Al­ler­gan CEO sees key role for Irvine

Los Angeles Times - - BUSINESS - By An­drew Khouri

Over the last year, one of Or­ange County’s most pres­ti­gious com­pa­nies has been through the wringer: a hos­tile takeover at­tempt, scru­tiny by the na­tional press, lay­offs and an ac­qui­si­tion.

Al­ler­gan — the Bo­tox maker that has been in Irvine since be­fore the city’s found­ing — was pur­chased in March by Ac­tavis, a phar­ma­ceu­ti­cal com­pany head­quar­tered in Dublin, Ire­land, for tax rea­sons but run out of Par­sip­pany, N. J. The sale stripped away lo­cal own­er­ship of a mar­quee South­ern Cal­i­for­nia firm and led to the lay­off of nearly 600 em­ploy­ees in Irvine, leav­ing 2,100 work­ers there.

The pur­chase, how­ever, was widely seen as the bet­ter of two op­tions. The sale blocked a hos­tile bid from ac­tivist in­vestor Bill Ack­man and Valeant Phar­ma­ceu­ti­cals In­ter­na­tional, which had vowed to lay off thou­sands of em­ploy­ees com­pa­ny­wide and cut re­search and de­vel­op­ment deeper than Ac­tavis did.

Brent Saun­ders, Al­ler­gan’s new leader, said South­ern Cal­i­for­nia fared bet­ter with Ac­tavis. He em­pha­sized that af­ter a round of lay­offs the bleed­ing has stopped. The deal- hun­gry chief ex­ec­u­tive, who last week an­nounced the ac­qui­si­tion of West­lake Vil­lage’s Kythera Bio­phar­ma­ceu­ti­cals Inc., char­ac­ter­ized the Irvine cam­pus as cru­cial for the newly minted or­ga­ni­za­tion. In a nod to that im­por­tance, the com­bined firm of­fi­cially adopted the Al­ler­gan name this month.

We sat down with Saun­ders, who held the same CEO po­si­tion at Ac­tavis, and asked what the sale means for

South­ern Cal­i­for­nia. Here are ex­cerpts: What role will Ir vine have in the new Al­ler­gan?

We re­main strongly com­mit­ted to Irvine. It’s our largest cam­pus in the Al­ler­gan sys­tem. We have the most em­ploy­ees in Irvine than any other place in the world. It’s our most im­por­tant R& D cen­ter, it’s our most im­por­tant ac­tual cam­pus. The big dif­fer­ence is it’s not a head­quar­ters any­more. It’s a cen­ter of ex­cel­lence, but it’s not a head­quar­ters. So for Or­ange County, what does that mean?

I think you are go­ing to see the Al­ler­gan Foun­da­tion re­main com­mit­ted to Or­ange County and South­ern Cal­i­for­nia. You are go­ing to see a few thou­sand em­ploy­ees re­main at that space [ in Irvine]. The cuts are done. There is no sec­ond shoe to drop. The peo­ple who are there are there. What at­tracted Ac­tavis to Al­ler­gan?

Prior to the hos­tile bid by Valeant and Bill Ack­man, you know it was a best- in­class as­set. This was a com­pany that never should have been for sale. For it to be­come avail­able, and for us to have an op­por­tu­nity to buy it in a friendly way and a re­spon­si­ble way, it was a won­der­ful, once- in- a- life­time op­por­tu­nity. How were the cul­tures of Al­ler­gan and Ac­tavis dif­fer­ent and what will be the new com­pany cul­ture?

Al­ler­gan had a re­ally strong fo­cus on cus­tomers, prob­a­bly the best in class in the in­dus­try. And that is some­thing we want to pre­serve in the new com­pany. I think Ac­tavis was a lit­tle bit more fast- paced, nim­ble and less bu­reau­cratic. If we could pre­serve those at­tributes from both com­pa­nies, you’ve got a bet­ter com­pany. Al­ler­gan was known for its R& D — an in­vest­ment that drew praise and crit­i­cism. How does Ac­tavis’ strat­egy in re­search and de­vel- op­ment dif­fer?

We don’t like to spend a lot on early phases. Most drugs don’t come from re­search groups at big pharma com­pa­nies. They come from ven­ture- backed, aca­demic- backed com­pa­nies. The in­dus­try spends about $ 30 bil­lion a year on dis­cov­ery re­search. In­stead of con­tribut­ing to that $ 30 bil­lion of rel­a­tively un­pro­duc­tive spend­ing, why don’t we sup­port the ecosys­tem where these in­no­va­tions re­ally come from and part­ner and plant in­vest­ments and seeds with ven­ture­backed com­pa­nies, with en­trepreneurs, with labs and aca­demic cen­ters to do that early work. And when scale mat­ters, go­ing into those larger, more ex­pen­sive tri­als, then we will bring them in­side, be­cause we of­fer more pro­tec­tion.

We take a very prac­ti­cal view of where to best spend our money and where do we get the high­est re­turn. If we have a good idea, cer­tainly, we’d try and de­velop it and com­mer­cial­ize it, but we also rec­og­nize we don’t have a mo­nop­oly on the best ideas. We’d rather have a net­work of part­ners around the world that we can ac­cess for those ideas. I would rather lay the bet on Stan­ford and NYU pro­fes­sors, as an ex­am­ple, than have to hire all that tal­ent my­self. Was the re­cently an­nounced ac­qui­si­tion of Kythera an ex­am­ple of this strat­egy?

In part. Kythera comes with two as­sets. One is a re­cently ap­proved treat­ment for dou­ble chin, Ky­bella. The sec­ond is at a very early stage for male pat­tern bald­ness. The male pat­tern bald­ness treat­ment is pretty clin­i­cal so we are go­ing to con­tinue to in­vest to see if it is a real drug. We in­tend to keep the vast ma­jor­ity of em­ploy­ees and keep the West­lake fa­cil­ity, and con­tinue to in­vest to not only bring Ky­bella to the U. S. but to the rest of the world. What will Al­ler­gan be able to do that Kythera couldn’t with these drugs?

Kythera was a very ca­pa­ble and well- man­aged com­pany, but we have the in­fra­struc­ture in or­der to in­vest and launch this [ dou­ble chin] prod­uct. It would have been much more dif­fi­cult for Kythera to do on their own. Does this strat­egy of ac­quir­ing tech­nol­ogy from out­side Al­ler­gan mean fewer jobs will be needed go­ing for­ward in Ir vine?

No. Be­cause, re­mem­ber, ev­ery time we do one of those [ deals for early- stage drugs], you need some­one in Irvine who can eval­u­ate the op­por­tu­nity. And when we bring them to us … and we take over the man­age­ment of clin­i­cal tri­als and drug de­vel­op­ment and the scale- up of phar­ma­ceu­ti­cal sup­ply, you need the sci­en­tists in house to do that. Is early dis­cov­ery go­ing away?

In some ar­eas, like aes­thet­ics and in a few ar­eas of eye care, Al­ler­gan is the best- in- class dis­cov­ery. So we are go­ing to keep it. It’s not a bright- line rule. I think we should al­ways in­vest where we have a com­pa­ra­ble ad­van­tage. If we don’t have a com­pa­ra­ble ad­van­tage, that’s why you out­source things. What do you see as ar­eas of growth for Al­ler­gan?

Aes­thet­ics. We are the mar­ket leader in aes­thet­ics and it’s a grow­ing mar­ket. To­day we fo­cus pri­mar­ily on plas­tic surgery and fa­cial aes­thet­ics, but I think ev­ery­thing from body con­tour­ing to skin qual­ity to hair loss are still big whites­pace op­por­tu­ni­ties for us. Other ar­eas?

I would say aes­thet­ics is prob­a­bly equal to two other ar­eas — eye care and cen­tral ner­vous sys­tem dis­or­ders. Aes­thet­ics and eye care were key busi­nesses for the old Al­ler­gan. The fact that you see these as ripe for growth, what does that mean for Ir vine?

It could mean fu­ture ex­pan­sion, it could mean fu­ture growth. We have to get there, but we don’t come at this as say­ing our U. S. head­quar­ters are in New Jersey so ev­ery­one needs to be in New Jersey.

Mark Boster Los An­ge­les Times

CEO BRENT SAUN­DERS says the Irvine cam­pus re­mains cru­cial.

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