Activists may finally have the ammunition they need to remove Allergan Plc (AGN) CEO Brenton Saunders from his current role as chairman and CEO.
Shares of the Dublin-domiciled pharmaceutical company have paradoxically pushed higher on Thursday, despite the failure of its much-touted depression drug Rapastinel, an offering acquired in the company's $560 million deal for biotechnology company Naurex in 2015.
Deeply disappointed that our work on rapastinel will not lead to a new treatment option for patients with major depression, but we remain committed to R&D to combat mental illness. https://t.co/rAvwPjeFY0 https://t.co/G9SWDDgqrZ— Brent Saunders (@brentlsaunders) March 6, 2019
Part of the bullish action could be coming from the expectation that the company's latest failure is a catalyst for a C-suite shakeup, especially as David Tepper's Appaloosa LP renews calls for changes at the top.
"Yesterday's announcement that Allergan's marquee pipeline drug, Rapastinel, had spectacularly failed its Phase III trials should make apparent to all that the Company's "Open Science" business model is broken," the fund wrote. "With this latest fiasco, we again call on the Company to install an independent chairman with suitable experience to bring new leadership to the Board and rein in management's predilection for value-destruction. We view this action as only one in a long list of difficult decisions the Board will need to confront, which may include a change in senior management, separation of business units, merger or sale of the entire Company."
The call for changes is not its first shot across Saunders' bow from Appaloosa.
Tepper's firm made a "strong suggestion" the company split the office of CEO and chairman, retain a new chairman or CEO from outside the company, and replace at least two additional directors on the current board, among other changes, in mid-2018.
The call, which came after a strategic review by Saunders and leadership failed to mount any meaningful changes, led to a similar pop in share price to the one seen today.
The suggestion to at least split the chairman and CEO roles at this point might be stronger than the previous proposal, as it has garnered support from activist John Chevedden.
"John Chevedden has worked tirelessly for many years to advance important corporate governance initiatives and we are gratified that he shares our view regarding the need for an immediate separation of the Chairman and CEO roles at Allergan," Tepper commented upon receiving Chevedden's support in late April.
The failure of Rapastinel, which had previously been touted as one of the company's "six stars" of profitable pipeline offerings, leaves a dim sky largely devoid of moonshots. Instead, the company looks more reliant than ever on Botox as some of its most promoted pipeline products fail to perform.
In a pharmaceutical environment with increasing mergers and acquisitions bolstering the pipelines of Allergan's larger peers like Eli Lilly (LLY) and Bristol-Myers Squibb (BMY) , activists are suggesting swift changes are not only prudent, but necessary.
"The Board's misplaced fear of "disrupting" Allergan is wearing thin as an excuse for inaction and can only perpetuate further erosion in the shareholders' investment," Appaloosa stated. "In fact, disruptive action is entirely warranted under these circumstances."
Allergan representatives did not immediately respond to TheStreet's requests for comment.