Actavis’s Dealmaking New CEO Has ‘Zero Plans’ for Sale

Actavis (ACT) Plc is reinventing itself as a diverse pharmaceutical company after growing into of the world’s biggest generic drugmakers. Its new leader, meanwhile, says he has no plans to sell despite a history of transforming and dealing away companies in his past roles.

After revitalizing a deeply distressed Bausch & Lomb Inc. and selling it to Valeant Pharmaceuticals International Inc. for $8.7 million in 2013, Brent Saunders moved to Forest Laboratories Inc. (FRX) where, in just five months, he shored up its pipeline and sold the company to Actavis for $21.8 billion.

Saunders starts today as Actavis’s chief executive officer and will join the board. He and the company plan to stick around, even as the drug industry experiences one of the busiest deals environments in history, he said.

“This company is clearly not running any kind of sales process or even contemplating ever running one,” he said in an interview at Actavis’s operational headquarters in Parsippany, New Jersey. “We have zero plans to sell.”

Instead Saunders, 44, has a different challenge: turning the world’s second-largest generic-drug maker, with a market capitalization of $39 billion, into a hybrid pharmaceutical company with equal strength in branded drugs and generics. To do so, he plans to cut costs as the two companies join, and build the business in brand-name drugs by acquiring treatments for gastrointestinal and central nervous system disorders.

Source: Actavis Plc via Bloomberg

Actavis Plc Chief Executive Officer Brent Saunders is keen to take on diseases where research has produced scant breakthroughs inrecent years, such as Alzheimer’s, autism, and depression. Close

Actavis Plc Chief Executive Officer Brent Saunders is keen to take on diseases where... Read More

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Source: Actavis Plc via Bloomberg

Actavis Plc Chief Executive Officer Brent Saunders is keen to take on diseases where research has produced scant breakthroughs inrecent years, such as Alzheimer’s, autism, and depression.

No Precedent

That will be a challenge to operate and for investors to understand. “There haven’t been many companies of Actavis’s size that have both generic and branded sides of the business,” Tim Chiang, an analyst at Stamford, Connecticut-based CRT Capital Group LLC, said by telephone. “Initially, people will want to see how this really fits together.”

It’s also a new stage in the career of Saunders, who has in the past been brought in as a turn-around specialist.

At Forest, he took the reins as the drugmaker searched for new products to offset the loss of patent protection for its top-seller, the antidepressant Lexapro. Saunders built up the pipeline, buying Aptalis Pharma to add treatments for gastrointestinal ailments and cystic fibrosis. Forest shares more than doubled during his time as CEO.

“It’s easier to fix something that’s broken than to build on something that’s already doing well,” Corey Davis, a New York-based analyst at Canaccord Genuity Group Inc., said in a telephone interview.

Biggest Product

Actavis’ biggest product will now be the Alzheimer’s drug Namenda, making up about 9 percent of revenue, Randall Stanicky, a New York-based analyst at RBC Capital Markets, said in a telephone interview. Saunders will also have to manage sales of hundreds of generic drugs in more than 60 countries.

The drugmaker’s shares gained less than 1 percent to close at $224 in New York.

“Generics are all about being savvy with patent litigation and settlements,” while with branded drugs, “customers are not so much the buyers, it’s the physicians and managed-care companies,” Davis said. “They are almost polar opposite business models.”

The original plan wasn’t to make Saunders CEO. Actavis’s CEO Paul Bisaro, 53, was named as the combined company’s leader when the deal between Forest and Actavis, which has it legal headquarters in Dublin, was announced in February.

In May, the companies said Saunders would be CEO and Bisaro would become chairman of the board. Saunders said he was surprised by how it worked out, given that the company making the takeover often kicks out the management team of the target.

Deal Focus

“If Paul saw Brent as a threat and didn’t want him there, he could very easily have asked him to stay for a very short transition period and leave,” said Marshall Gordon, an investor at ClearBridge Investments LLC, Forest’s third-largest shareholder according to data compiled by Bloomberg. He didn’t, and now the two appear to be working closely together.

The company’s focus on deals for now will be on building up the brand-name drug side, Saunders said. They’ll spend about $400 million a year on research and development inside the company, with more for outside acquisitions.

Actavis has been the most active buyer of drug companies since January 2011, making $35.5 billion of purchases, including the Forest acquisition, according to data compiled by Bloomberg. With the merger, Actavis will have around $4 billion in annual free cash flow, according to the company.

Saunders is keen to take on diseases where research has produced scant breakthroughs in recent years, such as Alzheimer’s, autism, and depression.

“I think we’re hopefully getting close to embarking on a whole new frontier in understanding how the brain works,” he said. “It’s been a great area of disappointment, but I think we’re getting to the point where that may start to change.”

No Early Research

Actavis is placing its branded franchise in the hands of new hire C. David Nicholson, who will oversee research and development. Nicholson was head of R&D at Organon BioSciences BV, where he developed products including women’s contraceptive NuvaRing and the anesthesia reversal agent Bridion.

What Actavis won’t do is invest in early stage, discovery research, Saunders said, preferring to focus on middle and late stage products. “We don’t need to compete with a university professor and a” venture capitalist, he said.

He’s aware of the challenge ahead. “You look at Actavis and it’s neither a turnaround nor a situation where it needs to be rejuvenated,” he said. “Look at Paul’s legacy. The real question is, as the CEO of Actavis starting perhaps next week, how do you follow that?”

To contact the reporter on this story: Caroline Chen in New York at cchen509@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Drew Armstrong, Andrew Pollack

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