Brent Saunders’ team gets hit with a PhIII disaster — and a growing mob of Allergan critics seizes the moment

Usually when a large cap biopharma company has a big Phase III disaster, the top execs give it a quick midnight burial, issue a brief press release, put up with a few headlines, watch the market cap erode a bit and move on down the pipeline.

For Allergan $AGN, it’s a lot more complicated than that.

Already under pressure from the hedge fund Appaloosa to split the roles of CEO and chairman in Brent Saunders’ shop, the activists pointed to the debacle with rapastinel — Saunders’ $560 million depression drug that flat failed a full slate of pivotal trials — as another sign that someone needs to set things right at the company. And that no longer stops with a new chairman to help steer a better course. Appaloosa wants to put a revamp of the management team on the table, along with a sale, breakup or merger.

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. In fact, disruptive action is entirely warranted under these circumstances.” (Their emphasis.)

But that’s not all. After steering into the red on the setback — the normal, rational market response — Allergan’s shares are up 5% mid-day Thursday. And that’s because the calls for major change at Allergan could gain real steam now. 

Evercore ISI’s Umer Raffat spotlighted the possibility of a break into the green early today.

It seems that investors seem extremely focused on unlocking the value of aesthetics business amidst the pharma business (which has had a few years of underperformance: on the patent side on base biz and on pipeline productivity).

RBC’s Randall Stanicky has been advocating a breakup for more than a year. So count him in on the crowd offering a thumbs up to failure, which will just drive more calls for quick change.

And SVB Leerink’s Marc Goodman also predicted the switch to green today:

Regarding the stock, investors have indicated to us that if rapastinel fails there could be (and should be) increased pressure on management and/or the Board to implement some type of change.

There’s also been some speculation that the management team may have held back the first failures to get another readout on the drug. Something like that would only further fuel the already blistering feedback Saunders’ been getting from some quarters.

Saunders may find the latest roasting was just a modest prelude to what comes next.

Image: Brent Saunders.

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Research Scientist - Immunology
Recursion Pharmaceuticals Salt Lake City, UT
Director of Operations
Atlas Venture Cambridge, MA

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