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Allergan Readies for Lap-Band Expansion

Allergan Inc. is looking to get Food and Drug Administration approval to sell its Lap-Band weight-loss device to more patients and hopes to see expanded health insurance coverage, according to its chief executive.

Approval could come by midyear, according to David Pyott, Allergan’s veteran chief executive.

“I absolutely remain convinced that Lap-Band’s going to be a very big product,” he said. “People certainly aren’t getting any thinner.”

The Irvine maker of Botox and other drugs is looking to expand Lap-Band to patients who are overweight but aren’t morbidly obese by federal guidelines.

Pyott: sees Lap-Band as “very big product”

The Food and Drug Administration now is considering expanding Lap-Band to those with a body mass index of 35, or even 30 for those with complications from diabetes and other conditions.

Lap-Band, an adjustable silicon stomach band, now is approved for people who have a body mass index of at least 40, or 35 with other conditions.

Some 70% of American adults are considered overweight or obese by body mass standards.

If regulators sign off on Allergan’s request, Lap-Band could become available to a 5-foot-9-inch man who weighs 203 to 236 pounds, compared with a current minimum weight of 270 pounds at that height.

Approval for expanded use is likely after an FDA panel last month said Lap-Band was effective for treating more obese people than it’s now approved for.

Clinical trials showed the device improved health and quality of life for people who aren’t as heavy as current users with no deaths or “unanticipated adverse effects,” according to the FDA.

Lap-Band, which is widely promoted by doctors on billboards and TV, generated $243 million of Allergan’s $4.9 billion in 2010 sales.

The company is being cautious in its projection for Lap-Band this year, even if it sees expanded use.

2011 sales of the device could come in at $220 million to $240 million, according to Allergan, which issued an overall conservative yearly forecast last week.

Most Lap-Band procedures still are paid for by patients themselves, prompting Allergan to be cautious about sales.

Lap-Band surgery costs about $12,000 to $20,000.

That makes getting expanded insurer coverage critical for Lap-Band.

“That’s something we have got to work on,” Pyott said.

Preferred-provider organization plans, which usually require members to shoulder a greater percentage of healthcare expenses, now cover some but not all of the costs of the surgery.

Allergan plans to appeal to insurers with data that show that diabetic, high body mass patients who receive Lap-Band get a “payback” in lower overall healthcare costs, such as reduced drug requirements and fewer doctor visits, according to Pyott.

Allergan also has done public relations campaigns aimed at getting wider acceptance and insurance coverage of Lap-Band, which it got through its $3 billion buy of Santa Barbara’s Inamed Corp. in 2006.

The device faces other challenges.

In recent weeks, Lap-Band has come under some regulatory and media scrutiny after several deaths were linked to the surgery.

The director of the Los Angeles Department of Public Health recently called for an investigation into Lap-Band advertising by doctors, some of whom promote the procedure like cosmetic surgery.

“Obviously, we as a company don’t support that advertising,” Pyott said. “They pay for it, not us.”

Allergan’s Lap-Band advertising lists “the benefits, the risks and the considerations,” he said.

The company is putting together marketing guidelines for customers and also has developed a network of surgeons who have gone through training on Lap-Band.

Allergan has followed a similar strategy with Botox, which is used to temporarily smooth wrinkles as well as for serious medical conditions.

2011 Outlook

Last week, Pyott offered a cautious outlook for Allergan in 2011. He has a history of issuing tepid forecasts and then beating them.

Allergan said it expects a yearly profit before charges of $1.09 billion to $1.1 billion, slightly below the $1.12 billion analysts had been expecting on average.

What Allergan counts as product sales (slightly less than total sales) are projected at $5.02 billion to $5.22 billion for 2011.

Wall Street had been looking for $5.2 billion in yearly sales.

Allergan’s 2011 guidance is set up “for outperformance,” said analyst Amit Hazan of New York-based Gleacher & Co.

The sales forecast might be overly conservative with a rebound in patients paying for Botox and other procedures out of their own pockets, as well as expanded use of Botox, Hazan said.

In October, the FDA cleared Botox for treating migraines.

The conservative guidance was driven by healthcare reform costs, price cuts in Europe and an expected increase in research and development spending, according to Pyott.

“Where we really surprised (analysts) was the disconnect on R&D expenditure,” he said. “They thought we were going to spend a lot less than we’re going to be spending.”

Allergan is planning to spend about 16% of its projected 2011 sales to “reload our pipeline,” Pyott said.

The percentage is the same as in 2010, though Allergan’s sales are projected to rise about 8% this year.

Allergan has a “desire and ability” to put “a load of other things” into its pipeline, said Pyott, who has run the company since 1998.

“It’s all about assuring the long-term success of Allergan by reinvesting in R&D and delivering,” he said.

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