In The Eyes Of VCs, Saunders Will Be The “Pfizergan” Man

Xconomy New York — 

There’s plenty of speculation whether Allergan CEO Brent Saunders will become CEO of Pfizer—and how quickly—after the two companies’ $160 billion tax-inversion merger, which they hope to consummate later this year.

But at an early morning breakfast meeting at the J.P. Morgan Healthcare Conference in San Francisco Tuesday, Saunders left little doubt in the minds of biotech venture capitalists that the combined “Pfizergan” would continue to be a rich source of exit cash for those looking to sell small companies.

Saunders, sporting a well-trimmed beard and pink tie, and other Allergan executives stepped the gathered VCs—roughly two dozen in all from many of the field’s top firms—through Allergan’s pre-merger pipeline. The presentation left many in attendance convinced that Saunders would sooner than later be tabbed as Pfizer’s top man, and that would fuel the combined company’s hunger for products that aren’t too far from marketing approval.

Now a $118 billion company—its valuation has fluctuated since the merger was announced in November—Allergan has accumulated more than 70 mid- to late-stage experimental products through a series of acquisitions. Some of those deals have been massive on their own, like the $70 billion combination of Allergan and Actavis completed in 2015. The pending tie-up with Pfizer hasn’t stopped the Allergan acquisition machine, either. Last week, it nabbed the biotech Anterios for $90 million upfront.

Saunders told the gathering that he and Pfizer CEO Ian Read speak every day, and that the combined company would continue to look to VCs “to sustain our innovation,” even fretting that the sharp political rhetoric dogging the drug industry these days would dissuade venture investments and thin the herd of potential acquisitions in years to come.

He also stressed that the combined company, which will keep the Pfizer name, would continue to do its own internal research. How much has been another topic of speculation, and the executive teams of Pfizer and Allergan addressed that question later Tuesday in a joint appearance at the conference.

David Nicholson, who runs R&D for Allergan’s brand-name products, encouraged the VCs in attendance to bring him acquisition opportunities in women’s health, eye disease, gastrointestinal disease and other areas. For GI problems, he singled out the microbiome as an area of interest. “If you have companies with products or projects, let me know about it,” he said.

One VC showed me a list of his portfolio companies jotted on a napkin during the breakfast that, off the top of his head, would fit into Allergan’s acquisition needs. There were eight.

The VCs I spoke with upon condition of anonymity said they were assured that Allergan’s acquisitiveness would remain at the core of the new company. One pointed out that a Pfizer with a lot of Allergan in its DNA would be hungry for products in advanced development in certain areas, but VCs looking to sell assets that had not reached or had recently reached clinical trials might not find as much interest.

In part, their belief was bolstered by what they heard as a signal from Saunders himself that he would ultimately be in charge.

What Saunders actually said, in response to a question about reconciling the difference between Allergan’s buy-first approach and Pfizer’s research-heavy business, was this: “When this deal closes most of Pfizer will report to me.”

Officially, Saunders will be second in command, the president and COO, and Pfizer CEO Ian Read will stay on in that role. When asked directly by CNBC reporter Meg Tirrell in November if Saunders would be the next CEO, Read dodged the question:

“I’m very, very looking forward to working with Brent. He’s done a fabulous job with Allergan and all the companies he’s been in. We’ll have a great partnership. Together we’ll be very successful.”

But former Pfizer head of global R&D John LaMattina, now a director at Boston’s PureTech and a Forbes columnist, wrote in November that the deal wouldn’t happen without a promise that Saunders would become CEO. And Bloomberg reported around the same time not only that Saunders would be CEO, but the company post-merger would be split in two.

Whether the reports hold true, Saunders was adamant at the breakfast that the combined company would not undergo the same cost cutting—and job losses—that Pfizer’s previous mega-mergers have engendered.

“It’s not about cost-cutting,” he told Xconomy. “In fact the biggest criticism we get from investors is that the synergies”—the savings from combining two companies—“aren’t as big as they thought they would be.”

The companies are aiming to cut $2 billion over three years, less than 10 percent of the combined “cost base” of the companies, Saunders said. He specifically mentioned the “normal overlap” of headquarters, regional offices, human resources, and finance groups as candidates for cuts. He did not mention specific research or product areas.

A drug industry mega-merger without large reductions in core areas would be highly unusual. Saunders agreed but said this time it’s different. “You have two management teams that have done lots of deals and integrations. We’ve done a lot of good things and made some mistakes as well, and we are committed to doing this one differently than we have in the past.”