Where Will `Pfizergan’ Fit in Ophthalmology

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Allergan has been a pillar of the ophthalmology sector for decades so its merger with Pfizer is a cause of concern for some. But ophthalmology leaders also see reason for optimism from the combination. The deal could bring greater firepower to ophthalmology R&D and M&A and some hope it’s a harbinger of more big players showing interest in the sector.


Tom Salemi: Hi, everyone, this is Tom Salemi. Welcome back to the OIS Podcast. Hope you had a great Thanksgiving holiday. We certainly had a lot to digest last week, and obviously we’re not talking about turkey and pumpkin pie. The absorption of Allergan by Pfizer really gives us a lot to consider. What does it mean for ophthalmology? What about the Allergan name? Will we permanently lose what has lately been one of the more acquisitive companies in the sector? I mean really, it’s one of the sector’s pioneers. Time only will answer those questions. We need to see how these things play out. We did get a statement from Brent Saunders of Allergan last week. He emailed us and we ran it last week in the Eye on Information Newsletter. And in that statement, Saunders points out that Allergan has an enviable portfolio of products for dry eye disease, glaucoma, and AMD, and “By combining with Pfizer, we will have an even greater impact on the eye care community by expanding our product offering into more markets globally and having enhanced resources to discover and develop new treatments for eye care professionals.” So what does all of this mean? To get some short term answers, I spoke with a handful of people in ophthalmology, private investors, public analysts, ophthalmologists, and the conversations really identified three points of interest or concern, depending upon how you look at it. One of the positives of the situation is there’s a great deal of confidence in Brent Saunders, the fact that he retained the Allergan name in Spring and that he’s been in ophthalmology these recent years, and really has emerged as a leader and believer in the sector. Gives people a great deal of confidence. There certainly is a bit of sadness, although uncertainty about the fate of the Allergan name. Again, Saunders earned a lot of kudos for retaining the name after the merger with Actavis. And finally, there’s a look as to how this deal could create opportunities not only for the new Pfizer/Allergan, but also for other players in ophthalmology. So first, we’ll visit with Bill Link. Bill of course is the co-chair of OIS and a general partner at Versant Ventures. Bill says that he remains an optimist. He’s always an optimist. But what is certain is that we’re facing a period of uncertainty.

Bill Link: I think overall it’s a change. And so I think one of the things we never can quite forecast is what the full comprehensive implications of the change are, Tom. But by and large, as you know, I am optimistic. As long as we’re honestly creating value, then value will be recognized. And I think what Pfizer and Allergan are up to is strengthening kind of the combined organization. And there’ll be a ripple of changes for sure. They’re going to need to achieve a couple billion dollars in synergies over the 18 to 24 months after the acquisition has completed, and that implies that they’ll have to make changes and reduce expenses, etc. Leaning back, though, from that issue, both organizations, Pfizer and Allergan, are strong. And Allergan, as we know, has had a long time focus in the ophthalmic sector. Thanks for that continuous recognition on their part that value could be created and patients’ problems could be solved. So you know, I believe that while there’ll be some changes, with strong leadership it appears that Brent Saunders will stay in a very solid leadership position in the combined entity. And Brent understands the ophthalmic sector and is committed to it. And thankfully, some of us have really good relationships with him and can help them find assets that can help the company grow.

TS: I took a moment to speak with Dr. David Park, the CEO of AAO. And he said that the merger, you know, really might have surprised him more a few years ago, but given the trend of consolidation, not only on pharmaceuticals, but in other industries as well, he was not entirely surprised to see that kind of deal come together. But he remains hopeful that ophthalmology will become the significant part of the new Pfizer strategy going forward, and he’s hanging a lot of that hope on Brent Saunders.

David Park: My first gut response was, you know, I’m glad that Brent Saunders is one of the parties in the dialog because I have great respect for not only his business acumen, but for the fact that I consider him sort of an ophthalmology person at one level.

TS: Yes. So does that give you some comfort going forward? I’m sure there’s some folks who are going to be concerned that Allergan slash Pfizer or the new Pfizer will have many pots on the stove and may not be able to give ophthalmology the attention that it once did. Does having Brent involved in the decision making up top give you some comfort that that won’t be the case?

DP: Yes, it really does. You know, there’s of course a lot we don’t know at this time. And so some of the critical issues for ophthalmology on philosophy that governs support for in house research and for external innovation we’re just going to better understand with time. But the – having Brent in the mix as someone that’s been in ophthalmology in one capacity or another for a number of decades, as someone who’s built some relationships within the vision and eye care community means you’re not dealing with someone who is either unknown or unfriendly.

TS: Some in the industry say that they’ve already seen Allergan pull back a bit. And naturally, with the conversations going on with Pfizer, there’s a lot of uncertainty. So a company’s not going to make a significant acquisition at least during the early courtship. But Liav Abraham, Senior Research Analyst at Citi, who covers Allergan, says she doesn’t really see a long term slowdown for Allergan in ophthalmology. In fact, she said if we use the Actavis Allergan deal as a guide, the ophthalmology business could be ring-fenced or left alone really to pursue the same aggressive strategy that it’s been pursuing over recent months.

Liav Abraham: This is a tax deal, but ophthalmology is a growing part of Allergan. And as such, I think it’ll be dealt with the same way that it was dealt with within the Actavis Allergan acquisition. And it was really ring fenced, and productivity actually improved in the ophthalmology, in the eye care division at Allergan over the past, I would say, twelve months, both on the commercial side and in terms of the business development. I mean Allergan didn’t do anything in business development in ophthalmology for a very long time, and just over the past 6 months or even less than that, we’ve seen Allergan do three small deals. And I think given the fragmentation in the space and given that Brent Saunders is around and he’s going to stick around, and he’s a big fan of ophthalmology and experienced in ophthalmology, he’s identified it as a high growth – as an area of high growth, it’ll continue to be of importance and will be ring fenced in the same way that it was in the Actavis Allergan transaction.

TS: In fact, in a conference call with analysts last week, Brent Saunders made a point of saying that Actavis, then Allergan intentionally left the Allergan Ophthalmology unit in Southern California as well as its aesthetics unit untouched and in place in that region, which is a center of ophthalmology innovation. This could happen again.

LA: I think ophthalmology will be treated as its own unit. I mean just think about first geographically where it’s located. It’s located on the West Coast and it’s its own little hub, and that’s how it was treated within the Actavis Allergan transaction. It wasn’t really integrated; it was just left to do its own thing. And its high growth, and I think that it doesn’t integrate readily into anything within Pfizer. And I think they’ll want to preserve it that way. So I feel it’s being left ring fenced, left to do its thing, left to continue being productive on the commercial side, and to continue being productive on the R&D and business development side as well.

TS: Many see Pfizer’s return to ophthalmology – it had exited the sector a number of years ago – as a sign of the sector’s strength. [Count?] celebrated ophthalmologist/innovator Dick Lindstrom is one of them. Dr. Lindstrom says he’d love to see more large pharma partners like Merck and J&J move more aggressively into the sector. But the deal could also signal some changes to how eye care products are sold. Lindstrom says companies like Allergan and Alcon rely heavily upon personal connections with sales people to get products into the hands of surgeons, in the offices of physicians. Healthcare, he says, though, is changing, and ophthalmology also might have to change with it.

Dick Lindstrom: We’ll see. You know, Alcon, as they’ve evolved a little bit, you know, they had a slightly different on the Street approach to sales or a little bit more – I think in some ways they’re a little bit more customer-centric than, you know, in quotes, big pharma Novartis. Relied more on personal relationships. But I mean the way the world is, so I would say that the – in quotes, the Pfizer rep or the Merck rep, you know, through the years have been slightly different than the Novartis rep, have been slightly different than, for example, the Allergan or the Alcon rep, which often were, you know, people with 25, 30 year’s experience and the like. And but – and rely somewhat more on personal relationships. But I think what our government is encouraging, actually, is for those guys with relationships to go away. And so I think that we doctors, you know, we doctors are, like everyone else, adapting to this whole concept. And I sometimes wonder, actually, if the future of the sales, you know, the pharma sales rep or the device sales rep may be short lived, and that we, you know, we may be on our way towards an Internet-based purchase approach much like we buy everything else, you know, just about. Not many of us go to the department store anymore. We get everything on one or another Internet site when we’re buying our holiday gifts, for example. And I think the time may come when we go to ASCRS, OIS, and we’ll learn about products, and then we’ll just get on the Internet and buy them, and there won’t be any or many sales reps. So we’re probably on our way in that direction.

TS: The other thing to consider is the change in corporate leadership. Not leadership within Pfizer Allergan, but leadership within ophthalmology. If Allergan does become a bit muted because it’s part of a larger entity like Pfizer – it will be part of Pfizer, there are companies ready to rise up and fill that vacuum. Dr. Lindstrom points to companies like Altheon or Glaukos. Altheon acquired Lensar just a few weeks ago. Glaukos of course is doing well with its MIGS device. And it intends to move beyond that. It intends to grow into a broader ophthalmology company. So this is the kind of lifecycle that happens in industries like ophthalmology. So this could be the beginning of something really different. Emmitt Cunningham, of course the founder of OIS and co-chair and partner at Clarus Ventures, expects that other strategic acquirers will benefit, at least initially from a distracted Allergan Pfizer. In the long term, really might present some opportunities if those two companies identify properties that they no longer want to focus on, but they still see value, and they may spin it out to others.

DL: I also think that the new Pfizer or Pfizer Allergan will probably have to divest some stuff as they realize these synergies, or as the SEC says they have to. I don’t know what internal sort of conflicts they have to, but and so that stuff will be available for smaller, small, mid-cap companies, even private VC financed companies to pick up and push forward. So there will be opportunities. There always are in these. It’ll also slow down the internal pace of innovation at this particular organization. But on balance, I think it’s a natural process and it’s probably a good thing.

TS: And what’s to become of the Allergan name? It could be part of Pfizer, as Alcon still has retained its own identity within Novartis. It could become a significant brand of ophthalmology products that’s sold from the Pfizer name. Either way, the name will likely remain. Emmitt Cunningham suggests there’s way too much value in the Allergan name to let it go, and that we’ll continue to see it in some form or fashion. But there seems to be a real resignation amongst those who have been in ophthalmology for a very long time that the entity that is Allergan, one of the founding pillars of the ophthalmology sector, is sort of at least disappearing, or at least going to be lost within a larger structure. So time will tell as to what exactly Pfizer Allergan will look like, but overall, there’s a general feeling that the company will continue to be a big player in ophthalmology, will continue to acquire new technologies, will open the door to many global markets. Brent Saunders made that point repeatedly during the analyst call last week. So we’ll see more sales of ophthalmology products across the globe. So all in all, people see this as a positive. They see reason for hope. There’s obviously some uncertainty, but life is about change, and this is a change that the ophthalmology sector can certainly handle. So thanks for listening to this dissection of the Pfizer Allergan deal. Please tune in next week. We’ll have an interesting discussion about the recent events, not only the Pfizer Allergan deal, but also sort of a wrap up of OIS and AAO. So tune in next week to the OIS Podcast. This is Tom Salemi. Thank you for joining us.