Hedge funder renews call for Allergan CEO-chairman split, citing 'chronic underperformance'

Last year, Appaloosa and Senator Investment Group wrote to Allergan’s board requesting a series of changes, including a split of the CEO and chairman roles both currently held by Brent Saunders. And they're not happy about being ignored.

Hedge fund Appaloosa reiterated its request Tuesday, citing "chronic underperformance" at the company. And it's not an unusual request, leader David Tepper figures. He wrote in Tuesday’s letter that the “arrangement has become the norm for a growing majority of S&P 500 companies.” And at Allergan, 40% of shareholders recently voted to split up the roles “despite little fanfare or support from an organized campaign," Tepper wrote.

The company's “refusal to embrace an emerging benchmark for sound governance in the face of strong shareholder support marks the company as an outlier," he added.

Tepper’s latest letter comes on the heels of Allergan's fourth-quarter and full-year 2018 results announcement, during which the company laid out lower 2019 guidance than analysts expected. On last week's conference call, executives took questions from analysts about pricing, pipeline programs and competition to big-selling Botox, more of which debuted on Friday with the FDA's approval of Evolus' Jeuveau. The company’s shares are down about 13% since Allergan reported 2018 results. And since their peak in the summer of 2015, they've sunk more than 50%.

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Along with fourth-quarter results, Allergan reported it was taking a $1.6 billion pretax impairment charge related to Kybella and canned a previously planned sale of its women’s health unit after an FDA rejection for uterine fibroids drug Esyma, which it had once tagged as a blockbuster.

After the call, Tepper wrote that it “should by now be readily apparent to all interested and responsible parties that Allergan requires a fresh approach to its business strategy and an unbiased review of its capabilities, opportunities and way forward.” An independent chairman with deep pharma experience "could exert a favorable influence on executive decision-making," Tepper argued. Appaloosa has a .59 stake in Allergan, Reuters reports, citing Refinitiv data.

An Allergan spokeswoman said the company received the letter and is committed to engaging with Appaloosa.

"The company has been executing its strategy to drive growth and value for shareholders as it transforms into a global biopharmaceutical leader," she added. "Allergan has a strong long-term outlook across its four key therapeutics areas and a highly promising R&D pipeline.”

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It’s not the first time Appaloosa has requested changes at Allergan. In letters last year, the hedge fund pushed for either a new CEO or chairman, plus an "upgrade" to management in key units, and for the company to replace at least two board directors. Allergan's Saunders has served as CEO since 2014 and chairman since 2016.