(Adds Saunders interview)
By Caroline Humer
NEW YORK, July 27 (Reuters) - Allergan (NYSE:AGN_pa) plc AGN.N CEO Brent
Saunders is ready to put the $36 billion his company will net
from the sale of its generics business to Teva Pharmaceutical (ARCA:TEVA)
Industries Ltd TEVA.N to work, possibly with another large,
"transformational" merger.
The readiness for a new transaction just after the Teva deal
was announced on Monday represents what Saunders calls a
strategy to remain nimble and open to opportunity as the
healthcare sector remakes itself.
Saunders has already shown a penchant for quick deal-making.
Just last year, he helped orchestrate the $25 billion sale of
Forest Laboratories Inc, where he was CEO, to Actavis (NYSE:AGN) Plc.
As head of Actavis, he then sealed a $66 billion purchase of
Botox-maker Allergan, beating out rival suitor Valeant
Pharmaceuticals VRX.TO and its acquisition partner, hedge fund
billionaire William Ackman.
The latest deal had just closed in March and Saunders was
busy integrating the two companies under the Allergan name. At
the time, he did not consider unloading the generics assets of
Actavis.
"While I had a different strategy a few months ago, the
thing that sets us apart ... is our strategy to be nimble,"
Saunders said in an interview.
Saunders now plans to use the proceeds from its $40.5
billion asset sale to Teva to increase the size of existing drug
businesses, expand into new therapy areas and pursue larger
deals.
He declined to discuss any specific targets, a list Wall
Street that analysts speculated may include Biogen Inc BIIB.O ,
AbbVie Inc (NYSE:ABBV) ABBV.N and Amgen Inc AMGN.O .
"Clearly we are watching many companies - we have been for
some time - but what has changed is our timeline for being able
to execute has accelerated, if the opportunity presents itself,"
Saunders said.
The $40.5 billion cash-and-stock sale of generic drugs
business to Teva is expected to close in the first quarter of
2016. ID:nL5N107178
That will essentially "reload" Allergan's balance sheet for
more acquisitions, Saunders added. When asked if Allergan
planned to spend the cash within 18 months, he replied that the
company would, as long as it could maintain its investment-grade
credit rating.
CONSOLIDATION AHEAD
Saunders said his change of direction for Allergan came only
a few weeks ago when Teva CEO Erez Vigodman called to make an
offer. Vigodman had already approached Actavis earlier in the
year, but the company was not interested at that time.
"To be fair, I didn't think it was a good idea to sell it
until Erez called me and put a compelling offer on the table,"
Saunders said. "It caused me to step back and think about the
industry and the dynamics."
The healthcare industry has consolidated in the past year,
with pharmacies and distributors aligning through merger deals
or purchasing agreements that give them more leverage over
prices for generic drugs.
These deals, such as CVS Health's CVS.N purchases of
Target Corp's TGT.N pharmacies and the Omnicare specialty
pharmacies and distributor McKesson (NYSE:MCK) Corp's MCK.N purchasing
agreement with pharmacy Rite Aid Corp RAD.N , will force more
consolidation among generics makers so they can compete,
Saunders said.
Two of the largest U.S. health insurers - Humana Inc (NYSE:HUM) HUM.N
and Cigna Corp (NYSE:CI) CI.N - have also agreed to be bought in the
past month, signaling fresh pressure on prices, Saunders said.
Of the seven main therapeutic areas that Allergan will focus
on after the generics sale, he said there are four with the
strongest opportunities in terms of unmet medical care:
aesthetics, eye care, central nervous system therapies and
gastrointestinal therapies.
Les Funtleyder, healthcare portfolio manager for E Squared
Asset Management, which owns Allergan shares, said Saunders
should look for something with a reasonable risk versus reward
profile.
"If it were my $40 billion, I would probably do four or five
deals in the $10 billion range, aiming for late-stage drug
programs where you have some idea if the drug works," Funtleyder
said. If two of those deals panned out, "that would be a good
use of capital."