Allergan's Saunders To Be Pfizer CEO -- Say It Isn't So!

Earlier this year, Matt Herper wrote a profile of Brent Saunders, the CEO of Allergan . Entitled “This Giant Drug Firm Won’t Invent Medicines. Investors are Cheering,” the article chronicled the impressive career of Saunders leading to the top spot of a major pharmaceutical company. In the article, Allergan is described as a “new kind of drug company” with “the scale in marketing and clinical trials of a global powerhouse like Eli Lilly or Bristol-Myers Squibb ” but one which “will eschew the core mission of most drug companies – inventing drugs – preferring to buy them from universities or biotechs all the time.”

It is not that Allergan doesn’t have an “R&D” budget. In fact, it invests about $1.7 billion in these efforts, roughly 7% of top line revenues. This is less than half of the 15% or more that most major pharmaceutical companies spend, but significantly more than the 3% spent by Valeant, a drug company currently under attack. But as advertised, Allergan doesn’t appear to spend much on its internal drug discovery efforts. Rather, the bulk of its spend is on drugs that are already on the market. A check of Allergan’s clinical trials, as reported on ClinicalTrials.gov, shows that it has a total of 642 trials underway. For comparison, Pfizer has 4,276 clinical trials ongoing. More noteworthy is the focus of Allergan’s efforts. For example, 187 of these studies are with Botox, including exploring new uses of this drug for indications such as migraine, tennis elbow, incontinence, cerebral palsy, and even hair growth. There are another 271 trials being run in dermatology ranging from acne to aesthetic conditions. This doesn’t resemble anything like a portfolio for a major pharmaceutical company where you would see clinical programs in cancer, Alzheimer’s disease, diabetes or heart disease. But this is the road that Allergan and its investors have chosen.

However, Allergan may be willing to give up its independence and agree to be taken over by Pfizer, a move that would enable Pfizer to become an Ireland-based company thereby substantially lowering its corporate tax rate. On the surface, this acquisition is unlike other previous major Pfizer mergers with Warner-Lambert Parke-Davis (2000), Pharmacia (2003) and Wyeth (2009). All three of those deals involved realigning the Pfizer organization with another entity that had its own major organization. Given Allergan’s limited R&D pipeline and a therapeutic area focus (e.g., dermatology/aesthetics, eye care) distinct from Pfizer’s, one would have thought that an Allergan acquisition would have little impact on Pfizer’s R&D operations.

However, that view may prove to be very naïve. Bloomberg has reported that “Pfizer Inc. and Allergan Plc are moving toward a plan to make Brent Saunders chief executive officer if the two giants reach a takeover agreement, according to people familiar with the matter.” Even more surprising is that, should Pfizer break the business into two companies, Saunders would take over the faster-growing business of new drugs with someone else picked to run the established products business which would house older and off-patent products.

It is hard to believe that Pfizer, a company with a long history of discovering many of its own products, would put someone in charge with an avowed distaste for the challenges of drug research. Pfizer’s commitment to drug R&D extends to its Board of Directors, two of whom are world-renowned scientists: Dr. Dennis Ausiello (Physician-in-Chief Emeritus at MGH) and Dr. Helen Hobbs (Director of the McDermott Center at the University of Texas Southwest Medical Center). Furthermore, all ten of the Board’s outside directors serve on Pfizer’s Science and Technology Committee, the only committee with entire board representation. I suspect that Allergan doesn’t have a Science and Technology Board committee. Given the focus that Pfizer puts on R&D, would Saunders really be given the keys to Pfizer’s R&D kingdom?

Maybe, given the prospect of running one of the world’s biggest pharmaceutical companies, Saunders will get religion and suddenly embrace R&D. Maybe he’ll keep Pfizer’s R&D investment at 15% of top-line revenues. Or maybe he’ll use such an opportunity to put his organization beliefs into play on a grand scale. I hope that doesn’t happen. But, should Saunders take over as Pfizer CEO, my guess is that a lot of R&D scientists will be sprucing up their CV and answering those head-hunter calls.

Note: The 642 clinical trials in Clinicaltrials.gov are for Allergan alone. If one includes studies for Actavis and Forest, the total number of studies is 1,461 of which just 300 are open studies.

(The author is the former president of Pfizer R&D and still holds Pfizer stock.)

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