Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Even the best performers get stale. 

Along with second-quarter earnings results that beat analyst estimates, an increase in full-year revenue guidance and a $5 billion buyback program, Biogen on Thursday announced that its CEO of six years, George Scangos, will step down in the next few months. Though Scangos oversaw a five-fold increase in Biogen's share price, investors may not shed too many tears. 

The business is stable, but not booming. Sales growth for the company's biggest drug, the MS treatment Tecfidera, has gone from breakneck to glacial. Biogen has bled executives, losing big names on both the science and business side. And its aggressively hyped pipeline of future drugs is heavy on risky moonshots and light on bankable growth assets. The company's shares rose more than 7 percent on Thursday, but are down 35 percent from their peak last year. To emulate early-period Scangos, and not his less-successful latter days, the new CEO needs to change tack. 

Off Track
Biogen's performance has been trailing other big biotechs, big time. Percent appreciation.
Source: Bloomberg

Not too long ago, Wall Street expected Tecfidera to hit $9 billion in sales in 2020. But it became clear last year that sales growth was slowing, that hopes were far too high, and that Biogen had badly mismanaged expectations. Current consensus for 2020 sales is $4.9 billion. 

Blockblister
Tecfidera is a blockbuster. Just not the one it was once expected to be.

Tecfidera's U.S. prescription growth has slowed after a rapid initial burst, and the drug missed analysts' sales expectations in the second quarter. Biogen has tried to juice sales with an ad campaign, but conceded on Thursday the ads weren't really working. A big chunk of the U.S. sales growth the company has managed for the drug has come from price hikes. 

Slow Goings
After spectacular initial growth, prescriptions of Biogen's blockbuster MS drug have slowed.
Source: Bloomberg

None of Biogen's drugs are expected to turn around its sales-growth slowdown. Biogen plans to spin off its rapidly growing hemophilia drugs, and analysts expect modest (for biotech, anyway) 6 percent sales growth annually through 2020 if that happens. It managed 26 percent growth in 2013, 40 percent in 2014, and 11 percent last year.  

The company and Scangos have repeatedly hyped its pipeline as a solution, but its late-stage prospects are risky. Biogen's big and expensive gamble on a new way to treat MS failed a Phase 2 study, and its future is uncertain. Biogen has a collaboration with Ionis on a rare-disease drug that may turn out to be a blockbuster, but data aren't due until next year, and safety concerns recently cropped up for a different Ionis drug, which might read through to the Biogen partnership.

Biogen's biggest bet is on a drug for Alzheimer's, and it's a potential mega-blockbuster. But Alzheimer's drugs have a way of blowing up spectacularly and expensively in the face of companies trying to develop them.

The company might have tried to support its slowing revenue streams or that risky pipeline with M&A or licensing. But Biogen has been much stingier than many of its rivals in those areas. It did say on Thursday's call that it's looking aggressively for deals and to bolster the pipeline. It's past time. 

Parsimony
Under George Scangos, Biogen has been less than aggressive on the M&A front.
Source: Bloomberg

Biogen did 26 drug-licensing deals from 2010 to 2015, according to data collected by Bloomberg. That's more than any big biotech except Celgene. The initial payments for these deals aren't always disclosed (and there are often further milestone and royalty payments). But based on what's available, Biogen paid $522 million to initiate those deals. In contrast, Celgene has spent $3.48 billion over the same time period. Gilead spent $750 million on its 2015 licensing deal with Galapagos alone. 

Scangos deserves credit for building the world's leading MS drug franchise. But his follow-through has been less exciting. Instead of spending $5 billion on something that might shift Biogen's narrative of slowing growth and excessive risk, investors are getting a buyback. Scangos's successor will need to be more creative.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net