Dear Fellow Shareholders:
In reflecting on my first full year as CEO, I feel very good about Biogen Idec – our performance in 2011, as well as our prospects for 2012 and beyond. I hope that you, as a shareholder in the company, feel the same way. I cannot imagine a more exciting or challenging time for Biogen Idec or the industry than the one in which we now operate.
Scientific advances are bringing within reach treatments for diseases that have long eluded us. New technologies and the discovery of new biomarkers are paving the way for more efficient and productive R&D efforts that could reduce development costs and yield substantially improved treatments for a multitude of diseases. But, as events of the recent past have illustrated, the world is also an increasingly complex and interconnected place. Faltering economies, greater scrutiny of drug safety and a new biosimilars framework have led to shifting economic, political and regulatory landscapes – and health policy and reimbursement actions in one country can impact many others.
Understanding how to operate in this changing landscape will be a key competitive advantage as we move forward. This understanding starts with one simple guiding principle: We exist to bring better therapies to patients. If we fulfill that mission, we succeed. If we fail to do it, we have no business being in business. Biogen Idec's patient-first philosophy is not simply altruistic – it is good strategy as well. Innovation will continue to be rewarded. Maximizing our resources to serve patients in the most productive, efficient way is good for patients and shareholders. It is this belief that informs every major decision we make at Biogen Idec.
Our strong results in 2011 were driven by many factors, but at the heart of our success was this patient-centric approach. By focusing our resources on commercial efforts and pipeline programs that have the greatest potential to deliver meaningful benefits for patients, we met the goals we set for ourselves at the start of the year and laid the foundation for long-term growth.
We expanded our leadership position in multiple sclerosis; we launched FAMPYRA – a new treatment to improve walking in people with MS – outside the US; we made remarkable headway advancing one of the most enviable late-stage pipelines in the industry; we began preparing for the potential of multiple product launches in coming years in MS, amyotrophic lateral sclerosis (ALS) and hemophilia; and we strengthened our early-stage pipeline in neurology and immunology. We achieved all this while continuing to advance our internal cultural transformation.
Our successes generated strong financial results and stock performance: We surpassed $5 billion in total revenue and delivered double-digit EPS growth. At this writing, our share price is up 76% year-over-year. This performance positions us to capitalize on the tremendous opportunities ahead.
ADVANCING COMMERCIAL SUCCESS
Growing Our Leadership in MS and Preparing to Launch High-Impact Therapies
A world-class commercial operation is critical to our success. In recent years, we've achieved just that, and it shows in the success of our marketed therapies. Despite growing competition in the MS market, we maintain our leadership position and continue to improve our existing therapies. To support the continued revenue growth of AVONEX, we are launching the AVONEX PEN in the US and EU. The first intramuscular autoinjector for MS, the AVONEX PEN uses a smaller needle and hides the needle from sight, helping reduce patients' anxieties about injecting themselves. We also introduced a new dose titration regimen, which reduces the incidence and severity of flu-like symptoms that can occur at the beginning of therapy with any interferon.
We made tremendous progress in helping MS patients better understand their individual risk of developing an infrequent but serious side effect of TYSABRI, known as PML. We believe this more personalized approach will enable patients who want or need the efficacy of TYSABRI to make more confident treatment decisions, and is the key to unlocking TYSABRI's value.
These accomplishments are no small feats, but our biggest tasks are still ahead. We need to continue to grow our existing MS franchise, while preparing to launch multiple new products in coming years.
The first of these potential launches is our oral MS therapy BG-12. We reported compelling data from two large phase III trials of BG-12 in 2011, which enabled us to submit regulatory filings in both the US and EU early this year. We believe BG-12 could offer MS patients a highly effective and safe oral therapy, and round out Biogen Idec's wide range of therapies for MS: AVONEX, a drug that is easy to start and stay on; TYSABRI, a treatment with established and powerful efficacy; and BG-12, an oral therapy for relapsing-remitting MS.
The launch of BG-12 could be followed in the second half of next year by the introduction of our long-lasting factor VIII and factor IX product candidates for hemophilia. Each of these potential therapies could bring meaningful advances to patients. With potential reductions in dosing to twice weekly or less, our long-lasting recombinant clotting factors may ease the burden of chronic treatment, support patients' ability to adhere to therapy and improve health outcomes. We are eagerly anticipating phase III data readouts for both programs later this year, and if successful, we will bring them to market quickly and effectively.
The key is execution. For all of these programs, we are making investments now in scientific outreach, patient support services, product positioning and supply chain. As we get closer to the launch, we will build out a dedicated sales force and expand both medical affairs and patient support staff. In hemophilia, a highly competitive market that is new for us, we have built an experienced commercial team and begun developing relationships with the medical and scientific community. We believe our strength in patient services and specialized markets will be important competitive advantages in the marketplace.
We’re making great progress. I am confident that we'll continue to build upon our strong commercial foundation and am committed to keeping up the momentum we saw in 2011.
INCREASING R&D PRODUCTIVITY
Our R&D Philosophy
R&D in our industry is an inherently risky endeavor. It takes an average of 15 years and more than $1 billion to bring a drug to market, and failure is more common than success. In the face of these odds, I believe the best chance of success is to play to our strengths and focus resources on programs that offer the greatest potential to make a real difference in the lives of patients.
For Biogen Idec, that means focusing on three core therapeutic areas: neurodegenerative diseases, where we can leverage our strength and expertise in MS to maintain our market leadership and expand into other devastating conditions such as ALS and Alzheimer's disease; immunology, where our rich scientific heritage and deep experience with immune-modulating drugs, including TYSABRI and AVONEX, serve as a platform to tackle lupus, rheumatoid arthritis and other autoimmune disorders; and hemophilia, where we have highly promising late-stage compounds that could significantly improve quality of life for patients.
Focusing our efforts in these areas has enabled us to aggressively advance our robust late-stage pipeline. Including BG-12 and our long-lasting blood factors, we have nine programs in registration and phase III trials. We reported positive data last year from the first of two registrational studies for daclizumab-HYP, a monthly subcutaneous injection for MS, and expect data from the phase III study in 2014. We expect data next year from our phase III study of PEGylated interferon beta-1a, which may reduce the frequency of interferon injections for patients with MS. We initiated a phase III study earlier this year for TYSABRI in secondary progressive MS, an advanced form of the disease for which there are currently no approved therapies.
We also made significant strides in our ALS program. We completed enrollment in our phase III trial of dexpramipexole, marking the fastest ever enrollment in the company's history, and we expect data from that trial toward the end of this year. The unmet need in ALS is enormous. The average life expectancy is two to four years from the onset of symptoms, and the only approved treatment typically extends survival by two to three months. Dexpramipexole has the potential to be the first treatment advance for ALS patients in more than 15 years and a major accomplishment for our company.
Strengthening our Early-Stage Pipeline and R&D Capabilities
As part of our efforts to create a more productive R&D organization, we discontinued a number of pipeline programs that either fell outside of our core therapeutic areas or weren't likely to be competitive. Our pipeline and company are stronger as a result. These decisions allowed us to reallocate resources to high-potential programs. They also created a temporary early-stage research gap, which we are working to fill through internal research and strategic collaborations.
We increased our efforts to move internal programs forward and look for new, high-quality assets. We are advancing our anti-LINGO program, which could potentially reverse the damage caused by MS, as well as our anti-TWEAK program for lupus nephritis into phase II trials. We also advanced the company's first clinical development program in Alzheimer's disease, when we began a phase I trial for our compound BIIB037.
Equally important, we established partnerships to accelerate the development of our early-stage pipeline. We entered into a collaboration with Portola Pharmaceuticals to develop and commercialize a highly selective inhibitor of the Syk enzyme, which we believe could be a best-in-class oral therapy for rheumatoid arthritis, lupus and other autoimmune diseases. We also announced an agreement with Isis Pharmaceuticals for an investigational antisense therapy for spinal muscular atrophy, a neurological disease that is the most common genetic cause of infant mortality. Most recently, we acquired Stromedix, a small privately held biotech company, bringing in a promising compound for idiopathic pulmonary fibrosis, a uniformly fatal disease that attacks and destroys the lungs.
Strategic collaborations like these are critical to our success. To be the best at what we do, we will pursue the most promising compounds in our key therapeutic areas regardless of where they were discovered. And we will innovate in all that we do.
To that end, we are increasing our efforts in translational medicine to enable us to make better decisions earlier in the development process and embarking on some exciting scientific collaborations with academia. For example, we are working with Harvard Medical School scientists to look at the biology of Parkinson’s disease gene homologues in Drosophila, a project that we believe will yield new targets for our drug discovery efforts. We are also leveraging advanced neuroimaging technologies and biomarker strategies in early-stage clinical trials to help determine if our compounds are having the intended biological effect and detecting signs of disease before clinical symptoms appear. These tools can also help us to identify patients who may be more likely to benefit from a particular therapeutic approach, allowing for more targeted clinical trials. All of this has the potential to lead to better R&D productivity, shorter and less expensive clinical trials, and ultimately, better therapies.
MANAGING REGULATORY AND POLITICAL CHANGE
Operating in a Shifting Landscape
As a company dedicated to improving human health worldwide, we must understand, help shape and adapt to the world in which people live and receive care. It is the framework through which we fulfill our mission to deliver innovative therapies to people with serious unmet medical needs. In recent years, that world has been especially precarious, particularly for the most vulnerable members of society. Never has it been more important that we get it right.
The financial difficulties that continue to vex governments, markets, businesses and families in many parts of the world emphasize how intertwined our global economic and political markets have become. Government policymakers are struggling to balance competing priorities in the face of serious fiscal constraints, and there are no easy answers. The austerity measures being instituted throughout Europe have led to cuts in healthcare spending, as countries strengthen cost-containment measures already in place and implement new, tougher policies for patient access to treatments. Access procedures and requirements vary widely country by country, differ between national and local decision-makers and change frequently – while reference pricing drives reimbursement rates to the lowest common denominator. While the industry has not yet faced direct cuts in the US, recent healthcare reforms have led to the introduction of measures such as comparative effectiveness that will lead to greater reimbursement pressures from government and private payors.
What we are seeing is the acceleration of trends that have been underway for many years. Biogen Idec's focus on devastating diseases, clear unmet needs and innovative therapies has to some extent insulated our business from the impact of broad-based cost containment actions, and I firmly believe that focus will continue to be a competitive advantage for us: If we deliver therapies to patients that make a real difference in their lives, those therapies will be fairly reimbursed. That said, we are intensely focused on economic realities and legitimate challenges and we appreciate the need to demonstrate not only the clinical but also the economic and social value of our therapies to reimbursement decision-makers. This is why we have built out our health economics and market access capabilities globally and in local markets to put ourselves in the best position to understand the people, systems and dynamics involved; keep abreast of changes; and deliver new types of data that demonstrate the impact of our therapies on patients and healthcare systems.
In addition to the intricacies of reimbursement policy, the regulatory environment under which our products are approved and monitored is also becoming more complex. The US is a prime example, and this year presents a specific challenge and opportunity. If there is still such a thing as must-pass legislation, the reauthorization of the Prescription Drug User Fee Act (PDUFA) is it. Since it was first passed in 1992, PDUFA has provided the FDA with the resources it needs to review new drug applications, ensuring that safe and effective therapies are able to reach patients in a timely manner. However, in the past several years, new mandates have led to a slowdown in approval times and an erosion of the regulatory clarity that PDUFA was meant to provide.
The FDA has an enormously important and difficult job. Its mandate is nothing less than protecting the safety and well-being of the American people. The renewal of PDUFA presents an infrequent opportunity to provide the agency with the resources and the tools it needs to do its job well and meet its review expectations. In particular, it will be important for the FDA to be able to effectively manage the Risk Evaluation and Mitigation Strategies (REMS) that some products require and ensure that these REMS, such as the TOUCH program for TYSABRI, are up to date and providing patients and providers with helpful and timely information.
While addressing these challenges and continuing to grow our business in the US and Europe, we also are developing our strategy and expanding footholds in emerging markets such as India, China, Brazil and Argentina. While these markets are fundamentally different from one another – different health systems, cultures and languages – what they have in common is opportunity based on medical needs of people. We have begun to expand our presence in emerging markets to capitalize on their long-term potential while realizing that immediate opportunities for expansion of therapies for rare diseases are generally more limited, and market volatility and political uncertainty are higher. This requires strong financial and management discipline in the pursuit of our expansion strategies. China, which is expected to be the second-largest healthcare market in the world by 2015, is high on our priority list of emerging markets. We have established two offices in China in order to better understand the best way to build our business and bring therapies to the Chinese people. We also completed clinical trials for AVONEX there and are preparing to file for regulatory approval, and are running clinical trials for our hemophilia programs.
While innovation will continue to be the main contributor to improvement in healthcare, access to high-quality therapies at a lower cost is critical as well. This has been true for small-molecule pharmaceuticals for many years, and it will be the case for biologics, as they play an increasingly important role in advancing human health.
As one of a handful of companies with the development, manufacturing and analytical capabilities needed to produce high-quality biosimilar therapies, Biogen Idec is committed to participating in this market, even as we maintain our focus on our proprietary therapies. To do this, we entered into an agreement with Samsung Biologics late last year to fund a joint venture to develop, manufacture and market biosimilars. Samsung Biologics is funding 85 percent of the initial $300 million investment and will take a leading role in the joint venture. We will fund the remaining 15 percent and contribute our expertise in protein engineering and biologics manufacturing. Additional funding as needed will be provided by Samsung Biologics, and Biogen Idec has the option to buy up to a 50 percent interest in the joint venture in the future.
I believe we found the ideal partner in Samsung Biologics. They have a proven track record of success in business areas they enter and are committed to becoming a major player in biosimilars. For Samsung Biologics, the joint venture is a big step toward meeting that goal. For us, the joint venture helps offset the costs of getting our manufacturing facility in Denmark fully operational, providing us with manufacturing outside the US. Just as important, the option to increase our stake to 50 percent provides an avenue to play a more significant role in the biosimilars market if it makes sense for patients, our business strategy and our investors.
FOSTERING A CULTURE OF EXCELLENCE AND INNOVATION
Given the complexities of the healthcare environment, improving human health is not a mission for the faint of heart. It requires a strong sense of passion and purpose. We need to remember that behind everything we do is a patient – a person whose life has been interrupted by a disease they did not want and did not deserve, a person whose life we can change if we demand excellence from ourselves and our colleagues. That is what separates good companies from great ones.
We have the makings of a truly great company. We have a rich scientific heritage and a track record of delivering meaningful products to patients. We have passionate, talented and dedicated employees around the world. And we have the potential to launch multiple therapies in coming years. Delivering on that promise for patients and for shareholders demands that we hold ourselves to the highest standards of excellence and innovate in everything we do.
Over the past year, we have continued to strengthen and broaden our executive team. Tony Kingsley was internally promoted to Executive Vice President, Global Commercial Operations. Kenneth DiPietro joined Biogen Idec as Executive Vice President, Human Resources in January of this year.
We've taken steps to drive better, crisper decision-making and instill a greater sense of urgency and accountability throughout the organization. We're building a culture that attracts the best people and empowers them to do their best work and encourages calculated risk-taking in the pursuit of innovation. We recently broke ground on two new buildings on our Cambridge campus that will allow us to have all our Massachusetts employees in one location – a move that I believe is critical to cultivating the collaboration and teamwork necessary for both innovation and excellence.
While changes in culture take time, we are making good progress. We're a more nimble, focused and ambitious organization than we were a year ago, and as a result, we're better prepared to deal with the R&D, political, regulatory and commercial challenges we face as a company and an industry.
Even as we do all this, we will continue to exercise discipline to remain sharply focused on management of resources and spending every dollar wisely.
We are entering a period that poses amazing opportunities as well as serious challenges to our industry. It is imperative that we seize the opportunities and face up to and deal with the challenges. The possibilities are truly awe-inspiring and have the potential to lead to substantially improved therapies for most diseases, shorter and less expensive development paths, and potentially lower healthcare costs. I believe that the way to seize the opportunities and face the challenges is to be realistic about our capabilities, focus on excellence in all that we do, establish fair and mutually beneficial collaborations, and be very careful about how we use our resources. That's what we're doing at Biogen Idec – and that is why I'm confident that our best days lie ahead.
George A. Scangos, Ph.D.
Chief Executive Officer