FT
When David Pyott, chief executive of Allergan, hands out his business card, he describes it as “a collector’s item that is about to go out of fashion”.
After Actavis completes its $66bn takeover of Allergan in a few months, his job will be taken by Brent Saunders, who appeared as a white knight buyer in October, during an ugly 10-month takeover battle in which Valeant tried to snare Allergan with the support of hedge fund billionaire Bill Ackman.
In a joint interview with Mr Saunders on the fringes of the annual JPMorgan healthcare conference, Mr Pyott expresses relief that Allergan did not fall into the clutches of Valeant, a sentiment he says is shared by many in the pharma sector who see the company as a cost-cutting enemy of R&D.
“The feeling is universal. Everybody in the industry is coming up to me and saying ‘thank God’,” says Mr Pyott. “It’s a little bit like the US State Department in the 1960s — the whole theory that if Vietnam fell, then Thailand was going to be next.”
Who would have been next on Valeant’s list? “I won’t name names, but the monster has to be fed,” he says.
Brent Saunders, chief executive officer of Actavis Plc, speaks during a Bloomberg Television interview in New York, U.S., on Monday, Nov. 24, 2014. Actavis Plc outspent rival Valeant Pharmaceuticals International Inc. in the $64 billion contest for Botox-maker Allergan Inc. Photographer: Scott Eells/Bloomberg *** Local Caption *** Brent Saunders
©Bloomberg
Now the Actavis-Allergan deal has been done, shareholders have started asking searching questions about the integration of the combined group, which will have a market capitalisation of around $140bn. Actavis is still digesting its $28bn acquisition of Forest in July, a task Mr Saunders describes as “90 per cent complete”.
According to people familiar with the situation, Mr Saunders, 44, is considering recruiting Mr Pyott, 61, to the Actavis board, partly to address these concerns. The two men appear remarkably at ease with one another, sitting side by side in a restaurant booth just off San Francisco’s Union Square.
Many of Mr Saunders’ admirers temper their praise with the observation that he does not stay still for long. Less than two years ago, he was chief executive of Bausch & Lomb, a company he sold, as chance would have it, to Valeant for $8.7bn. He then moved to Forest, before promptly handling that company’s sale to Actavis.
So is he addicted to deals? “Absolutely not — we were not out trying to buy Allergan. It was not a company that should have been for sale,” Mr Saunders says. “In terms of large, transformational M&A — things on the scale of $10bn plus — we’re going to take a pause and digest.”
“But perhaps in the next couple of years if the right opportunity presents itself. We are always going to move quickly and opportunistically to build value and growth for our shareholders.”
Pharma cos
Mr Saunders says the group is in dialogue with “dozens” of potential targets “all the time” and that it will continue doing small and medium-sized deals in five therapeutic areas: dermatology, ophthalmology, the central nervous system, women’s health and gastrointestinal.
The combined company will be run as a “growth pharma” group — investing in R&D rather than just “managing its portfolio for earnings” by sweating existing drugs.
Allergan Chief Executive David Pyott speaks during an interview in New York July 8, 2014. Allergan Inc agreed to be bought by Actavis Plc for $66 billion, putting an end to a hostile bid by activist investor William Ackman and Valeant Pharmaceuticals International Inc
However, he says it will target R&D spending in areas where it is most competitive, rather than trying to develop revolutionary new treatments. He says that of the world’s top 20 best-selling drugs, just “two or three were truly discovered in the laboratory”, with the rest being new takes on existing compounds. “Yet big pharma spends about 30 per cent of its R&D on discovery”.
Instead, Actavis and Allergan have a record of buying or licensing drugs that are already being developed and bringing them to market, and for taking existing drugs and using them to treat new illnesses. Mr Pyott points out that Allergan’s female acne gel was first used 70 years ago as a treatment for leprosy.
Mr Pyott has a strong sense of history. He notes that Allergan was spun out of SmithKline in 1989 when it merged with Beecham. At this year’s healthcare conference, he says, all the chatter is that Actavis “is actually going to be bigger than GlaxoSmithKline — now that really puts things in perspective”.
