Allergan CEO, fresh off one deal, sets sights on others

By Caroline Humer

NEW YORK (Reuters) - Allergan 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 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 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 (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.

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 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 (HUM.N) and Cigna Corp (CI.N) - have also agreed to be bought in the past month, signalling 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."

(Additional reporting by Ransdell Pierson in New York; editing by Michele Gershberg, Nick Zieminski and G Crosse)