Allergan Boss Brent Saunders On The Failed Pfizer Deal And Why He's Not Like Valeant

Well, that’s quite a monkey wrench. Two days ago, Allergan was set to be purchased by larger rival Pfizer in the largest pharmaceutical deal ever and its chief executive, Brent Saunders, looked as if he would be the heir apparent at Pfizer. But new rules from the Department of Treasury removed the tax benefits Pfizer would have accrued from the deal, and so Pfizer walked away. I spoke with Saunders this morning about the deal.

Some highlights: He would not consider taking the chief executive job at Valeant, the struggling drug maker that owns Bausch & Lomb, the eye care company he once ran. He says he has no idea if Allergan would be willing to buy Bausch, because he can’t tell if it is still growing. And he recoils at any comparisons between Allergan and Valeant, which he says have fundamentally different business models. And he'd be open to buying a big R&D-based drugmaker (no, he didn't mention Biogen by name).

Below is a lightly edited transcript.

How do you feel?

I feel good. I’m excited, I think, obviously disappointed the deal isn’t going through but very excited and confident in the future of Allergan.

Was it obvious this just couldn’t go through?

Both Allergan and Pfizer always knew that there was a possibility the government could do something extraordinary through the treasury--we didn’t believe it would happen through Congress–that could impact the deal. We always operated knowing that was a possibility. So we planned our pre-integration to be thoughtful about that. We were surprised that the rules came out the way they did, but we were 100% prepared to manage it.  Once we both had a chance to truly digest the implications of the rules it was very easy to then move to our contingency plan.

It seems you guys have to just roll over and let this happen. Was there any way to fight this?

Look, we’re in the business of creating shareholder value and creating a premier pharmaceutical company. Fighting the government over what is likely a long and protracted fight I don’t think positions us, and shareholders and employees and patients, to drive growth and find new medicines.

Would you consider buying something like Bausch & Lomb, which may be on the market as a result of the problems at Valeant Pharmaceuticals , and which you know very well because you ran it?

I have great respect for Bausch & Lomb. It’s business that I know well and I think is one of the premier brands in eye care. But we are also in the business of buying growth assets, and I would have to understand the growth profile of Bausch & Lomb before I could understand if it was interesting for us.

So that means you no longer understand the growth profile of Bausch & Lomb?

From publicly available information it’s hard to understand what type of pipeline it has and the position of some of its products around the world, because it operates in some of sectors of eye care that are very different from the pharmaceutical focus of Allergan’s eye care business.

How important do you think paying down debt is for Allergan right now?

What’s non-negotiable for Allergan is maintaining its investment-grade credit profile. I’ve always maintained that is a strategic imperative for us, and in this environment it is very important for us. In any scenario we won’t do anything to jeopardize the investment-grade rating.

You’ve been discussed as a potential replacement for Michael Pearson at Valeant. Would you consider that?

I would not consider it. I’m 110% committed to Allergan. I have the best CEO job in the industry, in my opinion. I’m not going anywhere.

Have you been able to look into whether these new treasury deals affect your tax status?

These new rules, all three sets of notices and proposed rules including the most recent issued Monday have no impact on our status as an Irish company and have no material impact on our tax status or strategy. These rules are designed to prevent future inversions, and the benefits of future inversions, not inversions that occurred almost three years ago.

Do you think the deal with Teva may go through faster now? Was that deal slowed up by the executive branch’s interest in stopping the Pfizer deal?

Absolutely not. That conspiracy theory has zero merit. Teva has been working incredibly hard to obtain the antitrust clearances for this deal they had obtained it in Europe they are working very hard with the FTC to clear in the United States and I am confident that will happen in the first half of this year.

One of the things I hear a lot about people who were skeptical about Actavis and who are skeptical about Allergan is that it is a roll-up, that it’s in a class of companies that they see as being akin to Valeant. I know you don’t agree with that, but why don’t you tell me why?

I think there are very important differences between our model and strategy and that of Valeant and some other companies. And I’m not saying is one is right or wrong, or better or worse. They’re different. The key difference is that we strongly believe in innovation and R&D and we have invested in innovation and R&D and we have invested heavily in making sure that in the areas that we focus on. We have sustainable growth through not just strong, long-lived marketed products but, equally important, R&D assets.

When we have done acquisitions, which is probably the thing we have most in common with Valeant, we have exclusively focused on growth assets, not mature assets.

Lastly, culturally, we have always believed and I have believed that we have a social responsibility and a social contract to responsibly price our drugs and invest in R&D. It doesn’t appear that was the strategy or view of some of these other companies.

Are we now in a time period where deals are less appealing? Does Valeant’s impact that?

The idea that doing deals is not a smart way of building companies is not fair either.  Some of the blue chip pharmaceutical companies were built through M&A.

But R&D is also important. If we went out and acquired a company that had a great discovery platform, we would put the Allergan footprint on it, of course, but if we believed it was productive research, we would support it, and we would invest in it.