, Biogen.” Basically, Biogen gives startups one-stop funding, lab space, business support, and more—with the intention of buying the company if the work pans out. As Mullen describes it, “Instead of going to VCs for money, bring your project here, set it down, we’ll figure out how to support it…find out whether there’s something there or not.”

Open for Deals
In addition to these activities, Biogen, like every other drugmaker, enters into many alliances. Mullen says he’s pleased with how competitive the company has been on joint development efforts, like the three-product deal with California-based PDL BioPharma (NASDAQ: PDLI) back in 2005 (when the firm was known as Protein Design Labs) or a smaller alliance with fellow Cambridge firm Alnylam (NASDAQ: ALNY) last September.

Biotech can be a strange business, Mullen says. You get a product approved, and almost instantly all the value of that drug might be figured into the stock price. If something goes wrong, as it did with Tysabri, which was withdrawn from the market in 2005 just a few months after it was approved (it has since been reinstated), the stock—and the CEO—can get hammered.

“I’ve been up and down the roller coaster four or five times on the stock price,” says Mullen. The best way to cope, he says: “you’ve got to keep your eye on what generates sustainable value.” Finding new ways to cultivate external innovation, while balancing those against in-house development and all the other details of running a company, are ever-more-important components of that strategy.

Bob is Xconomy's founder and editor in chief. You can e-mail him at, call him at 617.500.5926. Follow @bbuderi

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