|Actavis CEO Brent Saunders|
Brent Saunders, Actavis ($ACT) chief executive and architect of four major pharma deals, doesn't hate drug discovery. He just doesn't want his company to do it. And, accordingly, the CEO's vision for the conglomerate created through last year's $66 billion Allergan buyout involves a lot of acquisitions and very little early-stage R&D.
In a wide-ranging profile in Forbes, Saunders explains that the future for his acquisitive company lies in "growth pharma," through which Actavis will reap cash from its large generics business and use the proceeds to bring up new medicines with market promise. That's hardly a revolutionary principle on its own, but Actavis plans to exclude one major pillar of normative Big Pharma: drug discovery.
Instead of spending hundreds of millions of dollars a year on early-stage lab experiments with woebegone odds of success, Saunders' Actavis will buy into drug candidates after they've already shown some promise, he told Forbes, striking deals with biotechs or universities to fill out the pipeline.
"The idea that to play in the big leagues you have to do drug discovery is really a fallacy," Saunders told Forbes. "You have to do research. You have to be committed to innovation. I strongly believe that. But discovery has not returned its cost of capital."
Unlike Valeant ($VRX) CEO J. Michael Pearson, who Saunders outbid in his quest for Allergan, the former Forest Laboratories chief doesn't want to slash R&D spending to its core. He has repeatedly promised to keep Allergan's more than $1 billion research budget intact and envisions the combined company dedicating about $1.7 billion to R&D each year. Rather, he wants to redirect it, nixing moonshot programs and focusing on products with clear paths to success.
That ethos puts Saunders, revered on Wall Street for the value his deals have created for investors, at something of a middle ground in biopharma. Pearson, whose buy-and-cut philosophy has driven Valeant's shares ever upward, is complementarily reviled among industry purists who call him an enemy of innovation. And Amgen ($AMGN), on the other hand, has taken criticism for loading up with costly bets on would-be breakthrough medicines, worrying analysts and spurring calls for a breakup.
Actavis, Saunders said, will straddle the two extremes to maximize value. That is, until the CEO finds his next big deal.
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