Business & Tech

As Biogen CEO steps down, analysts see challenges ahead

Biogen Idec. CEO George Scangos (CQ) is interviewed at the Biogen Idec headquarters in Cambridge, Massachusetts July 23, 2013. (Jessica Rinaldi For The Boston Globe)
Globe file 2013
George Scangos.

The next chief executive of Biogen Inc. will inherit a company that is financially sound and a powerhouse in multiple sclerosis drugs. But the new leader will also be challenged by waning sales growth and limited near-term prospects for new blockbuster products.

That was the view of analysts after the Cambridge company said Thursday that CEO George A. Scangos will step down in the coming months. Scangos, 68, is credited with leading a turnaround in the six years since he took the top job at the largest Masssachusetts biotech company.

Scangos said more than once over the past year that he had no plans to retire. In an interview, he said his decision grew out of discussions with the company’s board that “got concrete relatively recently.”

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“The board thinks it’s a good time for a transition,” Scangos said. “I agree.”

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Biogen has recently installed new senior research, commercial, and technical operations executives as it prepares for a transition to a new era. Scangos will stay until Biogen names a successor, a process that could take four to nine months.

“George is leaving the company in good health,” said Eric Schmidt, a biotech analyst at investment bank Cowen & Co. “But this company, which wants to be a leader in treatments for neurodegenerative diseases, has a lot of wood to chop to strengthen the pipeline.”

Many on Wall Street say Biogen needs to be more aggressive in buying smaller biotechs with drugs that can revive its growth prospects in the next five years, as it presses forward with developing high-risk therapies for Alzheimer’s, spinal muscular atrophy, and other neurodegenerative diseases for which there are now few, if any, effective treatments.

“The company is going to have to deploy capital to acquire the next wave of great drugs coming in the next few years,” said Michael Yee, analyst for the investment bank RBC Capital Markets. If it doesn’t, analysts warned, Biogen could become a takeover target itself.

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Biogen announced Scangos’s planned departure along with second-quarter quarter financial results that showed revenue increasing 12 percent and earnings 22 percent from a year earlier. The company also said it would buy back up to $5 billion of its common stock over the next three years.

Shares of Biogen climbed 7.6 percent Thursday to $282.48.

In the interview, Scangos said he hasn’t had time to consider his plans but has no intention of retiring. He said he’ll move to the San Francisco Bay Area, where his children and grandchildren live, but will remain active in biotechnology and won’t rule out running another company.

“I’m not ready to sit on a porch with a mint julep, or whatever people drink,” Scangos said.

He will also remain chairman of the Pharmaceutical Research and Manufacturers of America, a national trade organization for the drug industry. But he’ll leave that position when he leaves Biogen because the group requires that its chairman be the head of a drug company.

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A veteran biopharma executive who previously led Exelixis Inc. in South San Francisco, Calif., Scangos, a native of Lynn, was named chief executive of Biogen’s predecessor company, Biogen Idec Inc., in June 2010. The company’s board, which had added activist directors upset with what they saw as an unfocused approach to research and development, had asked his predecessor, James Mullen, to resign, raising questions about the company’s future.

Scangos moved quickly to restructure Biogen, divest its Idec cancer-drug division, refocus its research on neurology and hematology, and move its headquarters back to Kendall Square from suburban Weston. He also presided over the rollout of a half-dozen new drugs, including the multiple sclerosis pill Tecfidera, one of three MS medicines in its portfolio that each generate more than $1 billion a year in sales.

Last October, Scangos unveiled a restructuring plan to cut about 880 jobs, including 400 in Massachusetts, in recognition of Biogen’s slowing sales growth. And in May, he disclosed plans to spin off its hemophilia drug franchise, which sells two drugs to treat the bleeding disorder, as a separate publicly traded company.

Biogen’s earnings more than tripled and its revenue more than doubled during Scangos’s tenure, partly through product introductions and partly through price increases for existing drugs. Its stock price has surged more than 425 percent, compared with a rise of about 260 percent by the Nasdaq Biotechnology Index. though it is down more than 27 percent from a year ago. The company is now among the most valuable biotech companies in the United States, with a market capialization of $57.5 billion. Biogen has the second-highest market value in Massachusetts, after lab supplies giant Thermo Fisher Scientific Inc. of Waltham.

“George joined Biogen at a very challenging time,” Biogen chairman Stelios Papadopoulos said in a company statement. “He reorganized operations and he oversaw the enrichment of our product pipeline and the launch of several products.”

Biogen’s growth over the next five years is projected to be slower than most biotech firms, said Max Jacobs, an analyst at Edison Investment Research. “Their franchise is very focused on MS, most of their products are old, and they need something with near-term potential to buttress them, but it’s not clear what that is.”

Ali Fattaey, chief executive of Lexington biotech company Curis Inc., who has known Scangos since they both worked in California, said he has mentored and inspired executives on both sides of the country. “He’s a man who can create drugs for patients and focus an organization,” Fattaey said. “I learned from him in that regard, and that’s part of his contribution to the field.”

Reflecting on his time as chief executive, Scangos said, “I feel really good about my six years here. I’m proud of the company. We introduced six new drugs. I think I’ve had an impact on the culture here, and the way people work. . . . There’s a lot of mixed emotions for me. I love this company, I love the people. But it’s time to move on.”

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.