Biogen Idec shot back at Carl Icahn today in a regulatory filing. The company disputed the ways in which the billionaire challenged virtually every aspect of its business, and disagreed with Icahn’s fundamental conclusion that it is suffering from “failed leadership.”
Cambridge, MA-based Biogen (NASDAQ: BIIB) says its R&D pipeline is strong, physicians are regaining confidence in the benefits of its most effective multiple sclerosis drug after some safety concerns, and that shareholders would “weaken” the board’s financial and operational capabilities if they vote for Icahn’s slate of candidates.
The proxy battle is heating up again this spring at Biogen, as Icahn launched a withering attack on the company as shareholders consider who to elect to the company’s board at the annual meeting on June 3. Icahn, who failed to win any board seats at last year’s meeting, is pushing again this time with a bid to elect four new directors to the 13-member board. Change in the boardroom is needed, Icahn argued, because the company’s stock price has trailed its peers for years, the predicted cost-savings from the 2003 merger with Idec Pharmaceuticals never materialized, and the company has failed to generate any new products from its R&D department since 2004.
“Fundamentally, we want to reinvigorate and refocus the R&D pipeline,” said Alex Denner, a portfolio manager for Icahn. “That’s one area they need critical help.” He added the Icahn slate wants to find ways to decrease spending on overhead, and that it wants to “study the idea” of whether the company would be better off splitting into separate companies that focus on cancer drugs and neurology treatments.
Biogen didn’t directly tackle that question of whether to split up the company, although it loaded plenty of details in its defense, through a 40-page PowerPoint presentation to shareholders that was disclosed with the Securities and Exchange Commission. Much of the defense was focused on the company’s pipeline of experimental drugs.
On the R&D question, Biogen argues that it has seen “robust growth across all phases of the pipeline.” The company had 73 programs in various stages from discovery through development, which represents 23 percent compound annual growth over the past five years. R&D spending has doubled in those years, while the number of programs has almost tripled, the company says. The company said it has 60 ongoing clinical trials, covering 15 different diseases. It quoted several bullish analysts after its March R&D day presentation. “The early stage pipeline is innovative,” said analyst Jason Kantor of RBC Capital Markets.
On its MS drug natalizumab (Tysabri), the company said “physicians are regaining confidence.” The company disclosed survey data from physicians who were asked whether the benefits of the drug outweigh the risk it poses to multiple sclerosis patients. About 45 percent agreed in July 2006, when the drug was re-introduced to the U.S. market after the FDA said the benefits outweighed the risk of patients getting PML, a rare and potentially fatal brain infection. That confidence level increased among physicians to 65 percent by June 2008, but dropped again to 45 percent after a pair of PML cases were diagnosed and publicized in July 2008. About 61 percent of physicians reported the benefits outweigh the risks, according to Biogen survey data from February.
On the stock price, the company pointed out that Biogen Idec shares have outperformed the Amex Biotechnology Index composed of largecap biotechs, and the S&P 500 Index since the 2003 merger with Idec Pharmaceuticals.
On the dealmaking front, Biogen said it is exploring opportunities to get a piece of assets in late stages of development or marketed products. It wants products that can increase revenue growth in the short term of 2010 to 2013, to be sold with a small, specialty sales force; and ones that can be bought cheaply.
On the corporate governance front, Biogen pointed out that the board has an “owner’s perspective.” It pointed to examples of financial discipline, when it laid off 17 percent of its workforce in 2005, was able to boost its S&P credit rating, and built up the company’s cash balance to $2.5 billion at the end of March. It said several directors chosen over the past three years reflect “diversified expertise and shareholder input.” The new directors include Biogen’s head of R&D, Cecil Pickett; Marijn Dekkers, the CEO of Thermo Fisher Scientific; Nancy Leaming, a former CEO of Tufts Health Plan; Stelios Papadopoulos, a longtime biotech investment banker; and Brian Posner, a hedge fund manager.
On one slide, the company directly challenged the Icahn nominees, arguing they would “weaken” the board’s financial and operational capabilities. Biogen argued that the dissidents, including Denner, Harvard Medical School professor Richard Mulligan, Thomas Deuel of Scripps Research Institute, and David Sidransky of Johns Hopkins “have served or will serve together” on boards of three different companies—ImClone Systems, Enzon, and Amylin Pharmaceuticals.
In its conclusion, the company said there was essentially no need to rock the boat. “This board is best positioned to continue to deliver value to all shareholders,” the company said.
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