Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Carl Icahn taking a stake in a company is often cause for that company's management to seek a favorite stuffed animal. Maybe not this time.  

Icahn on Tuesday announced he had taken a "large position" in Allergan, a rival to specialty pharma firm Valeant, in which Icahn's rival activist Bill Ackman has a stake.

Both Icahn and Ackman picked pivotal moments to make their respective investments. Ackman's moment was the launch of Valeant's attempt to buy Allergan, before Actavis ultimately snatched Allergan from his grasp and took its name. For Icahn, it's Allergan overcoming the collapse of a $160 billion mega-deal with Pfizer as it awaits a $36 billion payout from selling its generic business to Teva.  

Icahn praises and says he supports Allergan CEO Brent Saunders, and Allergan says it doesn't believe Icahn plans to play an activist role. Given his past, it's understandable to want to take that with a grain of salt. 

But there's reason to believe this investment might go more smoothly than Ackman's Valeant bet and that Icahn might actually be uncharacteristically passive. Allergan shares rose as high as 2.7 percent Tuesday morning. 

Started From the Bottom
Now we're in very different places. Allergan and Valeant rose together over the past few years. But Allergan has stayed relatively strong as its Canadian cousin's share price collapsed.
Source: Bloomberg

The two companies have some apparent similarities, including meteoric share-price gains that are now in the past. Both came out of New Jersey, are tax-inverters, and have been serial acquirers. 

But at a deeper level, important differences emerge. Allergan hasn't engaged in the extreme price hikes for which Valeant has become notorious. It has been much less aggressive in slashing R&D costs: Allergan's average R&D spending as a percentage of sales over the past year is 14.2 percent, Valeant's is 3.2. Both companies have raised tons of debt -- $42.5 billion for Allergan and $31 billion for Valeant. But Allergan will pay off a big chunk of that off after the Teva deal closes, and it has larger and more secure revenue sources to pay it down.

The romance between Bill Ackman and former Valeant CEO Mike Pearson started fast, burned hot and flamed out. They were introduced in early 2014 through a mutual friend. By April, they had gotten together on an unusual scheme to buy Allergan. Less than two years later, Ackman engineered Pearson's ouster. 

Icahn and Saunders have more of a history. Icahn took a big bet when he installed the then-43-year-old Saunders as CEO of Forest Laboratories in September 2013 after a series of proxy fights. It paid off handsomely when Forest sold for $25 billion to Actavis in February 2014.    

Icahn is arguably responsible for the transition of what was then Actavis (now Allergan) from a generic-focused firm to a branded-drug giant, a shift Saunders is now completing with the Teva deal. That shared history suggests Icahn might give him a pretty long leash.

Results
Carl Icahn saw a hefty return after installing current Allergan CEO Brent Saunders at the helm of Forest Laboratories.
Source: Bloomberg

A rapid sale of the company à la Forest is less likely now. Allergan is a hefty mouthful with a $94 billion market cap. Since the Pfizer deal fell apart due to new and restrictive tax rules, the company is less attractive as an inversion target. A bet on Allergan is likely a longer-term wager that the independent company will put those Teva funds to good use and remain shareholder-friendly (at least $10 billion of the Teva funds are going to buybacks). 

Ackman was active from the start. He bought a bunch of shares in Allergan as Valeant pursued it, then became a vocal and aggressive cheerleader for the combination. Calamity forced him to become far more involved after Valeant became embroiled in pricing and accounting scandals, culminating in him insisting on a board seat earlier this year.  

Icahn's investment looks far more conventional, even boring, and such an implosion seems less likely for Allergan. If Saunders' strategy doesn't pan out, then Icahn may not be passive for long.

But for now at least, looks like we might be getting a calmer Carl. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net