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Better Together, or Apart? Biogen, Bioverativ Head Down Separate Paths

Xconomy Boston — 

Biogen, one of the largest biotechnology companies in the world, was at a crossroads in 2016. An experimental drug for the memory-robbing scourge, Alzheimer’s disease, had shown signs of promise. That meant long, expensive, and risky Phase 3 trials lay ahead for Biogen to see if the early signals were more than a mirage.

So Biogen (NASDAQ: BIIB) went for it. In May, it decided to focus exclusively on tough neurological diseases like Alzheimer’s, Parkinson’s, and ALS—fields littered with expensive drug-development failures—and bundle up a stable, growing hemophilia business and spin it into a new company. That company, named Bioverativ (NASDAQ: BIVV), has officially launched this morning and will begin trading on the Nasdaq tomorrow. (Biogen shareholders get one Bioverativ share for every two Biogen shares they own; Biogen will not own any of Bioverativ’s stock going forward.)

Large companies spin off businesses for a number of reasons, but invariably it comes down to the belief that the two separated parts will be worth more than the original whole. To prove that, Biogen has to turn around the slowing revenue growth for its core multiple sclerosis franchise, overcome reimbursement challenges to meet the lofty financial projections for its recently approved spinal muscular atrophy drug nusinersen (Spinraza), and hit on the big bet it’s made on the Alzheimer’s drug, aducanumab (data are expected in 2019). For its part, Bioverativ has to prove it can build a sustainable business around a few FDA approved hemophilia drugs, despite all the competition quickly advancing through clinical testing.

“The test,” says Bioverativ CEO John Cox, “is going to be 2 or 3 years from now when you look back and [ask]: Did both of these companies do better independently?”

Biogen

Former CEO George Scangos left Biogen in January after a six-year stint that had its share of ups and downs. Scangos successfully navigated Biogen through a long-running battle with activist investor Carl Icahn and altered the company’s strategic course. He also oversaw the launch of an oral multiple sclerosis drug called dimethyl fumarate (Tecfidera) that won FDA approval in 2013 and became Biogen’s top-selling product, generating about $4 billion in 2016. In 2012, his team struck a deal to co-develop nusinersen with Ionis Pharmaceuticals (NASDAQ: IONS) and bought worldwide rights to it last August; in December the drug became the first ever approved treatment for spinal muscular atrophy, a rare genetic disease.

By design, Biogen under Scangos amassed a risky, neuroscience-focused pipeline including a group of experimental Alzheimer’s drugs in mid-and-late stage testing. Under his watch, Biogen has restructured and cut a number of jobs to support its risk-heavy investments, halting preclinical work in a variety of other areas. In the meantime, its share price has been on a rollercoaster—from less than $50 when Scangos joined to highs of over $475 in March 2015 to the roughly $275 it trades at today—as Wall Street grew frustrated at Biogen’s hesitance to pull the trigger on a transformative acquisition that can offset its risk.

“We want to work in those areas where others aren’t, where if you know if you’re successful it’s a really big deal,” says R&D chief Michael Ehlers. “That means that as a company, we have to be comfortable with the risk that’s associated with that.”

Scangos viewed Biogen’s hemophilia business—acquired through a $120 million buyout of Syntonix Pharmaceuticals in 2007—as an outlier. At a conference last February, he said he toyed with the idea of divesting the assets when he joined Biogen in 2010. But he ultimately kept them, and the deal turned out very well for Biogen: Syntonix yielded two FDA approved drugs known as Eloctate and Alprolix—regular infusions of which help hemophilia A and B patients avoid dangerous bleeds. The two drugs generated about $560 million in 2015.

Even so, Scangos said last February, they “still have no strategic alignment with the rest of what we’re doing.” Bioverativ’s Cox, a longtime Biogen manufacturing executive, says that Biogen had to make some decisions about how to allocate its capital. Some $1 billion or more could be needed for aducanumab’s Phase 3 trials alone. Though the hemophilia products are profitable, they were a small part of Biogen and didn’t really “move the needle,” he says. Despite rumors Biogen was shopping the business, no deal ever materialized, and the Bioverativ spin-out was formally announced last May.

Given that the hemophilia products offered some financial stability and growth for Biogen, there was some apprehension from analysts when Biogen decided to toss them aside. At the time of the spin-out, for instance, Leerink Partners biotech analyst Geoffrey Porges called it a “somewhat surprising move,” noting the hemophilia products were fast-growing drugs “buffering…the negative headwinds” facing the rest of Biogen’s business and the company would “more or less tread water” until the aducanumab data in 2019. RBC Capital Markets’ Micahel Yee predicted “some head-scratching amongst investors” who “want more growth and diversification, not less.” Others disagree.

“To me, it’s a rational split,” says Jonathan Gertler, CEO of biotech consulting firm Back Bay Life Science Advisors. Biogen removed the “distraction” of a hemophilia business that the company couldn’t spend the time or resources trying to defend or bolster. “That’s not something that’s core to Biogen,” he says.

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