Biogen Inc.

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Biogen Inc.

14 Cambridge Center
Cambridge, Massachusetts 02142
U.S.A.
(617) 252-9200
Fax: (617) 252-9617

Public Company
Incorporated: 1978
Employees: 500
Sales: $156.34 million
Stock Exchanges: NASDAQ
SICs: 2834 Pharmaceutical Preparations; 2835 In Vitro and
In Vivo Diagnostic Substances

Biogen Inc. develops, manufacturers, and licenses drugs for human healthcare through genetic engineering. A pioneer and key player in the dynamic and volatile biotechnology industry, Biogen has distinguished itself as one of the few biotech companies to remain independent and to achieve profitability. Biogen entered the mid-1990s rife with cash and with a number of drugs in its research and development pipeline.

Biogen is considered one of the pioneers of the young biotechnology industry. It got its start in 1978 when mental giant Walter H. Gilbert, a Nobel prize-winning biologist who was teaching at Harvard at the time, decided to try developing his research into marketable products. Biotechnology, as it was known in the mid-1970s, was still in its infancy. The discovery of the structure of DNA, which led to the understanding of the process by which proteins are produced by cells, had occurred in 1953. But it wasn’t until the early 1970s that more rapid progress ensued. Importantly, in 1973 two U.S. scientists discovered the process of recombinant DNA, whereby a piece of DNA is snipped from one gene and spliced into another gene. The significance of that discovery was that it proved that scientists could genetically alter microorganisms and, importantly, produce mass amounts of proteins that naturally occurred only in small quantities.

Walter Gilbert had been a major contributor to the development of recombinant DNA technology during the 1970s, and he had earned his Nobel prize as a result of his research in that area. Subsequent related breakthroughs during the mid- and late 1970s indicated that scientists would eventually be able to use gene-splicing and cloning techniques to create various ‘wonder’ drugs and products that could, among other benefits, cure cancer and many other diseases or create perfect produce and livestock with fantastic characteristics. Despite the promise of the technology, a recognizable industry that could develop such drugs and take them to market was slow to form. Before 1980, in fact, only a few significant biotech start-ups had appeared: Cetus (founded in 1971); Genetech (1976); Genex (1977); Biogen (1978); Centocor (1979); and Amgen (1980).

Biogen, like its biotech peers, was able to capitalize on the belief of some investors during the late 1970s that biotechnology was going to radically impact many areas of industry, medicine, food, energy, and agriculture. Although Biogen and some other companies made significant contributions to the burgeoning field of biotech, it was not until the 1980s that the industry boomed. The growth was largely the result of a U.S. Supreme Court ruling that genetically engineered bacterium could be patented. For many, that ruling suggested the possibility of unimaginable wealth for biotech innovators. As a result, millions of dollars poured into the industry, primarily through venture capital but also through the sale of publicly traded stock. Companies that showed promise, like Biogen, benefited the most.

Biogen launched a number of research initiatives during the late 1970s and early 1980s related to a variety of healthcare drugs. Some efforts fizzled, but, unlike many other biotech start-ups, Biogen eventually succeeded in generating some marketable products. The two biggest winners were a hepatitis B vaccine and alpha interferon. The hepatitis B vaccine was, as its name implies, a vaccine for hepatitis B, a blood-borne disease that causes a serious infection of the liver and substantially increases the risk of liver cancer; more than 250 million people worldwide still suffered from chronic hepatitis B virus infections in the early 1990s. Biogen eventually obtained patents in several countries related to its hepatitis B antigens produced by genetic engineering techniques, and the drug—marketed by Smith-Kline Beecham and Merck—became a big seller. In many countries, in fact, infants are commonly vaccinated against Hepatitis B using Biogen’s drug.

Alpha interferon was an even bigger source of revenue for Biogen. Alpha interferon is a naturally occurring protein produced by normal white blood cells. Biogen developed and patented a process of producing vast amounts of the protein using recombinant DNA techniques. Its alpha interferon compound became the first genetically engineered drug to receive market approval in the United States. Biogen’s alpha interferon, also known as Intron A, was eventually being sold by licensee Schering-Plough in more than 60 countries to treat a variety of conditions including hepatitis B, hepatitis C, genital warts, Kaposi’s sarcoma (an AIDS-related cancer), and hairy-cell leukemia.

Biogen racked up major points in the research and development game during the early 1980s, and positive press brought tens of millions of dollars into its coffers. Like most biotechnology companies, though, Biogen was burning through the cash as fast, or faster, than it poured in. Chief Executive Gilbert, in his quest for new genetically engineered drugs, established a global research and development network during the early 1980s that sported operations in Zurich, Geneva, Belgium, Germany, and the United States. Although impressive and sometimes effective, the organization eventually became unwieldy and lacked focus. Some critics charged that despite his scientific prowess, Gilbert lacked business skills. The company was a great place to do research, but it had yet to show a profit. By 1984, in fact, Biogen had racked up a stunning $100 million in losses and was teetering on the edge of bankruptcy.

Gilbert managed to keep Biogen afloat during the early 1980s by licensing other companies to manufacture, market, and distribute its drugs. To make ends meet, he also started selling Biogen’s patents. Some criticized the move as representing a sell-out of the company’s technological achievements; Bio-gen’s original goal, in fact, had been to both develop and manufacture its inventions. Instead, the company had essentially become a research boutique that supplied drug companies in Europe, Japan, and the United States with technology. In the end, however, Gilbert’s licensing and selling was credited with saving the company from total bankruptcy. Indeed, many of Biogen’s scientifically-savvy biotech start-up peers were effectively forced out of business—often through merger or acquisition—because of financial difficulties.

By 1985 Biogen was using an estimated $100,000 each day in research costs. Furthermore, royalty revenues had slid to less than $20 million annually because the company had sold some of its patents. Biogen investors were fed up; the company’s directors had already, in fact, pulled Gilbert from the chief executive slot and had been searching for a replacement for more than a year. Finally, in 1985, they hired James L. Vincent. Vincent graduated from Duke University, where he had been recruited to play football but didn’t because of a neck injury. He earned his MBA at Wharton before joining Bell Telephone Company of Pennsylvania. From there he served in various positions including president of Texas Instruments-Asia, chief operating officer at Abbott Laboratories, and president of Allied Health and Scientific Products Company. He was known as a hard-charging, imposing, and capable manager.

Biogen began a radical restructuring and turnaround under Vincent’s command. Soon after arriving at Biogen, Vincent sold or closed the European operations and brought in some new managers. Importantly, he also began working to recover some of the patents that the company had sold off during the early 1980s. By the time Vincent arrived, in fact, Biogen had sold off nearly 90 percent of its patents. Vincent succeeded in negotiating with companies to get or buy back most of those patents. By 1989 Biogen had regained control of 90 percent of all of its original patents. As Vincent got back the rights to the company’s technology, he started licensing them to other manufacturers. The result was that the company’s royalty revenues increased and Biogen’s balance sheet gradually began to move back toward solvency.

The impact of Vincent’s efforts were slow to materialize. Biogen lost more than $70 million between 1985 and 1988, and gross revenues actually plummeted to a low of about $8.5 million in 1987 after net income dipped to a $28 million deficit in 1986. But Biogen started to spring back in the late 1980s. Sales reached $28.5 million in 1989, and the company posted its first-ever profit—a $3.2-million surplus. Revenues surpassed $50 million in 1990 and then hit $61 million in 1991, by which time the company was generating net income of more than $7 million annually. That growth was partly attributable to new additions to Biogen’s product line. By 1991 the company was selling through licensees several different drugs that were generating global sales of about $600 million annually: Intron A Alpha Interferon; Hepatitis B vaccine; Hepatitis B diagnostics; and Gamma Interferon (used to treat renal cell carcinoma).

Biogen benefited in 1992 from heady gains in sales of several of its drugs, particularly alpha interferon. The company stunned analysts, in fact, by reporting revenues of $123.8 million for the year and an increase of more than 500 percent in its net income to $38.3 million. And the company expected those gains to continue in the near future. Furthermore, Biogen had several new products in its research and development pipeline that had the potential to add big sums to its bottom line. The most promising of its drugs going into the mid-1990s was Hirulog, a blood thinner derived from leeches. Hirulog, which acted as a direct inhibitor of Thrombin (the main enzyme that coagulates blood), was designed to provide immediate relief to people with severe and sudden chest pains, and to prevent clotting complications after veins were opened up through balloon angioplasty or coronary bypass surgery. Biogen had invested heavily in Hirulog and was trying to gain FDA approval to market it.

The Hirulog project represented Biogen’s drive to become a manufacturer and marketer, rather than just a developer and licensor, of drugs. Simultaneously, Biogen was seeking approval for a drug that it had developed and wanted to manufacture called interferon beta-la (the trade name of which was Avonex), designed as a treatment for relapsing multiple sclerosis. Both drugs were in the final stages of clinical testing in mid-1994. If approved, they would usher Biogen into a new era as a full-fledged pharmaceutical company that developed and sold its own drugs and products. Moreover, Vincent had been beefing up Biogen’s management and sales force to prepare for their approval. To that end, in January 1994 he had conducted a major coup by recruiting James R. Tobin to Biogen’s management ranks to serve in the newly created position of president and chief operating officer.

The 49-year-old Tobin had previously spent 21 years at pharmaceutical giant Baxter International Inc., where he rose from a financial analyst to president of the company. Tobin received his masters degree from Harvard Business School before joining Baxter. He was apparently being groomed to assume the chief executive position at Baxter when he decided that he was looking for a different kind of challenge. Tobin was considered a heavy hitter in the pharmaceutical industry, and his move to Biogen gave that company a new respect in the industry. Tobin’s job at Biogen would be to shepherd the company from a licensor to a manufacturer and marketer of drugs. Shortly before he arrived, Biogen posted record revenues of $136.5 million for the year and net income of about $32.5 million.

Biogen entered 1994 with high hopes. Its dreams were temporarily stalled, however, by a string of setbacks. In the fall of 1994, Biogen announced that it was discontinuing its efforts to bring Hirulog to market because of disappointing test results. That news was greeted by shareholder lawsuits alleging securities violations for stopping work on the drug. Then, early in January 1995, news came that German pharmaceutical giant Schering AG announced plans to produce interferon beta-la, Biogen’s other breakthrough drug, using the same method as Biogen. Biogen, however, maintained that it had access to all patents necessary to market Avonex interferon beta-la. Nevertheless, the news sent Biogen’s stock price tumbling $7 to $35.37, which was down from a high of $55.75 before the Hirulog setback.

Largely because of write-offs related to Hirulog, Biogen posted a net loss of $4.9 million from revenues of $156.34 million. The company’s problems were exacerbated early in 1995 when pricing changes in Japan of the alpha interferon that Biogen developed and licensed to Schering-Plough Corp. contributed to a significant reduction in first-quarter profits. That news affected the company’s stock price negligibly, though, as Biogen’s balance sheet easily withstood the hit. Indeed, Biogen’s gains during the early 1990s had put it in excellent financial shape. The company entered the mid-1990s cash-rich and among the healthiest biotechnology companies in the country. It was still generating revenues from licensing its marketable drugs, and some of those products were positioned well to benefit from market changes. It also had a number of promising products in development, although they had not yet progressed past the clinical, or final, stage of pre-market testing.

Moreover, in December 1995, Biogen announced that the FDA had unanimously approved Biogen’s Avonex interferon beta-la drug for treating relapsing forms of multiple sclerosis. Studies had found that Avonex was, in the words of Biogen CEO Jim Vincent, “the first and only drug to show in a blinded clinical trial that it slows the progression of [MS] disability as well as reduces the frequency of exacerbations.” The approval represented a major event in Biogen’s history as well as in the history of the biotechnology industry.