Allergan Inc. has more skin in the game with its fast-growing dermatology business thanks to a deal that stands to boost its facial-aesthetics line.
The Irvine-based maker of Botox and other drugs recently announced plans to buy the prescription and non-prescription skin-care business of Carlsbad-based SkinMedica Inc. for $350 million.
Privately held SkinMedica—which also markets cosmetic products that are not part of the deal with Allergan—is expected to have $70 million in revenue overall this year. Its primary prescription skin-care drug is Vaniqa, the only Food and Drug Administration-approved product to reduce unwanted facial hair in women. Non-prescription drugs in the deal include TNS Essential Serum, an antioxidant-enriched anti-aging product, as well as cleansers, toners and skin-rejuvenation products.
Competition
The Allergan buy comes as the company girds for new competition for its flagship Botox neurotoxin, which is used for aesthetic and therapeutic purposes. Merz Aesthetics Inc., a unit of Germany-based Merz Pharma GmbH, is expected to enter the U.S. market early next year with Xeomin, a competitor to Botox Cosmetic.
SkinMedica’s skin-care products could be bundled with Botox and Allergan’s lower-face filler Juvéderm, said Tim Lugo, an analyst in the San Francisco office of Chicago-based William Blair & Co.
“They haven’t had a very strong sales presence in this specific field,” Lugo said. “It’s very much complementary with what they’re trying to do with Juvéderm and some of the other product lines.”
SkinMedica also could help promote Allergan aesthetics products beyond doctors’ offices, such as in dermatology spas. Allergan didn’t respond to a request for comment.
Earlier this year, Chief Executive David Pyott said the drug maker will have “more shots on goal” for potential deals.
“They have a lot of cash, but they are very sensitive to doing the right acquisition,” Lugo said.
The analyst added that he expects the drug maker—which had $2.66 billion in cash and cash equivalents as of Sept. 30—to strike more deals involving skin-care products amid an increasingly competitive dermatology and facial aesthetics marketplace.
Medicis Pharmaceutical Corp. of Scottsdale, Ariz., is being bought for $2.6 billion in cash by Valeant Pharmaceuticals International Inc., a Canadian drug maker with Orange County roots.
Medicis’ products include the Restylane lower-face facial filler line that competes with Juvéderm—and botulinum toxin Dysport, which has made some inroads against Botox in the cosmetic market. It also offers Solodyn, an acne treatment that competes against Allergan’s Tazorac.
Dermatology sales top $12 billion annually and are dominated by specialty drug makers rather than big pharmaceutical companies.
• Headquarters: Irivine
• Business: Drugs, medical devices
• Founded: 1948
• Ticker symbol: AGN (NYSE)
• 2011 revenue: $5.42 billion
• Recent earnings: $249.4 million for third quarter
• Market value: About $27.35 billion
• Notable: Merz Aesthetics Inc., a unit of Germany-based Merz Pharma GmbH, early next year is expected to enter the U.S. market with Xeomin, a competitor to Allergan’s Botox Cosmetic
Growth Area
Skin-care drugs are a growing business for Allergan. The company’s dermatology sales grew 8% to $74 million in the third quarter. Through the first nine months of the year, skin-care sales are up 31% over the same period in 2011.
Sales of its facial-aesthetic products—which are distinct from skin-care drugs—were roughly even with a year earlier at $89.1 million. Juvéderm is central to Allergan’s facial-aesthetic line.
Dermatology and facial aesthetics are attractive to companies because they are largely cash-pay and insulated from Medicare and Medicaid reimbursement cuts or insurer-rate pressures.
Allergan plans to operate SkinMedica as a separate business and retain its offices in Carlsbad for now.
Lap-Band
The acquisition comes as Allergan has been mulling a sell-off of its Lap-Band weight-loss device amid slowed sales.
“They bought the Lap-Band product [a few] years ago, and it hasn’t worked out for them,” Lugo said.
A sale to a private equity investor is the likeliest scenario, as no strategic buyers have emerged, he said.
SkinMedica was founded 13 years ago. One of its previous chief executives, Rex Bright, was a former president of Allergan’s skin-care operations when Allergan was a unit of SmithKline Beecham, now London-based GlaxoSmithKline PLC.
