Allergan demands CEO slot for Saunders as condition for Pfizer buyout: Forbes

If Pfizer ($PFE) does make a friendly deal for Allergan ($AGN), CEO Ian Read will be giving up his seat at the helm. That's the word from sources at Pfizer, who told Forbes' John LaMattina that current negotiations depend on Allergan CEO Brent Saunders taking charge at the combined company.

Allergan CEO Brent Saunders

LaMattina, who is a former R&D chief at Pfizer, reports that Saunders wants the top job at "Pfizergan"--and a friendly takeover is contingent on it. If Pfizer is unwilling to hand the reins to Saunders, then it will have to pursue a hostile bid.

That prospect is unlikely to appeal to Read, who spent months trying to push a hostile takeover onto U.K.-based AstraZeneca ($AZN) last year. That hard-fought failure left Pfizer without the tax inversion deal Read so desired, and he's been scouting about for an alternative ever since.

But is Read ready to give up his CEO post, particularly before his pet project--a potential break-up of the company--comes to its full fruition? Read's signature at Pfizer has been divesting "non-core" divisions, such as its nutrition unit, and preparing for a potential split-up in 2017. Under his leadership, Pfizer divided its internal operations into three units and snapped up Hospira for $17 billion to beef up the "established products" business that's the most likely candidate for a spinoff or sale of some kind.

Pfizer CEO Ian Read

Supposing Read is prepared to give Saunders his job--perhaps to become chairman, as Paul Bisaro did after his company, Actavis, bought Allergan and took on its name. How would that play out in Pfizer's R&D operations? Saunders has been dismissive of research in the past, and Allergan's R&D spending is quite small compared with Pfizer's; 7.5% of sales compared with 14%, or $1.9 billion for Allergan in the first 9 months of 2015 compared with $5.34 billion for Pfizer.

"The idea that to play in the big leagues you have to do drug discovery is a fallacy," Saunders told Forbes in a now-infamous comment, suggesting that he'd prefer to buy in drug candidates or snap up companies with late-stage meds. In a Reuters interview, he said, "Discovery is where the industry has its lowest return on investment, and not a good (use) of Allergan's research dollars."

LaMattina parses some of Saunders' other comments to conclude that the purported CEO-in-waiting is fine with spending money on R&D, provided it's productive. But the same could be said for any pharma chief; no one wants to throw away money on unproductive drug development. As for buying promising drugs--that's another place where Saunders would have plenty of competition. That's a favorite goal among pharma CEOs, if the Q3 earnings calls are any indication.

But Saunders has a practice at changing his mind, as FierceBiotech's John Carroll recently noted. Early this year, he was all about touting the "hybrid" business model Allergan then followed; pairing brands and generics offered unique advantages, Saunders said. Allergan since has repudiated those advantages by agreeing to sell off its generics business to former archrival Teva Pharmaceutical Industries ($TEVA).

He already seems to have converted on drug research, as LaMattina and Carroll both note, and certainly paints himself as open-minded. Recent remarks have emphasized Saunders' decision to hang onto Allergan's discovery operations in ophthalmology and aesthetics--"Not only have we kept them; we've invested in them," he told Reuters.

Fact is, whoever's in charge at a "Pfizergan" will be eyeing the combined company for cuts, R&D included. As FiercePharma reported earlier this week, a Pfizer-Allergan combo would have far more manufacturing plants than Pfizer counted after buying Wyeth, suggesting consolidation and layoffs in that area, too. With a reported aim of coming up with a deal by Thanksgiving, the two companies should have some sort of story to tell soon, whether it's yea or nay. No doubt employees on both sides are bracing for the answer.

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