Saying his new company is spread "a mile wide and an inch deep," Biogen Idec Inc.'s CEO George Scangos PhD affirmed Wednesday, November 3 that the big biotech firm will drastically pare its pipeline, cut 13% of staff, and refocus its efforts around its historic strength in multiple sclerosis.

A series of moves should allow the biotech to shave off $300 million in costs, two-thirds of which would come from research and development, Scangos and his CFO Paul Clancy said on an investor call announcing the news. Broadly speaking, the restructuring came as no surprise to either investors or analysts since Scangos first hinted of the possibility when he took the helm of the company in early July and reiterated his stance in the recent quarterly earnings call ( Also see "With Third Quarter Results, Biogen Idec Continues to Ride Its Warhorse Avonex" - Pink Sheet, 26 October, 2010. ). Although one analyst called the savings estimates "aggressive," most industry watchers believe the restructuring is a smart move that preserves a promising late-stage pipeline in MS and hemophilia while providing much needed focus. "We see BIIB's pipeline as one of the strongest in the industry," wrote Leerink Swann biotech analyst Joshua Schimmer, MD, in a research note.

Away from the numbers, the restructuring is a symbol of how one of biotech's marquee mergers never quite added up to more than the sum of its parts. In 2003, Biogen of Cambridge, Mass. and IDEC Pharmaceuticals of San Diego merged, bringing together Biogen Inc.'s MS leader Avonex (interferon beta-1a) and IDEC Phamaceuticals Inc.'s oncology antibody Rituxan (rituximab), already partnered with Genentech Inc. ( Also see "Biogen Idec: A Sign of Biotech's Maturation" - In Vivo, 1 July, 2003. ).

But Wednesday, CEO Scangos said Biogen Idec would leave San Diego and divest its existing oncology assets, erasing in one fell swoop both the oncology R&D capabilities and physical footprint inherited from IDEC. The company said in October it would sell the old IDEC real estate for $128 million and lease it back for 15 months, but it wasn't until now that it said it would pull out of San Diego as part of its 650 layoffs.

It will also end its commercial presence in oncology by surrendering sales and marketing for Rituxan entirely to Genentech. Company spokeswoman Christina Chan said the Rituxan pullback doesn't change Biogen's profit-sharing agreement with Genentech. But ISI analyst Mark Schoenebaum, a longtime Biogen follower, said the company will forfeit $65 million in expected reimbursement from Genentech. That drops the stated cost savings from $300 million to about $235 million.

Biogen said it will recoup those lost revenues thanks to added Rituxan profits, but Schoenebaum was skeptical of that claim. He also noted that Biogen's savings figure does not include additional business-development activities, which however are included in non-GAAP R&D costs. That omission adds to what Schoenebaum calls "an incredibly conservative" calculation of just $150 million in cost savings, still good for an earnings boost of 4% next year and 8% in 2012, but half of Biogen's stated estimates, which Schoenebaum called "aggressive."

Biogen spokeswoman Chan declined to comment on Schoenebaum's projections.

Goodbye cardiology, oncology, and... bureaucracy?

Biogen will exit 11 programs total, including cardiovascular, oncology, and a few neurology and immunology programs. It remains to be seen which programs are earmarked for sale, out-licensing, or termination. Scangos said some of the programs had significant value and all divestment options were open. Without naming specific programs, he characterized those under the knife as either being undifferentiated from competition, tangential to the company's new focus, or strategically relevant but too expensive.

Scangos also underlined what in recent years has dragged Biogen down. A bloated bureaucracy and overlapping lines of authority were two targets. The disparate functions of corporate strategy, venture and business development, for example, will be brought under one roof in its suburban Boston headquarters and consolidated under a head of corporate development who has yet to be hired. When asked if current head of business development Michael Lytton or top venture executive John Dunn would keep their jobs, spokeswoman Chan said she wouldn't discuss individual personnel. She also would not comment on the timeline for hiring a head of corporate development or whether the person would report directly to Scangos. Efforts to reach other executives were unsuccessful.

The last time Biogen Idec restructured in 2005, it laid off 650 people as well, then 17% of the company, and promised to cut operating expenses by $200 million to $300 million annually. Officials at the time admitted the company had diverted attention from its pipeline to concentrate on the launch of Tysabri (natalizumab), a next-generation MS therapy that promised much greater efficacy than the interferon-based treatments dominating the market at the time. In February 2005, a few months after launch, Tysabri was linked to a deadly brain infection and was removed from the market for more than a year. It is back, with sales growing cautiously, and Biogen Idec is in the midst of developing an assay to test patients for the latent presence of the virus that causes the infection. Stratifying the patient population would likely give neurologists greater confidence to prescribe the drug.

Back in 2005, executives realigned their portfolio by emphasizing externally sourced assets, dedicating $200 million annually to business development to fill the neglected late-stage pipeline. That push led to expansion of Biogen's core MS franchise as well as forays into new therapeutic areas such as cardiology and hemophilia. Of the seven late-stage programs that current Biogen executives say have the potential to come to market by 2015, six have been in-licensed since 2005: the MS assets Ampyra (fampridine), BG-12 and daclizumab, , two hemophilia drugs, and the Lou Gehrig's disease treatment dexpramipexole, in-licensed this summer from Pittsburgh biotech Knopf Neurosciences. There were no promises this time about deal-making budgets. " R&D and BD come out of the same internal bucket," said Scangos. "We haven't allocated a specific BD budget, but we're mindful that we have limited dollars."

Founded in 1986, IDEC was once a keystone of San Diego's biotech community, and it's unclear what will happen to the people, research and real estate Biogen is leaving behind. The head of San Diego's biotech trade group Biocom called the firm's history a "consummate example of trial and tribulation in biotech in San Diego," with its success rooted in Rituxan, now approved for non-Hodgkin's lymphoma, chronic lymphocytic leukemia and rheumatoid arthritis. "They were a key part of placing San Diego biotech on the global stage," Biocom CEO Joseph Panetta told "The Pink Sheet" DAILY in an email.

"It was unfortunate that when IDEC acquired Biogen there began a shift in management to Boston," said Panetta. "Many employees maintained the San Diego culture, but it has been evident for a while that it had become a Boston-driven company."

Despite its heavy R&D spend - around 25% of revenues, and temporarily slated to go higher - the biotech is confident about future cash in its coffers. "We're in an envious position when it comes to cash flow generation," CFO Paul Clancy said Wednesday.

As of September 30, Biogen had $627 million in cash and $1.1 billion in debt. Clancy wouldn't count out more stock buybacks, which the company has used liberally in its efforts to quell a shareholder rebellion led by Carl Icahn. Clancy also wouldn't count out more changes or layoffs, and he noted that the firm would soon hire a new head of R&D, a position filled on an interim basis by its neurology chief Al Sandrock since October 2009.

- Alex Lash (a.lash@elsevier.com)

Biogen Idec Lays Off 13 Percent of Staff, Retrenches Around Multiple Sclerosis

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