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Actavis to enter ophthalmology with Allergan acquisition
Brent Saunders and David E.I. Pyott spoke with OSN about the company’s direction, strengths and focus.
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The week after the announcement that Actavis offered $219 per share to acquire Allergan in a $66 billion transaction, Ocular Surgery News talked with the CEOs of those two companies, Brent Saunders and David E.I. Pyott.
The intended acquisition stymied a months-long takeover campaign by Valeant Pharmaceuticals to acquire Allergan.
After the announcement, Saunders said that the deal would create “the most dynamic company in ‘growth pharma.’” The deal’s completion is contingent on the approval of both companies’ shareholders and antitrust clearance in the U.S., European Union and other jurisdictions.
David W. Mullin Editorial Director, Ocular Surgery News
Ocular Surgery News: This seems like an amicable relationship that you have in your reaction to the deal. Could you talk about that?
David E.I. Pyott: When Brent was CEO of Bausch + Lomb, we had reason to get to know each other as competitors, but also as participants in many different industry meetings and serving together on the foundation of the AAO Advisory Board. I think we have felt over the years that we have had a similar approach to doing business. That sort of laid the seeds for the contact I received a couple of months ago from Brent. He said, “Look, I’ve always liked ophthalmology a lot, and if it made sense, would there be an opportunity for us to talk about a very friendly merger together?” At the time, I was still delivering our plan for moving up our performance. So I said, “Not yet.” I did not say no. And we have delivered at Allergan in terms of the best sales growth we have had in our 64-year history — 16%, which is a lot for a company with more than $7 billion in sales this year.
More recently, as I was contemplating going to our special stockholders’ meeting then planned for Dec. 18, there was a real risk that we were going to lose six of our directors at the vote. It always comes down to value. We understand that. We are a public company. Maybe at $200 per share we would have won the vote, but at the end of the day, fund managers are responsible to their investors for performance, and we understand that. Actavis offered $219 per share.
Importantly, we saw in Actavis not only the same corporate mission but also many shared common values in the way of doing business. The things that are important to me are service to the customer, education of our physicians, particularly when it comes to more complicated products and procedures, and most importantly, commitment to R&D.
Brent Saunders: I would add that Allergan was always a company that I admired, and when I was at Bausch + Lomb, I had deep respect as a competitor of the company. But more importantly and specifically, David is one of the best CEOs in the industry, and the leadership team at Allergan that I knew were some of the most talented people. So, this is a company that I have deep respect for and an organization that has continued to execute on all cylinders for dozens of years.
OSN: How do you think this acquisition will affect your customer base in ophthalmology, or what would you want ophthalmologists to know about this today?
Saunders: For the short term, I would tell ophthalmologists to expect no change in the great service, products and focus that they currently receive from Allergan. As they think about us in the future and as we earn their trust, they should know that we are as committed to driving innovation as Allergan was. Perhaps as a bigger company we will have more opportunities to invest even further in innovation, which I know is so important to the ophthalmology community.
Pyott: Continuity is important. Obviously, it is early days still. But I know from Brent’s view that we are going to try to keep the interface with the customer as unchanged as possible.
OSN: Allergan has a well-known and highly respected brand in ophthalmology. What will happen to the Allergan brand?
Saunders: The Allergan brand will live on, particularly in ophthalmology. The question is, how does that jive with the Actavis brand? We are carefully looking at the impact on our customers in all of our businesses, and we will be making decisions over the next several weeks, but the Allergan equity and the Allergan brand will live on.
OSN: Where will the $400 million in R&D cuts be made?
Saunders: While Valeant wanted to cut $900 million and we are cutting $400 million, which sounds like a little bit less than half, the reality is it is significantly less because we are cutting the $400 million from both companies’ R&D budgets and our R&D budget is larger than Allergan’s. We will spend somewhere around $1.2 billion on R&D as a standalone, and combined we will spend close to $2.2 billion to $2.3 billion on R&D. So that $400 million is coming out of a much larger base. It is more akin to about 18% of the combined R&D organization vs. the 69% Valeant was looking at.
We are going to look at how to become more efficient on the transactional side of R&D, pharmacovigilance, clinical trial management, clinical monitoring, informatics and the like. We will drive a lot more efficiency there. We expect there will be some natural competition around clinical programs, but that will be in every area from gastrointestinal to women’s health to ophthalmology to dermatology. I expect the cuts will be focused on lower-value and higher-risk programs.
OSN: How will the cuts affect the pipeline in ophthalmology?
Saunders: When we look at the ophthalmology pipeline, we feel pretty good about it. It is a strong pipeline. When we look at Lumigan SR (bimatoprost) and DARPin, there are some important innovations in the Allergan pipeline that we look forward to continuing to invest in and bring to market.
OSN: For you, Brent, will the overall focus of Actavis shift significantly? How would you define your mission in light of this large acquisition?
Saunders: It helps support our strategy to continue to build the best therapeutic categories in which we focus. We already compete in about three of the four therapeutic categories that Allergan does. With the exception of ophthalmology, we have overlaps in dermatology, urology and neurology. I think we have strengthened our categories by combining our two businesses. Of course, we pick up an additional therapeutic category in ophthalmology or eye health that I think is one of the best areas of health care, of medicine. And so from a position of leadership in the industry, I do not think it changes our focus, it just broadens our focus to continue to strive to be the best, to help solve unmet medical needs, and to provide patients in our generics business with low-cost, high-quality, reliably supplied medicine.
OSN: Will this give Allergan a broader reach, or does it change your global focus in developing your products outside of the U.S.?
Saunders: We both help each other. There are areas of the world where Allergan will help broaden the Actavis portfolio and vice versa. They have a strength in Latin America where we did not have much presence, but we have a lot of pending applications and dossiers filed. We have strength in Eastern Europe and Russia and in some of those markets Allergan is using distributors; now we will be able to seriously consider going direct. In Western Europe, Allergan is strong, and we have an emerging specialty business there. So this combination creates strength for us on a global scale.
OSN: Looking forward, what are you most excited about?
Saunders: The thing that excites me the most is getting back into specialty health care, eye health and then learning about aesthetics, dermatology and plastics. They are great areas of health care with great professionals and lots of “white space” in terms of unmet medical need and room for innovation. That makes for an exciting dynamic for a company that is committed to high customer service and innovation.
The most compelling part of our combination is the overall growth we have created. We have coined this new phrase that we created “a growth pharma company.” And for our customers, I think what we have done is create a company with tremendous strength, tremendous focus in the therapeutic areas where we compete and a strong commitment to innovation. Hopefully that will create a positive environment for our customers to work with us to continue to look for ways to help them better serve their patients.
Pyott: I am so glad that Brent said that because I would make the same point. Many of us who have worked for large so-called big pharma companies have moved on from them for a good reason because they were just too slow or maybe too risk-averse. The vision here is to create a place where dynamic, entrepreneurial people wish to work. Obviously, it is going to be a very large company. It is going to be in the top 10 pharma companies in the world, but we want to create, which can deliver enormous value to our customers, in this case, ophthalmologists.