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Allergan’s Medical Cosmetics Feel Tug of Slowdown

When the economy starts to sour everything gets tighter,except for faces, that is.

Analysts and doctors say the weak economy is hitting demand for cosmetic surgery, a major part of Irvine-based Allergan Inc.’s business.

The company makes wrinkle-remover Botox as well as a filler for lower face wrinkles, breast implants and a weight-control device. Cosmetic products make up about half of Allergan’s $4.5 billion in yearly sales.

“Our survey of both domestic and international plastic surgeons indicates that breast implants are continuing to fall and both fillers and Botox seem to be declining,” said Sean Lavin, an analyst with Lazard Capital Markets LLC in New York, in a report.

Shares of Allergan and its rivals have been hit by concerns that medical cosmetics are slowing (see story, page 3). So far this year, Allergan’s stock is down 40% on a recent market value of about $11 billion.

Allergan, which gets the other half of its business from eye and skin drugs, has seen its shares drop less than others in medical cosmetics.

Scottsdale-based Medicis Pharmaceutical Corp. is down about 55%. Santa Barbara-based Mentor Corp.’s is off 60%. And San Diego’s Artes Medical Inc., which has a stock price of about a dollar, is down 65% so far this year.

Allergan has been mum about its strategy for the downturn. The company said it plans to address economic concerns on Wednesday when it releases third-quarter results.

Second-quarter profits grew 13% to $347.8 million. But some analysts are calling for a revision on Allergan’s estimated earnings for the rest of the year.

“We continue to believe Street Botox estimates are too high through 2009,” said Amit Hazan of Oppenheimer & Co. in a research note earlier this year.

Lavin lowered his 2008 profit estimates for Allergan to $782.2 million on sales of $4.55 billion, down from a prior forecast of a $791.4 million profit on sales of $4.6 billion.

“Cosmetic procedure volumes are declining and the economy has slowed more and for a longer period of time than we expected,” Lavin said.

Doctors say patients are returning less often for Botox injections or are canceling appointments, according to Lavin.

Botox Cosmetic, skin filler Juv & #233;derm and breast implants aren’t covered by health insurance, which makes them more vulnerable to economic downturns.

Jason Lupton, a dermatologist who practices in Del Mar, said he is “just now starting to feel (softness) in fillers and Botox.”

Still, dermatologists,who are more likely to do less invasive procedures like Botox and fillers,are holding their own, Lupton said, compared to cosmetic surgeons who do pricier procedures such as breast implants.

Allergan and its rivals are offering discounts, according to doctors.

“Most of the companies are giving specials,” said Alexander Rivkin, a Westwood doctor who limits his cosmetic medical practice to less-invasive facial procedures such as Botox.

Allergan is discounting Juv & #233;derm to patients as well as doctors, according to Rivkin, who said he buys Botox and Juv & #233;derm “in extreme bulk.”

Overall, Rivkin’s practice has remained “pretty strong,” he said, although some patients are opting to have Botox or a skin filler, rather than both at the same time.

“They are spacing out,” he said. “But these procedures are relatively low-cost. And in L.A., it’s something people still want to do.”

The doctor’s Web site shows that Juv & #233;derm costs $600 per syringe. A Botox brow injection is $150 to $200.

Allergan faces stepped up competition.

Medicis and France’s Ipsen SA are awaiting a Food and Drug Administration decision on wrinkle remover Reloxin, which is sold overseas under the Dysport name.

Inamed Corp., which Allergan bought two years ago, once had the rights to Reloxin. Allergan sold those rights to satisfy antitrust concerns in its $3 billion buy of Inamed.


Holding Up

An Allergan spokeswoman downplayed Reloxin’s threat to Botox saying in markets where both are sold, Botox has an estimated 85% market share.

Some analysts believe Allergan’s global operations and product diversity will help it. The company gets about a third of its revenue from overseas.

Allergan’s global sales and varied products should help the company maintain decent growth, “even in the face of slowing consumer spending in the U.S.,” said Jason Napodano, an analyst with Zacks Investment Research.

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