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Biopharmaceuticals - Doug Ingram on a Transformation That Generated $20 Billion in Value

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Doug Ingram on a Transformation That Generated $20 Billion in Value

An Interview with the Former President of Allergan

June 9, 2015

Doug Ingram on a Transformation That Generated $20 Billion in Value

Doug Ingram rose through the ranks at Allergan over the past 20 years—a period of extremely strong growth for the company. Allergan, a global pharmaceutical company, was originally based in Irvine, California, where it made products in a range of categories, including ophthalmology, dermatology, neuroscience, and urology. Ingram became president in 2013, at a time when Allergan needed to make changes to keep pace in the highly dynamic pharmaceutical market. He launched a transformation effort that was ambitious in both timing (it took just six months to develop and implement) and scope (nearly everything was subject to consideration). The company’s goal was to restructure in order to accelerate earnings growth beyond its annual rate of 15 percent to deliver greater value for shareholders. Just as Allergan launched its transformation effort, it was confronted by a hostile takeover attempt, which redoubled the company’s sense of urgency.

Allergan cut activities that produced low returns on investment and restructured quickly, reduced costs by more than $500 million, and increased its earnings growth rate from 15 percent to more than 20 percent. Shareholders and analysts approved, raising the company’s overall market value by some $20 billion. As a result of these changes, Allergan’s management was able to resist the hostile takeover and pursue a better deal with a different acquirer.

Shortly after leaving Allergan, Ingram discussed the transformation effort with Mark Lubkeman, a senior partner and managing director in the Los Angeles office of The Boston Consulting Group. Edited excerpts from that conversation follow.

Doug, thanks so much for joining me today. Allergan has had quite a busy year, and I think there’s a lot of interesting observations that you can share about the journey you’ve been on over the past year.

It’s a pleasure to actually have the opportunity to talk about what we call Project Endurance.

Project Endurance was the corporation-wide transformation effort that Allergan launched about a year ago. Transformation is sort of a scary concept for a lot of senior-management teams. How did you all go about deciding to embark on this transformation journey?

What I had found about six months before that period of time was that we were going through another budget cycle. Allergan had been an extremely successful company. If you know anything about Allergan, you know that we’d consistently been growing earnings year over year and in many regards had been darlings of Wall Street for probably about a decade. But I went through my second budget cycle where I had the feeling that it was too easy—that we’d got to our targets fairly rapidly and without the natural and probably healthy dynamic pain that’s supposed to happen in the budget cycle. This started to lead me to believe that we could be more ambitious.

Then I did something else, in January 2014, in connection with transitioning that I was doing with David Pyott. He was our CEO at the time, and I was the president of the company. I went out to New York and met with investors. It had been the company’s belief for a number of years that we would grow earnings at about 15 percent and get a benefit from that but that above about 15 percent earnings growth, we really wouldn’t get a benefit in our stock price with the shareholders, so it would make more sense to reinvest that money. So I asked the shareholders, and almost to an analyst, I was told the same thing, which was, “You’re crazy if you think you’ll only get a benefit up to 15 percent. You can be more ambitious, and you will get a benefit in your stock, and the shareholders will appreciate it.”

It was from that that we began the process of considering how we would actually cut low-ROI activity out of the company and rewire ourselves to be more ambitious on earnings. The fact is that right at the same time, probably a couple months after the process began, Valeant Pharmaceuticals launched its hostile takeover of Allergan, which really was, in a very real sense, an existential battle for the company. Interestingly enough, while that did not describe the reason we began the process of Project Endurance, it, without a doubt, was a galvanizing event for us. It allowed us, as a company and as a people across the organization, to be very ambitious and to take great risk in pursuing Project Endurance. That’s what we did ultimately, and ultimately we were successful doing it.

It must have been a very interesting time to take this highly successful company that had been operating under one model and suddenly have this catalyzing event come from the outside: now you’ve got to make some real choices around this transformation. What are some of the choices you made in designing the transformation, the scope, and the targets that you set, which, as you look at them in hindsight, turned out to be really important choices up front?

A couple of things. The first thing for us was that, consistent with the need for speed—because we were requiring that ourselves, particularly after Valeant made its hostile known to us—we were going to design this in six weeks and implement it in six weeks. So it was an extraordinarily tight time frame. Consistent with that, though, we wanted to be as broad as we could be and still get to the finish line. That meant certain things were off the table. From an operations perspective and a manufacturing perspective, those sorts of decisions require long lead times, and they really had to be fundamentally off the table. Beyond that, we had everything essentially in scope: that means across all of our franchises (and we have multiple franchises at Allergan) and across all of our regions and all of the functions except, for the most part, our operations function.

The second thing that we did—and I really felt strongly about this, and I think with the benefit of hindsight, although there were some raised eyebrows early on, it really proved to be a very successful part of the process—is that we went down into the organization in the design phase itself. We certainly interviewed people throughout the organization from a bottom-up perspective. But we had the actual teams run not by the leaders but by people one or two rungs down from the leaders. I think that because of that, we got more granular thinking and probably more risk-based thinking—and some more transformational ideas that we were able to evaluate.

Doug, as you look back on Project Endurance, do you have any advice for other leaders or other companies that are thinking about undertaking a similar transformational journey?

The first thing I’d say is that I was told early in the process that the need for strong change management was valuable. And as you know, Mark, I tried to reject that thinking. It was inconsistent with kind of the mentality that I had. We’re an organization that is not particularly bureaucratic. We don’t lean on process very much, and the soft skills associated with change management in a dynamic environment when we’re fighting this existential fight, to me, felt like a lot of soft fluff that wasn’t going to really drive things. I was 100 percent wrong.

What I found is that this change management was really valuable. It was valuable in a number of regards. The first part of change management, which was interesting, was developing the case for change. Not to presume—even though it would be very easy to presume—that the organization would understand why it was important to do this but really to sit down and drive a compelling case for change that explained why people should go out of their comfort zone and actually go along with us in what was going to be an important but very challenging journey. We did that. We sold that all the time. We had town hall after town hall to continue to remind people why we were going through this.

And then the broad concept of constantly touching in with people and communicating and, frankly, over-communicating and sometimes even communicating when you had very little, if anything, to communicate just so that people could see you and not begin to develop views that were inconsistent with where you were heading, was really valuable.

When you look back on Project Endurance now, was it successful?

The things we did in Project Endurance really optimized this company. As a result of this, we did avoid Valeant, and we ultimately sold ourselves in this process. But we sold ourselves at a price that the shareholders are very excited about. And I think that Project Endurance deserves an enormous part of that.

What we did in this process was we made a decision early on. We said, “Listen. It’s not a cost-cutting exercise by itself. We believe that we can be more ambitious. We can grow earnings better than we’re growing. We can find activities that we’re doing and structures that we have that not only don’t drive sales but maybe even get in the way of sales.” And we were right. Because we did a ground-up exercise, we were able to cut out of the organization about $500 million—a little more than that—of expense that wasn’t actually benefiting the company, and may, in many ways, have been getting in the way of our ability to be successful.

That means that our earnings CAGR over the strategic-plan period was over 20 percent versus the 15 percent that we historically had. I’m proud to say it was even greater than that in 2014 and in 2015, so it isn’t simply something on paper. We started performing immediately, pursuant to our new EPS ambitions and to the reduced cost structure we had. And if you look at what we did on a forward-PE basis, I think that any of the bankers would say we added about $20 billion of market cap to the company, just through Project Endurance and all of the great work that this larger team did to get to the numbers that we had.

That’s great, Doug. Thanks so much for taking the time. We look forward to collaborating together in the future.

Great.

About Doug Ingram

At a Glance

Born in Phoenix, Arizona

Year born: 1962

Education

BA, psychology, Arizona State University

JD, James E. Rogers College of Law, University of Arizona

Career Highlights

2013–2015, president, Allergan

2010–2013, executive vice president and president, Europe, Africa, and the Middle East, Allergan

2006–2010, executive vice president, chief administrative officer, and secretary, Allergan

2001–2009, general counsel, Allergan

1998–2001, associate general counsel and assistant secretary, Allergan

1996–1998, senior attorney and chief litigation counsel, Allergan

1988–1996, attorney, Gibson, Dunn & Crutcher

Outside Activities

Board member, Pacific Mutual Holding Company, the parent company of Pacific LifeCorp, the parent company of Pacific Life Insurance Company

Founder and co-owner, OC Marathon, which stages running races in Orange County, California

Doug Ingram on a Transformation That Generated $20 Billion in Value
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