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Business
Pharma Deal's Victor Now Must Execute
From the Wall Street Journal of Mon, 15 Dec 2014 23:59:21 EST
Brent Saunders, chief executive of Actavis, is a prolific deal maker.
Brent Saunders, chief executive of Actavis, is a prolific deal maker. Bloomberg News

Actavis PLC Chief Executive Brent Saunders, the drug industry’s most prolific deal maker this year, must now become one of Big Pharma’s best managers.

In little more than a year, Mr. Saunders has engineered more than $100 billion in mergers and acquisitions, most recently an agreement to buy Botox maker Allergan Inc. for $66 billion. The result: one of the world’s biggest drug companies and all the challenges that come with running one.

Mr. Saunders may have made his job more difficult by making a shareholder-friendly pledge that revenues at the combined company will grow at least 8% a year. That is a lofty target for any big drug maker, where earnings and sales typically grow a few percentage points a year.

The 44-year-old CEO said he knows what to do: run Actavis like it isn’t a Big Pharma. “We don’t want to be a big, bureaucratic company,” he said in an interview.

He secured Allergan by beating out Valeant Pharmaceuticals International Inc., which made a hostile offer for Allergan after teaming up with activist investor William Ackman .

Mr. Saunders said his first order of business is picking a team of executives from among the two organizations, which the company expects to announce Tuesday. After the deal closes in the second quarter of next year, he will simplify the organization, including removing excess middle management.

And Mr. Saunders will be making his own cuts, including eliminating jobs and research programs. Actavis has said it plans to eliminate at least $1.8 billion in costs, on top of the $475 million in cuts Allergan already planned.

The combined company will have about $23 billion in yearly sales, 30,000 employees and a broad portfolio, including the Botox antiwrinkle injections, the Alzheimer’s treatment Namenda, and a generic version of the Lidoderm pain patch. That will put Actavis among the top 10 biggest drug makers in the world by revenue.

Mr. Saunders has never run an organization so large and diverse. And there are shoals ahead: The company’s branded drug business will have to cope with some aging drugs facing generic competition or pricing pressure, while the generic business must keep a tight lid on costs.

Just last week a federal judge threw up a roadblock to a company plan to protect Namenda from generic competition by switching patients to a new longer-acting version. Analysts say Actavis could lose hundreds of millions of dollars in sales to generic Namenda if Actavis can’t make the switch. Actavis said it was disappointed by the ruling and will appeal.

We don’t want to be a big, bureaucratic company.

—Brent Saunders, Actavis CEO

All the while, Mr. Saunders must work to combine two big companies, just months after a similar big integration when Actavis bought Forest Laboratories Inc.

People who have worked with Mr. Saunders say he is more than a deal maker, having proven himself to be a strong manager during his rapid rise in the industry.

Son of a doctor and social worker, he has held leadership positions since he was a high schooler presiding over the student government and running a landscaping firm he established with his identical twin and a neighbor in Pennsylvania.

He has been running Actavis only since July, after the company completed the $25 billion merger with Forest Laboratories, which Mr. Saunders had been leading for less than a year.

“This is going to be a bigger challenge than anything he has seen so far because of the size, breadth and complexity,” said Fred Hassan, former chief executive of Schering-Plough Corp. , which was later bought by Merck & Co. “But I think he’s capable.”

Mr. Hassan hired Mr. Saunders from a consulting job in 2003 to overcome compliance issues in manufacturing and marketing. Mr. Saunders then ran the company’s consumer-health business, where he helped turn MiraLax into a top-selling over-the-counter laxative and helped make Claritin allergy medicine a major brand in China.

In 2010, Mr. Saunders took the helm of eye-products company Bausch & Lomb, which was having trouble recovering from accounting woes and a recall of contact-lens solution.

Mike Gowen, operations and quality chief at Bausch, said he was concerned about the reaction he would get when he raised a manufacturing snafu once, but Mr. Saunders was unlike other CEOs and asked him about his plan to fix the issue, offering support.

“That made me feel 10-feet tall, very empowered, and I just never wanted to let the guy down,” Mr. Gowen said.

Dan Wechsler, whom Mr. Saunders brought in to run Bausch’s drugs business, said the CEO wasn’t much of a deal maker then, instead focusing on improving the company’s commercial and research sides.

Mr. Wechsler recalled receiving text messages in the middle of the night from Mr. Saunders, who said he was checking out the eye-care section of a pharmacy in China and saying, “We need to improve our look” or “We are out of stock.”

After Mr. Saunders addressed Bausch & Lomb’s problems and restocked its pipeline, Valeant bought Bausch & Lomb for $4.5 billion in cash, and an additional $4.2 billion in cash to pay down Bausch’s debt.

Now at Actavis, Mr. Saunders is counting on the combination with Allergan to hit the ground running. He has vowed that the deal will add to earnings within the first year and sales from branded drugs will grow at least 10% annually while the generic business’s earnings will also increase by double digits each year. “Six percent growth looks a lot more realistic,” said Sanford C. Bernstein & Co. analyst Ronny Gal.

Mr. Saunders said the company can hit the growth targets if it can capitalize on the newer products in its portfolio, such as the Linzess treatment for a serious bowel disorder and Juvederm Voluma XC filler for plumping cheeks. Winning approval of drugs in development, including about a half-dozen the company expects to launch next year, could also provide longer-term growth.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com



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