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 Irvine 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-in-class 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 development 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 venture-backed 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 in Westlake Village 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 Irvine?
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 the new 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 white-space opportunities for us.
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 Irvine?
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.