Biogen CEO shakes up culture as stock price soars

WESTON, Massachusetts Tue May 10, 2011 5:01pm BST

George Scangos, CEO of Biogen Inc. speaks during the Reuters Health Summit in New York, May 10, 2011. REUTERS/Mike Segar

George Scangos, CEO of Biogen Inc. speaks during the Reuters Health Summit in New York, May 10, 2011.

Credit: Reuters/Mike Segar

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WESTON, Massachusetts (Reuters) - George Scangos, the chief executive of Biogen Idec Inc (BIIB.O), is uncomfortable in the well-appointed office he inherited when he took the top job last July.

Though his office is spacious -- it has its own adjacent conference room -- Scangos finds Biogen's concrete and glass building, constructed on a former rock quarry, sterile.

"I can sit here and feel good that I'm an important person and I have a three-room suite, but I actually don't like it because there's no-one around, there's no energy," he said in a recent interview. "Why not have smaller offices or no offices, and just put everybody closer together? It takes less space, it costs less money, it fosters interaction and it has more energy."

Scangos, 63, a slight, dark-haired figure dressed in slacks and a bright red sweater, was previously CEO of the tiny biotech company Exelixis Inc -- a company co-founded by Biogen director Stelios Papadopoulos.

He is eager to bring greater flexibility and vitality to Biogen, which makes the multiple sclerosis drugs Avonex and Tysabri and is one of the world's biggest biotech companies.

"When I came here and asked who was in charge of a particular project, either no one could tell me or there were three people who were responsible for a piece of it," he said. "Now we have one person who is responsible for each project."

Since taking the helm, Scangos, who will speak at the Reuters Health Summit in New York on Tuesday, has cut costs, sharpened the focus of the company's pipeline, reorganized management and shaken up the culture to better reward what he calls "thoughtful risk-taking."

"If your goal is to avoid risk so you avoid failure, you can't be successful as a company," he said. "Biogen has been way too conservative, way too much like big pharma."

Scangos previously was president of Bayer Corp's biotechnology unit, part of Germany's Bayer AG (BAYGn.DE).

He lives with his wife in Chestnut Hill, an upscale suburb of Boston. At work, he has embarked on a series of "town hall" meetings throughout the company and monthly breakfasts with small groups of employees to solicit opinions and discuss things he would like to see changed.

Part of his goal is to alter the compensation system.

"It always bothered me when I worked in a big pharma company, that if you're really a great performer and you're top of the heap, you get a 7 percent raise. If you're a marginal performer who just does well enough to avoid getting fired, you get a 3 percent raise. The message this sends to any rational person is, 'I might as well just coast because it doesn't make that much difference in my career.'"

INVESTOR APPRECIATION

Scangos's moves have been well received by Wall Street. Last June, the company's shares were trading at $45.96. By April 20 they had risen to $86.57.

The next day, the company reported unexpectedly strong results from its experimental multiple sclerosis drug BG-12 and its shares rose as high as $106.99. Overall, since Scangos was named CEO, the company's shares have risen roughly 101 percent.

Scangos demurs at the suggestion he is orchestrating a turnaround at Biogen.

"It's not like it was a terrible company going downhill," he said. "People thought it wasn't as aggressive as it could have been and wasn't managed well, but I look at it more as a revitalization than a turnaround. I think there's some optimism now that the company can grow."

Results of the BG-12 trial showed that the drug, when given twice a day, cut the annualized relapse rate by 53 percent at two years compared with placebo, and cut the rate of disability progression by 38 percent. Additional late-stage results are due to be released later this year. If positive, BG-12 could take the lead in the market for oral multiple sclerosis drugs.

"The data should encourage investors to look past their sometimes myopic focus on Tysabri and to reexamine the many possibilities in Biogen's pipeline," said William Butler, portfolio manager at Tirschwell & Loewy Inc, which holds Biogen shares.

The future of Tysabri, which Biogen makes with Irish drugmaker Elan Corp Plc ELN.I, has been clouded by concerns that it can cause a potentially deadly brain infection known as progressive multifocal leukoencephalopathy (PML).

BG-12 is an oral drug that would compete with Gilenya, a recently launched pill from Novartis AG (NOVN.VX), and laquinimod, an experimental pill being developed by Teva Pharmaceutical Industries Ltd (TEVA.TA)TEVA.O of Israel.

In some ways, the changes at Biogen make it a more attractive -- though more expensive -- acquisition target. But Scangos doesn't worry too much about that.

"I don't spend a lot of time worrying about this," Scangos said. "If we improve the quality of our execution, if we become more biotech-like, we'll be a better company and there's no bad outcome. We'll either be successful independently or we'll get bought at a much higher share price."

(Editing by Steve Orlofsky)

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