It’s been a roller coaster year for Biogen. A year ago, the Cambridge, MA-based company was the toast of biotech. Executives telegraphed positive early data about an experimental Alzheimer’s drug, and shares boomed, trading as high as $475 apiece last March.
Things have changed since. The biotech bubble has deflated, taking valuations down with them. Drug pricing has become a hot topic in Washington. Investors have become more risk averse. That’s bad news for Biogen (NASDAQ: BIIB), which by design has amassed a risky pipeline, highlighted by that Alzheimer’s drug, aducanumab, and a drug meant to repair nerve damage in multiple sclerosis patients (anti-LINGO). Biogen shares now trade at about $250 apiece, and the company announced plans in October to restructure and cut a number of jobs to support its risk-heavy investments.
That restructuring wasn’t a topic of conversation at a chat Biogen’s CEO George Scangos (pictured) gave Tuesday morning at the BIO CEO & Investor Conference in New York. Scangos touched on myriad issues, including drug pricing, Biogen’s history, the strategy he’s tried to institute since he was named CEO in 2010, and how to cultivate a culture of risk. Here are a few tidbits from the discussion.
—Lower drug prices = fewer drugs. Scangos warned that a policy change on drug pricing would have a trickle down effect on the risks drug companies are willing to take. Year after year, Biogen has increased the price of multiple sclerosis drug interferon beta-1a (Avonex); Scangos says that Biogen invested that revenue in other MS drugs that are now approved and in development. “Are MS patients better off because we were able to charge for Avonex or not? And I think there’s no question that they are.”
He added: “If there gets to be real pressure on drug prices, there will be fewer drugs coming through the pipeline. R&D budgets will go down, many biotech companies that rely on funding from [venture capitalists] will have less attractive returns, they’ll be squeezed, maybe some new ones won’t get funded. It’ll have a major impact…You can have healthy prices for drugs and a good pipeline in the future, or you can crush the prices for drugs, and have no pipeline in the future. That’s the tradeoff.”
—An Alzheimer’s commercial bottleneck. One of Biogen’s most closely watched experimental drugs going forward is aducanumab, a potential Alzheimer’s drug that the company is hoping can prove to help reverse the disease’s effectson cognition—something that’s never been done before. If aducanumab is successful, someday Biogen would have to sell it, and Scangos noted that Biogen “still hasn’t sorted through” how to do that: “We don’t at this point in time have the commercial infrastructure to do that,” he says. “We’ll either have to build it or rent it, and we’re figuring that out now.”
One of the reasons that’s important is that the healthcare system may not be ready for it widespread use of an antibody drug like aducanumab, which must be delivered via intravenous infusion. As Scangos said: “If this is once a month for millions of people, you’re talking about 10 to 15 million IV infusions a year. There are not enough infusion centers to do that, so you either have to find a different delivery method or you have to build the infrastructure.”
—Surprise, surprise: Expect more deals. A broad market sell-off means a number of biotechs, and potentially attractive assets, are cheaper to buy than they were a year ago. “As we looked at potential acquisitions over the past year or two, there were a lot of companies that were quite interesting but we couldn’t get there on the valuation,” he said.
No surprise, then, that Scangos expects that to change. But will the leaders and shareholders of companies trading far off their peak values decide to sell? “Every biotech CEO thinks their rightful valuation is whatever company had at its peak,” Scangos said. “People have to get used to the fact that the peak was the peak, and the world changes. That takes awhile.”
—Biogen’s anomalous hemophilia program. Biogen has two FDA approved products for hemophilia, Alprolix and Eloctate, and they’re complete anomalies. Scangos has reshaped Biogen into a company battling debilitating neurodegenerative diseases like Alzheimer’s, Parkinson’s, and multiple sclerosis, while jettisoning earlier efforts in heart diseases and cancer. The hemophilia programs were in their “infancy” when Scangos arrived in 2010 and, he says, “had no strategic ties to anything else we were doing.”
Scangos originally aimed to divest the hemophilia assets, but kept them because they were less risky to develop than some other treatments and cheaper and quicker to test and get to market, and because there was a chance they could make an impact on the disease. “So now we have it, and it still has no strategic alignment with the rest of what we’re doing,” he said.
Yet because Biogen has the two drugs it’s committed to building more of a franchise around them, despite how competitive the landscape is for other treatments. It’s invested in a potential gene therapy for the disease, and is developing what it hopes would be longer-lasting treatments than the products it already has on the market.
“If all we were going to do was market those two compounds and let them run their life cycle then we should probably just sell them, right? If we’re gonna be in it we need to be making investments for the future and the next generation of products, and care about this.”
—Expect Biogen to buy into more biosimilars. Biogen formed a joint venture with Samsung in 2012 to develop biosimilars, generic biologic drugs. Currently it owns just about 10 percent of that venture, with Samsung owning the rest. Expect that to change, however. Biogen has the option to buy up to a 50/50 split of the joint venture, named Bioepis, at any time. Bioepis just won approval its first product, a biosimilar version of the rheumatoid arthritis drug etanercept called Benepali, last month in Europe. Another one or two could come later this year, according to Scangos. “We’ll certainly do that, unless some disaster happens,” he said. “We don’t have to do that tomorrow. We have some time to exercise [the option]. But it’s going so well, it looks like there is a real business there.”
—Mum on Forward Pharma. Biogen’s oral multiple sclerosis drug dimethyl fumarate (Tecfidera) is facing a patent challenge from Forward Pharma (NASDAQ: FWP), a Danish biotech that went public in 2014. Scangos declined to talk much about the ongoing litigation, noting that while Forward openly talks publicly about the fight, “that’s the whole investment thesis in the company.”
“We’ll litigate in the courts, not in the newspapers,” Scangos said, before he paused and added, “I do want to say we’re very confident in our position.”