By Jonathan D. Rockoff
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.
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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