- Allergan is resisting calls from activist investor Appaloosa LP to separate the roles of CEO and chairman of the board of directors, arguing such a move would reduce the effectiveness of current company head Brent Saunders.
- Appaloosa, a hedge fund led by David Tepper, has put forward a proposal ahead of Allergan's annual general meeting on May 1 asking shareholders to vote to require an independent chairman. Saunders became CEO of Allergan in July 2014 and was elected chairman in 2017.
- Shares in Allergan are down 13% over the past 12 months and remain well off levels reached in the spring and summer of 2017, when company shares traded between $230 and $250 piece. In response, Allergan has sought to consolidate its business, announcing plans last year to sell off its infectious disease and women's health units.
With its share value deteriorating, Allergan has faced growing pressure from investors to improve its business performance.
A strategic review initiated by Allergan resulted in the drugmaker deciding last year to shed parts of itself while focusing on a medical aesthetics business led by Botox (onabotulinumtoxinA) and an eye care franchise built around the blockbuster drug Restasis (cyclosporine).
Both brands now look to be under pressure, however, as generic copycats to Restasis are set to enter the market this year and new competitors challenge Botox in migraine.
The drugmaker expects revenues to total between $15 billion and $15.3 billion in 2019 — guidance that fell slightly below Wall Street expectations and spurred RBC Capital Markets to downgrade Allergan from "outperfom" to "sector perform."
Frustration with Allergan's efforts to address such challenges and deliver on the promise of a "growth pharma" model appear to have motivated Appaloosa's call to split the CEO and chairman roles.
The hedge fund's non-binding proposal will be voted on by Allergan shareholders at the upcoming annual general meeting on May 1. A simple majority of votes is required to pass the proposal, which Allergan recommended against in its proxy statement.
"While we appreciate the input of Appaloosa as we do all of our shareholders, we strongly disagree that an immediate separation of the CEO and Chair positions is warranted," Allergan said in a Feb. 19 statement on Appaloosa's proposal.
Allergan did indicate some support for separating the roles at the next leadership change.
Yet Appaloosa isn't placated. It issued a strident rebuttal to Allergan's resistance to immediate change.
"This response, following three years of proxy proposals and prodding from large shareholders such as Appaloosa, bears remarkable similarity to last year’s aborted "Strategic Review" — that is, a lame attempt to deflect pressure through token measures that sidestep the Company’s defects and desperately preserve the managerial status quo," wrote Appaloosa's Tepper in a Feb. 19 letter to Allergan's board of directors made public by the hedge fund.
Appaloosa cited more than $13 billion in balance sheet write-downs over the past 16 quarters, as well as "failed acquisition strategy" and "embarrassing legal initiatives" in its call for further changes at Allergan.
The hedge fund also indicated it would have considered Bob Hugin, a former chairman and CEO of Celgene who was this week appointed to Allergan's board, a credible candidate as an independent chairman.
In the past two years, votes to separate the CEO and chairman roles show the proposal has gained support, with 42% of votes cast in favor last year, according to a Feb. 19 note from Raymond James analyst Elliot Wilbur.
How Allergan shareholders vote in the May 1 meeting will be a telling indicator of their continued confidence in the company's growth strategy.