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Tuesday, Jul 23, 2024

Pyott’s Premium

David Pyott expected 2014 to be a year of hunting for deals.

The tables were turned when Allergan Inc., the Irvine-based drugmaker he’s led for the past 16 years, became the hunted.

“Normally, very strong companies that are performing exceptionally well don’t become targets,” Pyott said in a recent interview.

That changed in April when Canada-based Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman’s Pershing Square Capital Management LP went public with a hostile attempt to take over Allergan.

The fight raged until November, when Allergan accepted a cash-and-stock “white knight” bid from Actavis PLC. The deal puts Allergan’s market value at about $68 billion, more than double where it stood a year ago, nearly 60% up from when Ackman and Valeant first announced takeover plans, and more than 20% ahead of the last formal offer made by the would-be raiders before they threw in the towel.

The rise in shareholder value—as well as the likelihood that Allergan’s operations in Irvine will remain largely intact as the specialty pharmaceuticals division of Actavis—were key underpinnings for the selection of Pyott as the Business Journal’s 2014 Business Person of the Year.

Pyott and Actavis Chief Executive Brent Saunders, who will lead the combined company, “both firmly believe the price was a good price for Allergan stockholders, but I also think it was a good price for Actavis stockholders,” Pyott said, adding that Allergan took 41% of the deal in Actavis stock.

“We’re kind of being towed behind the Actavis truck right now,” he said.

That’s a switch after spending much of 2014 in a campaign to steer investor sentiment away from Valeant and Ackman’s bid.


“We laid out a very clear plan on how we were going to really drive enormous value for stockholders,” Pyott said.

The plan included a hike in Allergan’s outlook on earnings through 2019, as well as executing various research and development milestones.

Allergan then embarked on what Pyott called “Project Endurance,” a $475 million cost-cutting program that included some early-stage research and development and about 1,500 of Allergan’s 11,500 jobs.

The cuts—an undetermined number of which come from Allergan’s headquarters campus in Irvine—were much smaller than what would have been expected had Valeant and Ackman taken over the company.

Valeant’s reputation as a roll-up specialist with little regard for research and development became a focus of Allergan’s resistance to the raiders.

“If we look at Valeant, because they operate in many similar therapeutic categories as ourselves, we’ve known them as a competitor,” Pyott said. “Our view is that if you cut and slash expense, you’ll get what you pay for. We made the analogy that Valeant had many similarities to a Tyco [International Ltd.] or other roll-ups, and of course if you don’t keep acquiring, you end up with problems.”

The back-and-forth saw Ackman and Valeant Chief Executive J. Michael Pearson at times make their case through the media, sometimes with stinging—and inaccurate—comments about Allergan’s management and board.

Pyott said that he tried to stay on the high ground during the battle, including an emphasis on performance and delivering shareholder value. He held his tongue on his opponents’ behavior until after Allergan had the $68 billion topping offer from Actavis in hand.

“Some of the attacks that they delivered, both on me personally and on the board, were repugnant,” he said.

Allergan intends to continue pursuing an insider trading lawsuit it filed last year against Ackman, he added.


Pyott’s tenure at Allergan by all accounts has been remarkable.

The drugmaker went from $1.1 billion in annual revenue in 1997, the year before Pyott’s arrival, to a projected $7 billion in 2014. Its market value is up more than 2,000%. Some of its products—wrinkle-smoother Botox and dry-eye treatment Restasis—have become household names. A recent issue of Harvard Business Review named Pyott the fourth-best performing chief executive in the world.

Most of his performance in 2014 centered on the fight against Valeant and Ackman. Indeed, Pyott turned over day-to-day management of Allergan to company President Douglas Ingram and Dr. Scott Whitcup, its executive vice president of research and development.

“When the Valeant offer and the whole Ackman thing showed up in late April, I asked Doug … to run the company with Scott … so that I could dedicate close to 90% of my time and effort on dealing with the raiders,” he said.

Ingram is expected to remain with Actavis as a special adviser to Saunders. Whitcup and several other Allergan senior executives will move on after Actavis’ acquisition of Allergan closes in the second quarter.

“Once you’ve already been the top of your function or the top of your house, you really don’t want to move down to being No. 2,” Pyott said of the executives.

Pyott noted that he would have stepped down as the “day-to-day CEO” in 2015 and “evolved into some sort of executive chairman” position if Allergan had remained independent.

Ingram would have succeeded him, he added.

The executive also praised Allergan’s workforce.

“As always, a great orchestra requires not just a conductor but lots of great players,” Pyott said.

He has also had impact among his peers, including Michael Mussallem, chief executive of Irvine heart valve maker Edwards Lifesciences Corp.

Pyott was a board member of Edwards for 14 years before resigning in order to give full attention to the fight against Ackman and Valeant.

“He has been a trusted partner and important” adviser to the company, Mussallem said. “His insights into the global landscape were exceptional.

“David is a sophisticated leader. [He] built a great company, and is also a passionate advocate for our industry and policies that allow us to innovate.”

Allergan’s Numbers

Allergan’s 2014 “will have been the very best year in the history of the company,” Pyott said, adding that revenue is expected to rise 16%, adding “over $1 billion” over the prior year.

“Beyond just the numbers, what’s really interesting is how we’ve been able to create new categories [of therapies],” he said.

He noted that Botox sales grew from $18 million in 1997 to more than $2 billion today. The drug is approved to treat several conditions—including migraine headaches—in addition to its better-known cosmetic uses.

Pyott has various plans after the deal closes. He said there’s still a possibility of joining Actavis’ board—the deal calls for two current Allergan directors to be on the combined company’s board.

And he’s looking beyond the office to consider philanthropic opportunities and continued board service, including Chapman University in Orange and Glendale-based packaging provider Avery Dennison Corp.

Pyott also plans to ramp up his mountain climbing.

He conquered Mount Kilimanjaro in 2013 and is now looking at “either, as a training hike, Mount Everest base camp, which is about 19,000 feet, [or Mount] Aconcagua in Argentina, which is about 23,000 feet.”

Before that, though, will come some rest and relaxation.

“When you work 80 hours a week for eight months, you accrue a lot of vacation,” Pyott said, mentioning that he was going skiing in Switzerland after Christmas.

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