In between business meetings this week, Brent Saunders stopped by the Medical Device Investor Forum hosted by OCTANe in Irvine, Calif., to chat with Jim Mazzo. The two, who have known each other for years, had a discussion about the business of acquisitions, R&D, tax inversion, and other subjects.
Of course, in the background, Allergan is in “friendly discussions” with Pfizer to form a conglomerate that would rival the likes of Johnson & Johnson. Allergan is enjoying soaring stock prices this week, thanks to such friendly dialogue. At 45 years old, Saunders is poised to become one of the most successful chief executives in the medical technology field.
At the forum, however, you wouldn’t have gotten that impression. Saunders comes across as a relaxed individual, and he affably discussed a variety of topics:
On the new Allergan:
It’s been almost a year since Actavis announced plans to acquire Allergan, and Saunders says he has learned some lessons. “We thought Allergan was a good company that was being unfairly targeted. Allergan has a legacy of focusing on customers. It’s a tone at the top that carries through product development. Through that intimacy, we’ve created some blockbuster products.”
Saunders says keeping Allergan name was a no-brainer. “The Allergan name has tremendous strength. It was an easy decision to choose it as the name of the new entity.”
On strategic acquisitions:
It’s no secret that Saunders’ strategy is to gain new product lines through Universities and start up biotechs. That means a continual acquisition strategy. “As you do large-scale integration, you can fail in any number of ways, culturally, you can miss R&D or you can screw up the product portfolio. If it’s a hostile environment, one or more of those failures are sure to occur. Friendly deals stack the odds in your favor.
“You have to figure out why you bought the company and not lose sight of those attributes. For example, Actavis didn’t have to impose its knowledge in facial aesthetics, because we didn’t have any expertise. We have to be smart enough not to interfere with the experts.”
“We are not the smartest people so we have to listen. Translating culture is a huge challenge, even if the company being acquired is small. Ron’s Baruchi’s Teva, for example had about 18 employees, but it was a challenge to get them in. We had to spend time listening to them and try to think about what they can teach us.
“We are also interested in hiring and retaining millennial talent, and they have different needs. They are passionate about parental leave, and feeling good about the work they do. They want to work for companies that are forces for good.”
“We believe strongly in innovation. The second you stop innovating your product lines you are dead. But companies tend to make R&D as a percentage of their sales, and that is stupid. There are two possible problems. One, you spend more than you need to on a dumb idea or you don’t have enough to spend on a great idea. Spend what you have to spend, and spend them on the good ideas.
“At the same time, we have to be mindful not to be beholden to the short term but we do have to manage short-term expectations of our investors.
On travel and tax inversion:
“I’m on planes a lot. We have facilities in China, offices in Japan, and our domicile in Ireland, I live in New Jersey, and Allergan is based in Orange County, Calif.
“Being based in Ireland is a 35% tax inversion. Our company is a tax invertor. I don’t think this is unpatriotic. We have a responsibility to reduce costs and one of those is to have strategies that mitigate taxes. It works. It makes us more compentitive. That being said, there is a lot of rhetoric around the U.S. tax code, but really there is a failure here. The U.S. has to create a more competitive system. For example, we shouldn’t have to pay foreign tax. If I get taxed in France, I don’t also want to be taxed in the United States. No other country works like that.”
On the value of healthcare:
“In the U.S. insurance is consolidating, retail healthcare is consolidating, ad hospitals are consolidating into region health companies. All of this is an effort to control costs. We are part of that trend.
“We have to make the case for the cost of healthcare and medical technology and we haven’t done a good enough job of that. For example, with the hepatitis C drugs, you have to calculate the additional time a patient might be in the hospital, the likelihood of them experiencing liver failure. We need to better create models that prove the healthcare savings over the long term.”
On therapeutic white space:
“There is a ton of white space in every therapeutic area at Allergan. We have plenty of opportunities to innovate.
“We need to encourage work into Alzheimer’s. There is a war on cancer, a war on diabetes, but no one has taken up the mantle for Alzheimers. There is no center to look at technology to fix that disease.”
On FDA and the U.S. market:
“FDA is so onerous that there is no incentive for us to bring some products here. But this is still the best market in the world, so it will get the technology.”
On entrepreneurs and taking risks:
You have to know what you are fighting, your value proposition and your end points. You have to rely on partnerships and understand your limitations.
In my early days, I was a partner with Pricewaterhouse Coopers. I was very well-paid, had risen in the ranks. Then I met Fred [Hassan] with Shering Plough. Fred invited me to join the board of Schering-Plough, a struggling company, for ⅓ of the salary I was earning. I remember going home to my wife who had just had our second daughter about 6 months earlier, and bless her, she said, ‘Do what you want to do.’ So I joined the company.