Originally focusing on eyecare, Allergan’s fortunes have been partly transformed by the success of Botox and up and downs within its medical devices business. In an interview with IMS, CEO David Pyott spoke about breast implants and other ‘medical aesthetics’ issues, and the company’s moves into new pharmaceutical therapy areas.
IMS: "Was 2006 the best year that Allergan has ever had?"
David Pyott: "I can say that 2006 was probably the best year I can remember. We had big numbers last year, with overall sales growing 34%. I am particularly proud of the fact that, although half of the growth came from the acquisition of Inamed, the organic growth of our pharmaceuticals businesses was 17%. And last year in the third quarter we actually became bigger than Pfizer in ophthalmology, per IMS worldwide. That completed the fifth year in a row that we've been the fastest growing ophthalmic pharmaceutical company worldwide."
IMS: "You received FDA approval for silicone breast implants last year. How does Allergan plan to overcome the stigma associated with silicone breast implants in the US? What is Allergan's marketing strategy?"
DP: "There is significantly less stigma or concern today than I thought there might be, say, six months ago or a year ago when we were still waiting approval. I think part of it is due to the major effort we made to engage and communicate with professionals, patients, consumers and the media about the myths and scientific facts concerning these products. And so reaction to the FDA's approval was generally very scientific, very balanced, and relatively positive. Our general approach to this market will be education and reassurance. It's going to be about addressing myths and facts and ensuring that we can validate the safety with the science."
IMS: "And how is the conversion from saline implants to silicone implants going?"
DP: "We have said that, over about a three to four year period, we expect the US market to double in value, and here I'm talking about the augmentation sub-market versus reconstruction. In Europe and elsewhere around the world over 90% of the procedures are silicone versus saline. We think that by the end of a three to four year period in the US unit shares of silicone versus saline will be in excess of 80% and, because silicone implants are roughly double the value of saline, the US market will double in value. Our competitor has talked about their expectation that approximately 40% of the augmentation market will have switched to silicone by the end of this year. We've never given a number for this year but I broadly agree with them."
IMS: "Various medical aesthetics treatments are not reimbursed and patients have to pay out of pocket. Does that limit sales potential for Allergan? Do you see that as a benefit or as a hurdle for your products?"
DP: "Typically breast augmentation post-mastectomy is reimbursed, but you are correct that elective medical aesthetics procedures are not. The fact that medical aesthetic procedures are largely a cash business (where reimbursement is not an issue) is actually a benefit to the company overall. While Allergan is in an excellent position regarding contracting with Medicare Part D providers and other payors, thanks to our strong market positions in therapeutic areas such as ophthalmology, cash businesses provide a substantial hedge against more restrictive reimbursement environments in the US, Europe and other leading global markets. We are uniquely and favourably positioned in this type of environment, and the fact that roughly a third of our company's business now is out of pocket is very good, both in our view and in investors' views. The medical aesthetics market is in excess of $2 billion and I think is going to grow for the next three to four years in excess of 20% per year."
IMS: "Last year in October, an analyst wrote that 'aesthetic treatments will account for about 50% of Allergan's sales and 75% of its growth in 2007'. Do you agree with his forecast?"
DP: "No, that's incorrect. In 2006, 50% of the company sales were ophthalmic pharmaceuticals. In addition, we still have interesting growth on the therapeutic side of Botox. Last year it grew about 17%, whilst on the cosmetic side it grew 32%. So the cosmetic side, for the moment, is growing faster in Botox. We hopefully will get Botox for headache and Botox for overactive bladder approved by the end of the decade and then we'll see it swing back the other way. The one thing that most observers of Botox really miss – and it's quite normal to miss it, everybody has heard of the use for wrinkle reduction – is that just over 50% of the sales last year were in fact for therapeutic use of Botox."
IMS: "Is there any new therapeutic area that Allergan would be interested to enter in the future?"
DP: "We're looking at a technology platform for the beginning of the next decade, and this is alpha-2 agonists for neuropathic pain. This is a very exciting area because today most of the drugs available lead to dependency or have other very severe side effects. The reason we're in this field is because of Alphagan (brimonidine), our glaucoma drug, which is part of this alpha-2 family. It's a sub-family of compounds, where we've been able to selectively remove the effects of sleepiness and drowsiness that has been typically the problem of this compound area. All of the other big pharma companies in the last five years dropped out of this area, and that's kind of good, providing our compounds work. And the fact that it's non-opioid based creates a large opportunity for us in the area of non-sedating, non-addicting compounds. So that opportunity could also be huge for the next decade.
“I think our activities and leadership in the medical aesthetics and bariatric surgery arenas will continue to grow dramatically over the next decade. Another area that we would like to expand into is urology, because of Botox. Botox has been wonderful for leading us into new fields from our initial focus on ophthalmology. And the other area that I would like to expand into would be neurology, given we have a great position with Botox therapeutic."
IMS: "It's only March and you've already made two acquisitions this year. Is Allergan looking for more acquisitions in 2007?"
DP: "First of all, as a company we've always concentrated on internal growth. For a long time people on Wall Street or in London would ask me why I haven't made an acquisition. And then we did the Inamed acquisition, which was pretty large by our standards, when we paid $3.3 billion for the company. We're already beginning to prove that the acquisition was, not only strategically but also financially, a very good thing to do. And really these two small acquisitions we made this year [Corneal, a French medical device manufacturer and marketer, and EndoArt, a Swiss developer of remote-controlled gastric bands] are what I'd call technological or geographic extensions.
Answering your question directly, we're always looking at acquisitions and we have to be very disciplined about what fits. Is the price right? Does it pay? Because we are the leader in gastric banding with 85% world market share, it was very obvious for EndoArt to talk to us, with the real next generation in this area being a telemetrically controlled device. Another interesting area for us is medical dermatology. We're always looking for some great product for acne or psoriasis or onychomycosis, which are the large segments in dermatology.
In general, I don't like the idea of diversification for diversification's sake. But if a company makes sense, is in one of our fields of interest, and has something extra that is in a specialty, then we'll consider it."
The full transcript of this interview is available in the IMS Company Profile on Allergan, where David Pyott also discusses with IMS’ editor Johanna Kleine his company’s geographical strategy, licensing, and R&D pipeline.
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