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Come to Think of It, Brent Saunders Likes R&D, Too!

Compare and contrast. Here’s Allergan’s CEO, Brent Saunders, back in August on the value of R&D:

“The best way for us to participate in discovery is investing in a more ‘virtual’ sense, than actually building and running our own labs,” company Chief Executive Brent Saunders said in an interview after Allergan reported second-quarter results on Thursday. . .

“Discovery is where the industry has its lowest return on investment,” he said, “and not a good (use) of Allergan’s research dollars.”

Instead, he said Allergan will acquire products from companies that have already done the research spadework, and then itself develop the medicines and submit them for regulatory approvals.

And now here’s Allegan’s CEO, Brent Saunders, in November, on the value of R&D:

“I practice a very open minded management structure and learn new things all the time that change my opinion,” Saunders, 45, said in a phone interview with Reuters from an Allergan discovery lab. “For instance, when Actavis and Allergan merged, we didn’t have any discovery capabilities, but we assessed Allergan’s discovery capabilities in ophthalmology and aesthetic medicine and recognize they added a lot of value. . .”

And of course, you don’t have to go back much past that to find Saunders saying things like “The idea that to play in the big leagues you have to do drug discovery is really a fallacy”. Now that this attitude might be affecting the possible Allergan/Pfizer deal (and his position in it), things clearly have changed. What will Brent Saunders learn over the next couple of months? Who can say, given the current pace? Between this and the newfound love for R&D that Michael Pearson of Valeant has expressed, it’s clear that people are truly seeing the light. Or something.

I’ll also drop this in, since it’s not very often that I can predict the future. To be sure, I wasn’t the only one predicting this, but considering the current news stories, I find it interesting that back in January I said:

And if (Saunders) 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.

11 comments on “Come to Think of It, Brent Saunders Likes R&D, Too!”

  1. SunnySerine says:

    Hah! My favorite line “but we assessed Allergan’s discovery capabilities in ophthalmology and aesthetic medicine and recognize they added a lot of value.” As someone who worked at Allergan during the Actavis/ Allergan merger, I saw that Brent’s definition of “value” included cutting approximately 90% of the discovery teams.

  2. paramus says:

    Why should this surprise anybody!! People like Saunders are only interested in their own Egos and making money, they don’t care about patients, The day of the Pharma company that was there to help people is well gone. I have worked in this industry for over 30 years, When I joined, we wanted to make a difference for patients. Interestingly, since the money men and business consultants took over very few new drugs have been discovered! And people like Saunders probably couldn’t discover a drug in Walgreens!

  3. dearieme says:

    “since the money men and business consultants took over very few new drugs have been discovered”: which is cause, which effect?

  4. Anon says:

    @dearieme: Both. It’s a vicious cycle. Most things are when they go badly, one way or another.

  5. As the person Brent said some of that stuff to, I don’t think his viewpoint has changed as much as you think. He’s been for R&D (mostly D) but generally argues for avoiding internal development unless you’re really, really good at it. (He’d note that Lipitor, Humira, and Sovaldi are all externally invented products.) But he also was always keen on keeping research if it was productive enough. The debate probably centers more around what “productive enough” means.

    1. Phil says:

      I’m not convinced that someone can be really, really good at discovery. I don’t think we understand enough about the determining factors to say that chance doesn’t play a significant role. As such, it makes much more sense to think of it as winning the lottery. It’s a bit of a self-fulfilling prophecy that the likes of Pfizer, Abbott, and Gilead “aren’t as good at it as they used to be.” They all bought winning tickets years and years ago, and that’s why they are still in business. But as in any system where random chance plays a large role, they all regress to the mean. The next “really good discovery groups” will also experience a few success streaks (true randomness comes in bursts) and then regress to the mean as well. And everyone will say, “what happened to those really productive discovery groups?”

      However, it’s not such a crazy idea to have separate companies focusing on discovery and development from a shareholder perspective. If you want to buy a lottery ticket, invest in discovery. If you want to deliver (somewhat) predictable financial results, invest in development.

  6. Moonshot says:

    To some extent he is right. Discovery is risky. He wants to buy successful candidates and take them to market. However, those compounds, if held by good businessmen, should be very expensive to acquire. In a perfect system the cost to discover in house or to acquire ready-made, should be virtually the same when averaged in the long run. Otherwise, if it really is cheaper to sit on the sidelines and cherry pick then all drug companies would stop investing in r&d and eventually the supply of new drugs would disappear.

  7. processchemist says:

    I always tought that research is pretty much cheaper than development…

    1. Phil says:

      On a single project basis, development is absolutely more expensive than discovery. But for every project that makes it to development, there are something like ninety-nine discovery projects that don’t. Saunders thinks he can avoid paying for those failures, and he can if the people holding successful candidates undervalue them as Moonshot warns.

      For something in development, you have a much better shot a recouping your investment and that’s what the MBAs really care about. And it’s something they can model pretty well. They can make some assumptions ($1.5B investment in clinical development, 10% success rate from Phase I to approval, market size for the indication, estimated value of the treatment for pricing purposes), plug them into a DCF calculation and feel like they understand how likely it is they’ll see a return.

      At earlier stages, success rates are much lower, and you probably have less certainty about things like addressable market and how valuable the treatment will actually be. Plainly, it’s a gamble.

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