David Pyott on Growing Allergan, Defending Against Acquisitions, and How the Next Chapter Will Read

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After being honored by OIS last week in Chicago with an OIS Innovator Award, David Pyott, former Allergan CEO, sits down with OIS-TV to discuss rebuilding Allergan, fending off Valeant’s acquisition bid, and how he feels about the acquisition by Actavis. He also reviews the work he’s doing with start-ups and global charities.

Podcast Guest:

Transcript:

Tom Salemi: Hey, everybody, Tom Salemi here. Welcome back to the OIS Podcast. Thanks for joining us. We’re still putting together our content from OIS@AAO. Happened two weeks ago in Chicago. It was a great day and we’ll have a ton of great content coming your way, literally one ton. We’ve weighed it. But we’re also going to send out some special, exclusive content via the Podcast, via the Eye on Innovation Newsletter, including today’s Podcast. I had the sincere pleasure and honor to interview the two principals from Allergan who we awarded the OIS Industry Tribute. It was a discussion on stage. It was with of course David Pyott and Gavin Herbert, and I had a chance to speak with them both privately. Today we’re going to visit with David Pyott, who is just a gentleman and a real pleasure to have on the show. And I asked him, of course, the questions about what he’s doing now, and he’s involved in some startups that are interesting, although he’s not venturing into ophthalmology yet, interestingly enough. But we of course talked about Valeant’s bid to take over Allergan, about his strong stance against that and the actions he took, and also what important work he is proceeding next. So it was a true pleasure to speak with him. Very happy to have him on the Podcast and have the opportunity to hear his thoughts directly about what Allergan did, why it was so important, why innovation is so important to ophthalmology and to healthcare, and of course what great work he’s up to next. So I hope you enjoy this conversation with David Pyott.

TS: Hi, this is Tom Salemi from OIS TV. I’m very, very happy to be here with David Pyott, the former CEO of Allergan, and the new recipient of the OIS Industry Award. Thanks for showing up today and for giving a nice talk up on stage.

David Pyott: Great pleasure.

TS: And we’ll get into the Allergan time in a bit, but you’ve got sort of a new addition to your resume. You’re always reinventing yourself. You’re now sort of a startup CEO kind of investor. Could you tell us a bit about the early stage opportunities you’re working in?

DP: Yeah. Once you’re no longer a full time CEO, the life is yours, the world is your oyster. And I’m involved in companies with as few as 5 employees, a little startup in Irvine called Bioniz Therapeutics, which has nothing to do with ophthalmology, all the way through to Royal Philips in Holland with almost 80,000 employees, and now 120 years of history.

TS: I could see the familiarity of being with a Philips, and you know the terrain. But with the startups, you hadn’t done a startup before. I guess Allergan would probably be your smallest company that you were involved with, and we know what happened with that. What do you feel appealing about the startup opportunities? and what have you learned from getting involved?

DP: Yeah. Well, first of all, I’m not in an executive role.

TS: Sure.

DP: That’s something I’ve, despite all temptations, avoided.

TS: You will be, though, right? It’s a matter of time.

DP: I won’t be a CEO again.

TS: Never?

DP: No, I mean never say never, but I was a public company CEO for 17 years. I think that’s probably at least 4, maybe 5 times the average survival period. And now it’s more about trying to use some of my experience to the benefit of, in this case, the CEO in first line and her management team, and really nurturing something because people realize that I really love new product, and especially what new products can do to benefit patients. And that gets me really going, and people always feel that. They see even in the big company board rooms, they can see my eyes light up and probably my blood pressure goes up in a good way because I get passionate about an idea that can be brought to fruition, even if it’s sometimes a pathway strewn with obstacles, and sometimes short term failures that need to be fixed. And once you’ve done this in many, many different fields, whether it’s consumer goods was where I started, med device or pharmaceuticals and industrials now as well, you know, I’ve seen a lot of things. And you can use knowledge and instinct to benefit.

TS: Did you get that at Allergan as well? We can talk about commitments to R&D and percentage of this and that, and that demonstrates a love of research and development, but did you have times where you learned about some nascent project that just was emerging and really caught your fancy, and you kind of followed it to maturation and to the commercial market?

DP: Yeah. Well, I suppose the most famous one, I have to lay all credit at the door of our founder, who also received an award today, Gavin Herbert.

TS: Yes, we talked to him already.

DP: And it’s wonderful that he bought a little product called Oculinum, which then its brand name was Botox, from an ophthalmologist in San Francisco, Alan Scott. And I think I remember the number of $28 million, which seemed like a lot of money at the time for what he thought was a service product, really almost doing the ophthalmic community a favor because of the first indication was strabismus. And in those days, there was no such thing as orphan or orphan drug pricing for rare diseases. So started as like a rare disease product, very small. It was still less than $100 million when I arrived in 1998. And when I left it was 2.2 billion.

TS: Unbelievable.

DP: And based on what I read from the new company, the new Allergan, headed rapidly to the $3 billion mark.

TS: With many, many new applications.

DP: Many, many different, non-ophthalmic indications. And just to make the point, as proud as we were about wrinkles, over half of the indications aren’t aesthetic, very serious therapeutic benefits.

TS: But you also, in addition to the love of R&D and maybe perhaps because of the love of R&D, you took a very, I guess, careful look at overhead when you took Allergan over, and you made some really difficult decisions that I’m sure were tough for you and tough for some at the company. What was that process like, taking that over and seeing – I think I read that you initially wanted to trim by 33%, and that first year you trimmed by 22%? I mean that takes some gumption to go in there and really dive in head first.

DP: Yeah. Well, looking back, I had some ample time in 1997 because working for a Swiss or a German company, they don’t let you leave so quickly. From a legal point of view, I had a year’s contract, a year’s notice. Now I managed to, in a polite manner, negotiate that down to a couple of months. So I had a lot of time for homework. And the first two insights were lack of focus, which I can now joke is not a good for an ophthalmic company. We should be very focused. And secondly, kind of inward looking and lots of management layers. So the first two things I did, and I reversed the order because I saw the bureaucracy part first, I changed the order. I went to really going back to Gavin Herbert’s strategy of do a few things very, very well. And secondly, I embarked on just what you said. And a lot of people, when we actually got to 22% reduction in overhead head count, they thought I was doing this because I was preparing the company for sale –

TS: Sure.

DP: Or I was just trying to pump up the earnings per share for my own personal benefit, whatever, and then were surprised when very quickly, I turned around to put almost all of the savings first of all into sales force, because I wanted to get the message back to the customer they come first, not us internally. Once I knew things were really on the up and up, i.e., long cycle success, then we really started pumping money back into R&D. And when people ask me what were you most proud of, I have a long list of not things I did, but the team did. Because it’s always how do you build a great team around you, not just top management, up and down and across the company. But I think the greatest point of pride was not just supplying Wall Street with results, but moving the R&D budget at the beginning from less than 100 million to over 1 billion 17 years later. Which, by definition, is for the long term, and hence why the whole debacle we had with Valeant, whose job was to cut R&D, was really abhorrent to me personally as well as the whole board of directors and the whole Allergan team.

TS: Hey, everyone, Tom here. Want to take a break from this great conversation with David Pyott, a true gentleman, really, again, happy to speak with him, to just remind you that we’ll have a flood of content coming from OIS@AAO coming to your shortly. If you haven’t signed up for the Eye on Innovation Newsletter, please just go to OIS.net. You can just give us your email and we will send out the newsletter each week. It’ll contain this Podcast, our original reporting – this week we’re including the reports from AAO that I’m not sure you would have read elsewhere – and also videos from the event, including private interviews that I did with companies in our OIS TV studies on site. So I hope you do sign up for the Eye on Innovation Newsletter. Again, go to OIS.net, just give us your email, and we’ll hook you right up. Now back to this conversation with David Pyott.

TS: That’s a great segue because I did want to talk about that. You obviously worked hard against that deal. Was there any part of you – I mean it’s one thing to, I guess, resist a deal to maintain your own independence, but this was definitely more than that. This was definitely a clash of cultures. And was there any part of you that was interested in letting that deal happen? Or you were 100% against it for the reasons you just stated?

DP: Well, first of all, you know, any public company CEO and board reports to the shareholder base. So we have to think about value. And on each occasion where Valeant – because they upped the bid three times – they were never anywhere close to the intrinsic value of the company. In fact, I can say not based on our own analysis, that of the experts of bankers who do that for a living every day, they were trying to steal the company. And that was an absolute no. But beyond that, how they wanted to create value was abhorrent. First of all, they wanted to cut the R&D budget by close to nine zero percent. 90%. So they’d have taken it almost all the way back to the beginning again, probably 200 plus million dollars running a revenue base of 7 billion. And secondly, tax stripping. Those are the laws of the land. We’ve seen other companies doing tax stripping, and in this case, Valeant would have reduced the tax bill by $500 million. All of those things were pretty unpalatable to us on the board of directors.

TS: And you made some presentations that have been identified as being quite prescient as the strategy that Valeant was following, that it wasn’t a sustainable one. And I think time has borne that out. Are you surprised –

DP: Yes. Yeah, I saw in the public domain the first public presentation which was filed with the SEC was in May of 2014. We likened them to Tyco and we know what happened with Tyco, that they finally got broken up into lots of constituent parts. At the time, people used to say, Are you calling them Enron? And I said at that time, I have no proof of any wrongdoing. Of course, other things have occurred since, where one could have a different opinion, how like are they are unlike to Enron. And we also pointed out exorbitant price increases. And of course that has all come full circle with the Valeant CEO testifying in front of Congress a couple of months before his own demise of being fired as CEO.

TS: So did that story, was that a happy ending for you, having Actavis come in and take over? Or was your mind set on remaining independent and leading Allergan for another set number of years?

DP: Well, I mean first of all, our goal, which we’d followed for years, was to be a vibrant, independent company. Now, at a certain point you have to say what is the best answer for the shareholders. And in this case, my job was to get a price that matched what we thought was our intrinsic value. And we created a lot of value in a very short period of time when Valeant – well, unbeknown to us, Ackman was acquiring our shares. The company was worth somewhere around $30 billion. When we closed the deal with Actavis, the head line number was 66 billion. And when it actually closed, post regulatory approvals by the US and European competition authorities, the deal was 71 billion. So you can see a year’s work, 41 billion, nobody can really complain. But I think now to answer the more important part for the ophthalmic community, a knew Brent Saunders from his time of being CEO at Bausch and Lomb. We actually served on the advisory board to the Foundation of the American Academy of Ophthalmology. So very close to home. Got to know the person. He’s a good executive, he’s a good human being. And when we really got talking about what would Allergan within the then Actavis look like, I was comfortable that he and his team, combined with our team, would be good stewards of our assets and continue to serve for the long term the needs of ophthalmologists and their patients. Our patients.

TS: Was the name change part of that negotiation? Or did that come later?

DP: No, at some point he said to me, “You know, I really like the Allergan name. It stands for so much.” I said, “Look, if you buy the company, you own the brand name; you can do what you wish with it.” Obviously, privately and later on I had to be very pleased because at that time, everybody had difficulty pronouncing Actavis. In Europe the actually call it AcTAVis. Or ACTivis. And when Brent and I went on TV I said, “Brent, would you kindly repeat exactly how you wish Actavis to be pronounced so I got it right?” And later on I could joke and say, “Finally, I found an Actavist I really like who liked us so much and then became the new Allergan.”

TS: Great. And finally, you opened this up by talking about BIoniz, and you made a point of saying that this is a company that’s not in the ophthalmology space.

DP: Yeah.

TS: Do you still have some loyalty to Allergan, you don’t want to create something in the ophthalmology space? Is that what’s driving you?

DP: Yeah. I mean certainly for – I’ve been away from the old Allergan now for a year and a half. I’ve been offered all sorts of things. But the idea of competing with my old team didn’t appeal to me, and so really all my work is in philanthropy. Even when I was CEO I was involved in most of the ophthalmic charities. Now I can dedicate more time to that. I suppose my primary role as President of the International Council Ophthalmology Foundation, I suppose I’m the fundraiser, so if any of you CEOs are watching and you’re profitable, I could be looking for you. But it’s for a good cause: basically education of physicians particularly in emerging markets. And it’s called Teach the Teachers Program. Then privately, I have a passion to continue my long history now in eye care. And by pure chance, my younger brother is an ophthalmologist in Scotland who also dedicated a large part of his life to charity. He was 12 years in Ghana working in the Palestinian hospital in Jerusalem, and then built the first eye care hospital in Cambodia, working for CBM.

TS: Amazing.

DP: So luckily, I did rather well financially, given what occurred at Allergan. When I started, the company was worth $2 billion. As you heard earlier in the interview, we closed at 71 billion. And I’m going to build a hospital, at least one somewhere in Africa. And I’m collecting more and more data on how to do that and what things to avoid. And again, any of you who are listening who, when we announce this would like to participate, we need – your money would be fine. But we need your brains and we need your expertise.

TS: Well, we’ll be happy to put a link in this interview so people can track it down. And one final thing: I think you’re also missing an author, right? You’re authoring a book about your experience

DP: Yes. The book is coming along. Really it’s a story about innovation. But then also basically what happened at the end, you know, this momentous battle for seven and a half months. I think it’s fascinating just to read about the intricacies of it, what happened to Allergan. But there’s a lot of societal learnings as well in terms of what happens when capitalism goes out of control. And a lot of the things we’re seeing politically in the world is really a reflection of that, and not just limited to the United States. You’ll see it in the UK, you can see it in France, in Germany, Austria, many of the countries I have lived in. So I think there’s some deep learnings here. I think for now the book is going to be called Barbarians for Botox.

TS: We’ll be looking for that in the bookshelves. David Pyott, thank you for joining us today.

DP: Thank you.

TS: Well, that is a wrap. David Pyott, thank you for joining us on the OIS Podcast. It was truly a pleasure to have you as a guest on the show we will have this interview available in video format in just a short time, along with just bundles and bundles of great content coming from OIS@AAO. So please do go to OIS.net, sign up for the Eye on Innovation Newsletter. We’ll let you know how that content is being made available, and you’ll get much of it in the newsletter itself. So thank you to our OIS podcast listeners for joining us once again. Please do go to OIS.net to sign up for the Eye on Innovation Newsletter, and don’t forget to tune in next week for another tale of innovation from the OIS Podcast.