New CEO George Scangos Says Biogen Idec’s R&D Has to Improve
George Scangos, the newly appointed chief executive of Biogen Idec (NASDAQ:BIIB), is calling for the biotech powerhouse to improve its research and development productivity. Which could mean that some projects get cut, Scangos said in a call with analysts yesterday. The news broke on Wednesday that Biogen selected Scangos for the big job.
Scangos, 62, knows how to run a tight R&D ship. He comes to Weston, MA-based Biogen after 14 years as CEO of the South San Francisco-based cancer drug developer Exelixis (NASDAQ:EXEL), an organization with fewer than 400 employees and an impressive 14 compounds in development. Some credit for that efficiency also goes to Michael Morrissey, who is taking the helm as CEO of Exelixis after serving as the firm’s president of R&D. (Biogen recently moved its headquarters from Cambridge, MA, to Weston, and it also has a base of operations in San Diego.)
A big knock on the R&D engine at Biogen, one of the world’s leading makers of multiple sclerosis drugs, is that the company hasn’t brought a product to market since the 2004 launch of its MS therapy natalizumab (Tysabri). Scangos, who starts work at Biogen on July 15, indicated that he would like to recreate some aspects of the Exelixis culture at his new company.
“At Exelixis, we were able to create a culture with a sense of urgency, a lack of bureaucracy, and great productivity—but with much more limited financial resources,” Scangos said. “One of the compelling characteristics of Biogen Idec is its size; it’s large enough and has great cash flow, and it’s small enough so that we can instill a greater sense of urgency and move quickly and decisively.”
Scangos reminded analysts and journalists at least twice yesterday that he doesn’t officially start work at Biogen for another couple weeks, and he declined to discuss specific changes he would make. But a focus of his early days will be on reviewing Biogen’s pipeline, which includes five products in late-stage development that have the potential to be launched on the market over a three-year period, he said.
“Another priority for me is to take a hard look at R&D. We spend a lot of money on R&D and we have to make sure that we are spending it thoughtfully and in a way that provides an appropriate return,” Scangos said. “This is a challenge that is not unique to Biogen Idec, but I think we can do better and have to do better. I intend to review the pipeline and focus on high-potential projects and cull projects that don’t have high commercial and medical potential. We’ll start that process immediately, in parallel with hiring a great new head of R&D.”
Biogen has had a vacancy in that position since Cecil Pickett retired from the post last year.
Scangos succeeds James Mullen, who retired June 8 at age 51 after 10 years as CEO of Biogen. In his final years at Biogen, Mullen took some shots from the billionaire investor Carl Icahn. Icahn, during one of multiple proxy battles with Biogen, told investors that Mullen had pocketed $60.8 million in total compensation over a five-year period when Biogen’s stock fell from $66.61 to $47.63, and that the company’s poor R&D performance was a product of “failed leadership.” In the course of his proxy fight last year and a deal he cut with Biogen this year, Icahn has put three of his associates on Biogen’s 12-member board.
Now Scangos, who is also joining the board at Biogen, has to lead a company where Icahn has significant influence. In an interview yesterday, the new CEO expressed no qualms about operating alongside the Icahn camp. He noted that he met with each member of the board before accepting the job at Biogen.
“Unless you knew beforehand, I couldn’t tell you which of those people were representatives of Icahn and who weren’t,” Scangos said. “I think the board has come together and everyone has the spirit of doing the right thing to build value for the company.”
Alex Denner, an Icahn investment manager and Biogen board member, could not be reached this morning for comment. (He did leave Xconomy a voice message last night, and he was quoted as a supporter of Scangos in this Boston Globe story.)
On whether to hire Scangos, Biogen’s board was unanimous in its decision, said Bill Young, the company’s chairman. In Scangos, Young was also able to fulfill his and the company’s objective—which he told Xconomy about in February—to find a new CEO at Biogen with a strong scientific background or at least an appreciation for the important role science plays in the biotech business.
Scangos picked up his PhD in microbiology from the University of Massachusetts, and he spent six years on the faculty at Johns Hopkins University before he became a staff scientist at Bayer in 1987. At Bayer, he worked his way up to president of the Germany-based company’s biotechnology organization, where he led the deal with Emeryville, CA-based Onyx Pharmaceuticals (NASDAQ:ONXX) that brought Bayer certain commercial rights to the big-selling cancer drug sorafenib (Nexavar).
In 1996, Scangos joined Exelixis, where his claim to fame has been to license the company’s anti-cancer compounds to large drug companies such as Daiichi Sankyo, Genentech, GlaxoSmithKline, Sanofi-Aventis, and Pfizer. Exelixis has not yet brought a drug to market, yet last year it brought in $151.8 million in revenue mainly from licensing fees and payments from these large collaborators.
Young, a former chief operating officer of South San Francisco-based Genentech, said that he has known Scangos for years and they both live in the Bay Area. So Biogen’s chairman was already familiar with Scangos’s accomplishments when Scangos landed on the company’s list of candidates for the CEO job. (Biogen began the search process back in January, after Mullen announced his retirement early that month.)
“Science is really at the heart of our business, and you don’t necessarily have to be a scientist, but you have to appreciate it and understand how you work with the R&D folks and relate that commercially,” Young said. “We were looking for someone who had that spirit, and George fills the bill for us.”