Building a brand after Botox

SANTA ANA, Calif., Dec 04, 2008 (The Orange County Register - McClatchy-Tribune News Service via COMTEX) -- AGN | Quote | Chart | News | PowerRating -- Allergan Inc. built its fame and fortune on Botox. Until now.

The nation's economic meltdown and consumers on tighter budgets put the brakes on sales of the Irvine, Calif., drug and medical device company's blockbuster product, which is rarely covered by insurance when used for cosmetic purposes.

But Allergan Chairman and Chief Executive David E. I. Pyott said his company is still positioned to grow, because it has plenty of cash, serves diverse markets and is pumping new products through its pipeline.

The Scottish-born CEO, who has presided over Allergan since 1998, sat for an interview recently. Some excerpts:

Q. What's your reading of the economy?

A. For our purposes, all of 2009 will be tough. Business outside the U.S. has seen huge growth - Asia, Latin America and Europe - and clearly that's slowing down. Economies driven by commodities, like oil, are coming down.

What's the outlook for Allergan?

Q. We're seeing a decline in our bioaesthetics like Botox and breast enhancements and even Lap-Band System (weight-loss devices). In 2000, about one-quarter of Lap-Band procedures were out of pocket, which is $14,000 to $15,000. Even with insurance coverage, there's $2,000 to $3,000 out of pocket. People are deciding they need to pay their mortgages or credit cards.

Q. What's Allergan's strategy?

A. This shows how diversification has paid off. In 2007, all of our growth was in aesthetics. This year, it's frankly struggling. In Q4, we gave a somber outlook, predicted declines. About one-third of our business is consumer facing and two-thirds is (insurance) reimbursed.

Q. Your stock has been down. How would you say markets are reacting?

A. The two days after we put out our quarterly guidance, a somber outlook for Q4, our stock went up 20 percent. People were relieved. The real thing we did is remind the market about the number of our products in the FDA pipeline.

Q. What are some of those products?

A. There's the eyelash growth product. It's in a strategic sweet spot. No injections, but it's for the same market as Botox. ... In 2010, we'll be able to use post-FDA approval Botox for chronic daily headaches, which are migraines. We're doing clinical trials to use Botox for incontinence.

That's about three years off. Now we're launching a line of (cosmetic) products with Clinique that will be sold only in doctors' offices.

Q. You started as a glaucoma and eye-products company. What are you doing in that area?

A. We have an entry into products for the retina, Posurdex. We're working on it getting reimbursement in 2009. It can be as big as glaucoma treatment.

It's for retinal diseases, such as burst blood vessels, which is known as macular edema associated with retinal vein occlusion.

Q. Will it work for macular degeneration?

A. We're in trial with a Genentech product called Lucentis. If our product is highly additive, it will be of great interest. Macular degeneration is now the leading cause of blindness. Total blindness from glaucoma is relatively rare. The big challenge now is macular degeneration.

Q. Can you use the same sales force to sell these new drugs and your current products?

A. Yes and no. There are about 12,000 practicing ophthalmologists in the United States and they specialize in different things - laser surgery, retina, macular degeneration, glaucoma. So they are not all interested in all of our products. But Wall Street recognizes we can add new products without adding a lot of incremental costs. Our sales force is at a size where it can be leveraged.

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Q. Does that also work with your aesthetic products?

A. We've got Botox and now (injectable wrinkle filler) Juvederm, which overtook Restalyne (by rival Medicis). It's only been on the market 18 months, and it's very unusual you can become No. 1 that fast. There's a demand for the combination.

Q. There were recent reports of the FDA finding problems with Juvederm. What's your response?

A. There were something like 930 adverse event reports to the FDA from 2003 to 2007 on something like 6 to 7 million treatments. The adverse events were mostly redness and swelling, mostly relatively mild. It seemed like much ado about nothing.

Q. How many of those cases were Juvederm?

A. It was all dermal fillers, permanent and semi-permanent. Juvederm was de minimus (Latin for "a trivial matter"). It's important that consumers are able to distinguish between the risk-benefit profile of temporary fillers such as Juvederm and permanent or semi-permanent fillers such as Radiesse or Artefill. The moment I saw the data, I knew it was a media day.

Q. Is this a good time for you to grow by acquisition?

A. We have $1 billion in the bank. ... Companies with limited capital are looking for partners, because the cost of raising money is high. One man's misfortune is the next man's fortune.

Q. A lot of other pharmaceutical companies have run into trouble because their patents expired. What's Allergan doing to prevent that?

A. We have no calamitous patent events ahead. At the end of 2009, a generic of our glaucoma drug, Alphagan, runs out. But we're prepared for that.

Q. How do you stay ahead of the curve?

A. We have great information, great, great data. Strong managers respond positively. Weaker ones are paralyzed by fear. What you're seeing now is Darwinism. The weak organizations don't survive.

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