Tuesday 20 February 2018

Behind Allergan, a dealmaking CEO ready to win the big prize

Cynthia Koons on Brent Saunders' reshaping of the drugmaker as it seeks a Pfizer merger

Brent Saunders, CEO of Allergan
Brent Saunders, CEO of Allergan

Cynthia Koons

It's almost as if Brent Saunders chose Ian Read, rather than the other way around. Saunders, chief executive of Allergan, has been busily reshaping his company in recent months, making it a better fit for Pfizer, the venerable pharmaceutical giant that announced on Thursday that it's in talks to acquire fast-growing Allergan.

If completed, the deal could position the 45-year-old Saunders to lead the largest drug company in the US one day - a rapid ascent highlighted by two years of frenetic dealmaking in which he's already sold a company he ran, only to end up in charge of the merged entity.

"Honestly, I go into one of these deals, big or small, not focused on my future but on trying to build the best future for the company," he said. "Once that's set, I look at what I can do and how I can add value."

Conveniently, there is a 17-year age difference between Saunders and Read, a 62-year-old chemical engineer and accountant, who has been with Pfizer since 1978 - five years before Saunders launched his first business at 13, mowing lawns.

Five years ago, Saunders, a healthcare industry veteran, had only just made it to the corner suite. By last year, after a series of acquisitions typical of the new era of pharma, he was leading one of the top 10 drug companies in the world.

With the announced sale of its generics division in July, Allergan has become a more suitable candidate to help Read achieve his goal of splitting Pfizer into two parts: an innovative, research and development-driven business, and an enterprise harvesting established drugs that have come off patent.

Allergan also would provide Pfizer with a convenient Irish mailing address for tax purposes. A Pfizer tax inversion would be by far the biggest yet and could allow the company to escape US corporate taxes - the steepest in the developed world.

Read said last week that Pfizer is currently competitively disadvantaged by its higher rate, which leaves it less cash than foreign-based rivals to invest in research.

Saunders spent his first dozen years in the industry largely in compliance positions. He graduated to become a CEO for the first time in 2010 with Bausch & Lomb. Three years later, he demonstrated his taste for dealmaking by selling the eye-care company to Valeant for $8.7bn.

After Bausch & Lomb, activist investor Carl Icahn endorsed Saunders becoming CEO of Forest Laboratories. Saunders dined with then-Actavis CEO Paul Bisaro at a healthcare conference in 2013. Soon after, Actavis bought Forest - but instead of the acquiring CEO seeing off his quarry, they teamed up.

Saunders became CEO of the combined entity and Bisaro, 54, its executive chairman. They both remain in place at Allergan.

"Our working relationship is very collaborative and constructive," Bisaro said. "It has been a bit unique to have an executive chairman and CEO working this closely together, but it has worked very well for us and I believe for the our company and our shareholders."

Saunders' operating style can be discerned by two events this year. In January, shortly after acquiring Allergan, he attended a corporate sales conference where he grinned and bore it as he was subjected on stage to Botox injections and fillers to his face. After acquiring Kythera Biopharmaceuticals earlier this year, he tested out its double-chin injection, Kybella.

In the past 20 months, Saunders has turned a $25bn company into a $120bn one.

"You can't throw stones at his track record, even if it's relatively short. He's accomplished a lot," said John Schroer, sector head of US healthcare at Allianz Global Investors, which holds both Pfizer and Allergan shares.

As of Thursday, Saunders finds his company being courted by Pfizer, an industry stalwart founded in a redbrick building in Brooklyn in 1849 by two German-immigrant cousins who had developed a palatable form of an anti-parasitic treatment for intestinal worms.

A Pfizer deal for Allergan would be the largest ever in the pharmaceutical industry. And potentially another big step up for Saunders. However it turns out, he sees a lot more deals waiting out there.

"I think we're in the third or fourth inning of a nine-inning game," he said. "This industry is still very fragmented."



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