Money gets made by terrific CEOs, who insist on bringing out value. Sometimes, that value is brought out by hard work. Sometimes, it is brought about by ingenuity. Sometimes, it is brought about by technology and inventiveness. And sometimes it is done by all of these plus some strong bargaining by a dedicated chief executive officer who will not stop in his relentlessness to bring out every last dollar possible.
With this $219 Actavis (ACT) bid, Allergan's (AGN) David Pyott has accomplished all of those things for shareholders. He has done a remarkable job of creating wealth out of his ophthalmological franchise, one that is growing with some blockbusters in the pipeline. He has spent endless amounts to create new uses for his wonder drug, Botox, ones well beyond filler, including a remarkable migraine drug that's dramatically cut the amount of time people suffer migraines and a formulation that stops overactive bladder in its tracks.
He's been able to come up with these uses because he spends more money on research and development than any other major pharmaceutical company, which should be a reminder that spending on R&D is a surefire way to develop new drugs rather than just coming up with line extensions designed to keep a drug from going off-patent, which is often the tired MO of big pharma.
Not only did Pyott do much to help shareholders by executing well and spending well, he's also been an incredible advocate for those who own the stock and those debating owning the stock. When the stock fell to the mid-$80s last year, Pyott, who was one of the most frequent Mad Money guests, came on the show and said point blank that the analysts, who one after another had downgraded the stock, would be proven wrong and that a key drug that was widely thought to go off-patent wouldn't be doing so. More importantly, he talked about how earnings in the out years could be much better than expected.
It seems for a moment, that the only people listening to Pyott were Valeant (VRX) and Bill Ackman, a predatory drug company that is known to buy a target and strip the R&D budget to bare bone levels, and a hedge fund manager known for his rough and tumble tactics.
Almost immediately, Pyott opened his hand and showed you how there was as much as $16 in earnings power out a couple of years and that the various bids Valeant came with were way too low, including the $191 bid that precipitated the Actavis offer.
That earnings power then attracted the acquisitive but much more respected Actavis; respected because it has been known to acquire and bring out value through execution, not slash and burn tactics. Actavis had just shelled out more than $30 billion to buy Forest Labs (FRX) and Warner Chilcott (WCRX) for multiple franchises, including women's health and Alzheimer's, respectively.
But Actavis CEO Brent Saunders had told me not that long ago on Mad Money that he was ready to do a deal and would be happy to combine forces with Allergan if David Pyott wanted him to because there were so many synergies -- they are using a $1.8 billion number today -- and all of the possibilities for eye care and expanded Botox use.
In the end, David was able to reach a price that no other company, including Valeant, could reach. It's been a fabulous run and Pyott deserves wall-of-fame-like plaudits for what he has done for his shareholders during his amazing tenure at Allergan, including the run from $28 six years ago to the endpoint of $219 today.
Congratulations David and all of the shareholders who stuck with him through this remarkably lucrative journey.
