[creativ_pullleft colour=”light-gray” colour_custom=”” text=”Episode 109″]
Gavin S. Herbert recalls what it took to make Allergan a success and how he helped build a Medtech industry in Southern California.
Tom Salemi: Hello, everybody, welcome back to the OIS Podcast. This is Tom Salemi, your host. Thanks for joining us. We’re going to go back in time just a little bit, go back to Chicago, where of course we had OIS@AAO just last month. And at that event, I had the opportunity to speak with many luminaries in ophthalmology, including one of the bigger names, Gavin Herbert, the founder and President of Allergan. Had the chance to sit down with Mr. Herbert at our OIS TV studio and do a video interview that we’ll have up on our website in just a short term. But wanted to share the audio with you. Just a great story as to how the company came together, how he took over for his dad, what his feelings were at the time, and of course, what transpired later on with the appointment of David Pyott as President and ultimately the fight against the Valeant acquisition. So Mr. Herbert obviously has a lot to say. We were honored to give him an Industry Tribute Award at OIS, and very happy that he joined us on this interview. So I hope you enjoy this conversation with Gavin Herbert, Jr.
TS: Hi, this is Tom Salemi with OIS TV, and very, very pleased to be here with Gavin Herbert, cofounder and President of Allergan. And we just received the OIS Industry Tribute Award for Allergan’s contribution to innovation and to leadership in ophthalmology. And it’s a great discussion up on stage. In that, I think you made a somewhat self-deprecating remark about wanting to make sure you brought in people who knew how to run the pharmaceutical business and building Allergan that way. I guess my question to you, and we can get into that in a second, is did you want to take over this business that was –
Gavin Herbert: Oh, sure. I was excited about the opportunity, but also I think I realized that I really didn’t know anything about the pharmaceutical business. In 1957 I was like 24 years old, and had just had gotten out of the Navy as a corpsman, and I said earlier today that I think the best decision I made was realizing how little I knew, and how important it was for me to bring in some talent that represented the different segments of the business that were necessary to develop and build it.
TS: Did you have some concerns about that? And this is your family’s company. You’re the one in charge, bringing in people who, quote-unquote, knew the industry more, might create insecurities in some people.
GH: Well, I guess it might in some people, but one of my other objectives was to always hire people smarter than myself.
TS: Yeah, that’s a good plan. So and when did you know this was going to be a big thin? When did you finally realize it? Was it when you brought those people on board? Or sometime after?
GH: Well, in 1957, after 7 years, the company was only doing 200,000. I recruited a marketing guy that had been with Smith Kline and we put together a plan to introduce the first product outside of California. And we had a budget of $50,000 for this whole program. So I went down to the bank to borrow the $50,000, and he patiently explained to me we were bankrupt. But he loaned me the money anyway. So we went ahead with the program, and thank God, it worked.
TS: That’s amazing. You must be very convincing. And it obviously worked, and things took off. And you and I talked at a couple of OIS’s ago, and you had talked – it was actually in Chicago at a different hotel, and you explained that the first AAO you had been to was small enough to fit in a hotel ballroom. And now of course, it’s as large as it is. And that was a great story of mine. The picture I love that I’ve seen of you recently is standing in the farm field where you built your plant with a shovel and just like a look of absolute glee like you’re about to really build something big. But again on stage, you mentioned that the analysts thought you were a little crazy.
GH: Well, I think the picture you’re referring to was building a production facility on the site in 1957. I mean 1967. When we went public in 71, and used the proceeds to build a 5 story R&D marketing building, that was the one that the analysts thought we were crazy about. Because we were only doing 10 million in sales.
TS: But was there any medtech down there at all? Or was it all farms? Did you really plant the seed for what –
GH: Well, there wasn’t any pharmaceutical business in Orange County. There were some of the IOL businesses began in and around the Pomona area, but we were the first pharmaceutical company.
TS: So you see what’s there now. It’s obviously a hub of innovation and of the ophthalmology industry.
GH: Well, amazingly now, Irvine actually is the center of research for ophthalmology, I think globally. I believe there’s over 25 companies in the Irvine area that specialize in ophthalmology now.
TS: Do you feel some ownership of that?
GH: Well, I think one of the things I’m proud about is that over the years, about 30 or 35 ex-Allergan people have become presidents or CEOs of companies.
TS: Yeah. And that’s a great point. It segues into the question about the leadership. I mean there is a great culture of leaders out there from Allergan who learn the Allergan way, and they cite it often. How did you build – did you build a culture that created the leaders? Or did you find the future leaders who thrived in the culture? Or is it a little bit of both?
GH: Oh, I think it’s a little bit of both. One of the things that we’ve done well from the beginning is spend a lot of time in the field with the customers. I used to spend, I don’t know, ten or 20 percent of my time out listening to doctors. And one of the interesting weeks I had, I was out, and I think I talked to 35 doctors that week. And the question was, tell me, Doctor, in the words of the patient, what is the most common presenting complaint? Well, the words I got back were not – wasn’t a medical term like keratitis sicca. It was itchy, scratchy eyes, 17%. And that was the point at which we began to focus on dry eye. And at that point, the market for dry eye products was about a million. Of course now it’s about two and a half, 3 billion or so.
TS: That’s outstanding. And we actually talked with Jim Mazzo a little earlier today, and he’s with Zeiss now. He’s suggesting that he’s going to follow some of the same steps. He’s out there talking to people, saying it’s his favorite part of the job is –
GH: Oh, Jim always had. And David Pyott did a great job on that score. He actually knew more people around the world that I did. Of course, David speaks five languages, so he had a leg up on that.
TS: Hey, everybody, I just want to take this quick break from this conversation with Mr. Herbert to remind you to go to OIS.net, sign up for the Eye on Innovation Newsletter. We’ll be sending out content from OIS@AAO in Chicago, and you’ll want to be one of the first people to see it. So go to OIS.net. If you already haven’t, register for the Eye on Innovation Newsletter if you’re not getting it. You’ll get this Podcast, others like it, the videos that we put together, and our own exclusive written reports sent right to your inbox. Now back to this conversation.
TS: And you had talked also about some of the lessons you learned, and maybe some of the missteps you had. What were some of the more powerful lessons you walked away from in Allergan?
GH: Well, I do think you learn a lot when you make mistakes. The biggest mistake we made was in an effort to develop another specialty. We had chosen the radio diagnostic area, and I recruited an individual that knew that marketplace, and we acquired a recently approved FDA product, and it was a technetium generator. It generated in the office these radioactive particles that they use. Well, lo and behold, after about 2 weeks with the first shipments in there, five of them broke down and leaked radioactive material into some of the most important labs in the country. Anyway, that business didn’t stay around too long.
TS: And did you have – Jim also talks about – now there’s talk about the fail fast mentality. Is that something you adhered to as well?
GH: Oh, yeah. I think you can identify losers fast, and it’s important in research. Too often we tend to drag on and on, chasing things that don’t work out. On the other hand, Botox started out a something we thought might do 5 or $10 million, and listening to the physicians, it’s now being used in 20 different conditions and sales of about 2.5 billion.
TS: That’s a great point. We talked a bit about your impact on Southern California on creating that industry down there, helping to create that industry. When you look at the ophthalmology sector, obviously there were companies that preceded yours. But do you see the ophthalmology sector today, do you feel a sense that you contributed greatly to that? And do you feel like it’s still the same sort of sector? The technology is different, but it’s still kind of a very friendly, sort of collegial kind of industry. At least it seems –
GH: Well, it is, but I mean my goodness, it certainly exploded. When you look at the number of new companies that are exploring products in ophthalmology, I mean at this meeting today, what we have, 25 or 30 presentations?
GH: And that does not represent all the companies that are out there. I think there must be close to 100 companies today pursuing ophthalmic products.
TS: Sure. And do you see the connection with the physicians being the same? I know you’re not actively involved anymore, but back then, did you feel the connections were a lot tighter with the physicians than they are today?
GH: Well, obviously things have changed dramatically on that score. Going back into earlier days, there were mostly solo practitioners and they’re a fast dying breed. I think in ophthalmology it’s only what, 30% or something like that that are solos.
TS: Right. And when Allergan, which was your family’s company, went through many transitions, how did you feel about those hand-offs to someone else? Obviously you can’t argue with David Pyott’s results, and I’m sure you were thrilled when he took over the company. But –
GH: Well, we went through a couple of change.
GH: After my father passed away, we were a public company, and the family had, I don’t know, 35% control of the stock. But there was a trust involved and we were approached by a European company that wanted to buy us out for cash. And well at that time, the tax rate for capital gains was 70%.
GH: And so I didn’t want any part of that. And so we went to a white knight, so to speak, and ended up merging with Smith Kline at that time. Smith Kline and French. And that marriage lasted for about 9 years, and I stayed active, and they were good partners. They left our whole team alone, and compared today, where they go in and fire everybody. And so 9 years later, a decision at Smith Kline was made that they needed to merge with another pharmaceutical company on a basis of equal assets. And that company was Beecham. Well, they had – Smith Kline had more assets than Beecham in Allergan and the Beckman Corporation. So both of us were spun off to shareholders. So here very quickly we were public companies again for the second time. And I went back in as CEO for three or four years, and then when I retired, we had another CEO. And he had a different style and strategy than I guess I did or David did, and it was a period of slower growth and the board made a decision to bring in a new CEO, and that was David. And they certainly hit a home run with that one.
TS: Sure did. And –
GH: Getting the right people is everything, isn’t it?
TS: That was a great lesson. And the final, the most recent chapter of Allergan, the effort by Valeant to take it in. I know you were vocal in opposition to that.
GH: Yeah, that was very traumatic. I mean Allergan was growing at 15 and 20%. We had a good balance sheet. In fact, the balance sheet was too strong, and without getting into the details of the Valeant situation, where, you know, I was totally against it, and for reasons that turned out to be correct: that you can’t build a pharmaceutical company by firing half the people. They wanted to cut our research budget from 14% to 2%.
GH: And that didn’t exactly sit well. So I think the outcome with the new Allergan is certainly better than Valeant, although I would have certainly preferred to remain independent. But I think the marriage is going to work out OK.
TS: Yeah, well, there’s a nice balance, yourself and David and Bill [Neary?] up there on stage. You must have been thrilled that they kept the Allergan name.
GH: I can guarantee you I lobbied for it.
TS: As you should have. Thanks for taking a few minutes with us.
GH: OK. Nice to talk with you.
TS: All right, well, that is a wrap. Mr. Herbert, thank you for taking the time at OIS@AAO to join us. It was a pleasure to have you as a guest, both on our video report, which will be coming out shortly, as well as this podcast. So thanks again. It was a true pleasure speaking with you. To our OIS Podcast listeners, thanks again for visiting. Hope you enjoyed this conversation with Mr. Herbert. I hope you were at OIS@AAO to see the award presentation. And I do hope you’ll tune in next week for another tale of innovation from the OIS Podcast.