Investors see Biogen CEO choice as friendly to potential takeover

The surprise selection of Michel Vounatsos to run Biogen Inc signals a shift toward a more commercial management focus after years of targeting ambitious scientific gains, and likely keeps the U.S. biotech in play as a takeover target.

Vounatsos joined Biogen as chief commercial officer in April after 20 years leading various commercial operations at Merck & Co. Three months later, Biogen CEO George Scangos said he would step down, initiating a search for his successor that concluded with Monday's announcement that Vounatsos would take the helm Jan. 6.

Biogen shares rose more than 2 percent on Tuesday as investors viewed the choice of an internal CEO candidate as keeping alive a potential takeover of the company.

Biogen has been subject of takeover speculation since August, when the Wall Street Journal reported it had received early stage overtures from several bidders, including Allergan Plc and Merck.

"The same strategic value of the assets are still there and the company is the same as it was last week. They still have the theoretical potential of being a target for players like Merck or Pfizer," RBC Capital Markets analyst Michael Yee said.

While Biogen is still focused on producing treatments for devastating illnesses with few treatments, including Alzheimer's and Parkinson's, Vounatsos is being tasked with a more careful approach to how the company spends on development, and to make the most out of its existing flagship portfolio of multiple sclerosis treatments.

Vounatsos stressed this goal during a call with Wall Street analysts on Tuesday, saying "we will not leave a stone unturned in order to continue to grow this franchise."

After several years of impressive share price and earnings growth under Scangos, Biogen hit a major bump in the road in mid 2015, when its most important growth driver, the oral MS drug Tecfidera, badly missed sales estimates. That forced the company to lower its earnings forecasts and subsequently announce a reorganization and spin-off of its hemophilia business.

Slowing growth of its MS drugs and fears of potential U.S. curbs on drug pricing that hit the entire biotech sector put additional pressure on Biogen shares.

Vounatsos said he would be assessing company execution and resource allocation decisions and let Wall Street know in the first half of 2017 whether he will "validate or slightly alter the path forward."

Cowen and Co analyst Eric Schmidt said many people had assumed Biogen would choose another leader with a scientific pedigree to maintain its traditional culture.

Scangos, a scientist by trade, went on to head research for Bayer AG's pharmaceutical division and led its biotechnology unit before becoming CEO of a discovery stage biotech Exelixis Inc.

"The board seems to be of the opinion that Biogen has matured into a complex commercial organization, and that protecting and growing the company's $11 billion revenue base is now the most important priority," Schmidt said.

THE CONTENDERS

Speculation about internal CEO candidates had centered on two highly regarded executives with longer Biogen tenure Chief Financial Officer Paul Clancy and Chief Medical Officer Al Sandrock.

Some investors were hoping to see an outside candidate chosen to bring a fresh perspective to the company, although that would also likely send a clear message that Biogen intended to remain independent.

"Many investors were looking for more of a deal-oriented CEO or an external executive who has already been in a CEO role," Barclays analyst Geoff Meacham said in a note, calling Vounatsos "a safe choice."

Vounatsos said he would be looking for deals to help fill out all stages of the drug development pipeline.

While he has yet to oversee a major new drug launch at Biogen, typically the best way to judge performance of a chief commercial officer, one is in the offing.

Biogen is widely expected to get U.S. approval in coming months for the first drug that would treat spinal muscular atrophy, the leading genetic cause of death in infants.

The drug, Spinraza, is seen as a breakthrough therapy and forecast to become a multibillion-dollar product if approved for all SMA patients.

And then there is aducanumab, the experimental Alzheimer's disease drug considered potentially the most valuable pipeline asset in biotechnology, and one that highlights Biogen's current very high-risk, very high-reward strategy.

The drug has shown early promise. But it is at least a few years from reaching the market and could well fail, as over 100 previous attempts to develop an effective Alzheimer's treatment have already.

If it succeeds Biogen, or any company that buys Biogen, will own one of the great cash cows in pharmaceutical history.