This profile of Actavis CEO Brent Saunders (by Matthew Herper) makes interesting reading, if your definition of “interesting” is roomy enough to take in various shades of “unnerving” and “enraging”. They’re the company that saved Allergan from the clammy embrace of Valeant, but reading this, you’ll wonder how big a difference it makes.
Saunders is being completely up front about some of the issues that many of us in the industry have been worrying about, but it’s strange to hear these things out in the open:
Saunders insists that Actavis-Allergan is more than just a short-term trade. It’s the springboard for a revolutionary new kind of drug company: “growth pharma,” he calls it. Actavis-Allergan will have the scale in marketing and clinical trials of a global powerhouse like Eli Lilly or Bristol-Myers Squibb, but it will eschew the core mission of most drug companies–inventing drugs–preferring to buy them from universities or biotechs all the time. The new company will be the first big pharma that doesn’t even pretend to invent medicines.
“ The idea that to play in the big leagues you have to do drug discovery is really a fallacy,” says Saunders. “You have to do research, you have to be committed to innovation. I strongly believe that, but discovery has not returned its cost of capital.”
We have Fred Hassan to thank for Brent Saunders, and depending on your dealings with Hassan, this could give you a strong opinion about him pretty quickly. After coming up through Hassan during his time at Schering-Plough, Saunders became CEO at Bausch and Lomb, and ended up selling them to. . .Valeant. And Michael Pearson of Valeant did what he does: siphon out the gas from the tank, rummage through the glove compartment for loose change, and sell the rest for scrap. We also have Carl Icahn to thank for Saunders, since he next installed him as head of Forest Labs, shortly thereafter sold to Actavis. (And if the idea of a Hassan/Icahn hybrid doesn’t give you pause, perhaps it should).
Within two weeks of becoming the CEO at Actavis, Saunders was involved in the Valeant/Allergan deal:
On July 30 Saunders called (Allergan CEO David) Pyott and offered to be a white knight. Over months of phone calls, he portrayed himself as the anti-Pearson, despite the fact that he agreed with much of Pearson’s thesis on the drug business. No, Saunders told Pyott, he would not strip the company like Pearson. Allergan would continue to do crucial research on things like dry-eye drugs and successors to Botox. Yes, the business could stay largely intact. . .
For some values of “intact”, that is. As Herper’s article makes clear, so far in his career, Brent Saunders has been a deal-making guy. And if he were to turn around and sell the combined Actavis/Allergan to, say, Pfizer, that would not be out of character in the slightest. It’s worth noting that the company’s tax domicile is Irish, in case that sort of thing interests Pfizer (or some other large US-based company) at all.
My own hope is that the rest of the industry can prove that the “research is a waste of cash” idea is a delusion. The numbers over the last ten or fifteen years, unfortunately, make a case that it isn’t a delusion prima facie, but that attitude doesn’t have to be correct, either. Even if the largest drug companies have been having trouble with their own return on investment for R&D (and not all of them have), many of the smaller ones have been able to make it work. (On the other hand, it’s worth keeping in mind that at that end of the market, the less unsuccessful examples just disappear, so you have to keep survivor bias in mind). But overall, we keep trying to get better at drug discovery, and there’s no reason that we shouldn’t be able to make it work if we can keep doing that. (If we don’t get better, on the other hand, we are in fact doomed).
So my own take is what I would call “hard-headed optimism”. There’s nothing that says that we have to fail, but there’s nothing that guarantees our success, either. The future is unwritten. If that future leaves the likes of Valeant and Actavis falling behind the R&D-driven companies, though, I will be quite happy.