Allergan Inc. is preparing for a new competitor that is expected to hit the market at a lower price than its flagship Botox wrinkle remover.
The contest looks set to start early next year, with the expected expiration of an injunction that has kept Merz Aesthetics Inc.—a San Mateo-based unit of German drug maker Merz Pharma GmbH—from introducing its Xeomin product in the U.S. for cosmetic use.
The injunction came from U.S. District Judge Andrew Guilford in Santa Ana last month. It followed a ruling that Merz had stolen trade secrets when it hired several Allergan salespeople in 2010.
Allergan’s successful lawsuit led to a nine-month delay on the introduction of Xeomin, but that’s set to expire Jan. 9. The injunction was extended once, but Allergan expects it to be lifted in January, according to Chief Executive David Pyott.
“Our expectation is that Merz will come back on the market,” said Pyott, who displayed his trademark dry humor in responding to analysts’ recent questions about how Allergan plans to deal with the new competition.
“I really didn’t want to get into what kind of welcoming party we’re organizing,” he said later, with a chuckle.
Merz has about $1.1 billion in annual sales.
A Merz spokesperson said that the company looks forward to the full expiration of Guilford’s injunction in January and noted that it has been lifted for Xeomin in the therapeutic market, as well as lower-face fillers, after it completed a remediation process and final examination.
“The lawsuit never questioned the quality of Merz’s products, and it was strictly commercial in nature,” said Rachel Chase, Merz’s corporate communications manager.
Any competition between Botox and Xeomin will center on the aesthetic uses of both products.
Allergan has received approvals to market Botox as a treatment for migraine headaches, and is seeking other uses.
• Headquarters: Irvine
• 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 $27.06 billion
• Notable: Successfully sued Merz Aesthetics Inc. over theft of trade secrets in case involving Botox competitor
Market Share
Its use as a wrinkle fighter remains its best-known application, however, and claims a big chunk of Botox sales. Botox accounts for about a third of Allergan’s $5.5 billion or so in annual revenue, and has an 82% market share of the wrinkle-smoothing cosmetic market globally, according to Pyott.
Scottsdale, Ariz.-based Medicis Pharmaceutical Corp.’s Dysport is approved for sales in the U.S. and some overseas markets; Xeomin has sales overseas and had some sales in the U.S. prior to the injunction.
Allergan estimates Dysport and Xeomin each have “residual 2% shares,” Pyott said.
Third-quarter results indicated that Botox is maintaining its dominance.
Botox sales grew 9% in the third quarter to $431.6 million and “had the same share this year as we did last year,” Pyott said.
The entry of Merz could challenge Botox’s dominant standing. Dysport has made some strides in the cosmetic market in the past several years. And a recent Financial Times article quoted plastic surgeons who believe Xeomin also will be competitive, thanks to expectations that it will undercut both Botox and Dysport on price.
The pending shift in the competitive field for Botox comes as Allergan considers selling off its Lap-Band weight-loss device.
Allergan has seen Botox’s sales decline for five consecutive quarters, Pyott said.
Lap-Band accounted for $37.4 million in sales during the third quarter, down 25% from a year ago.
Allergan has forecast full-year obesity-intervention sales of $160 million—down from its 2008 peak of $296 million.
“Wrong Direction”
“Allergan’s all about lots of growth, and clearly Lap-Band has been growing in the wrong direction for the last two or so years,” Pyott said. “Strategically we have to have product lines that have growth.”
Allergan is prepared to send out documents to interested parties regarding Lap-Band, Pyott said, adding that he does expect to be contacted soon. Potential buyers of the business could include strategic acquirers as well as private equity firms, he said.
“There are numbers at which we will say ‘no,’ ” Pyott said. “We have to obviously have to get to a number that we think makes sense for Allergan shareholders.”
Pyott said he was cautious about giving information about Lap-Band because of the risk of people creating rumors. He compared the situation to one Allergan faced more than a decade ago with another slower-growth device business that Allergan eventually spun off into Santa Ana-based Advanced Medical Optics Inc., now Abbott Medical Optics.
Wall Street applauded the notion of a Lap-Band selloff.
“Trends in [Allergan’s] Lap-Band business continue to disappoint, have been a drag on growth and contribute little,” wrote Seamus Fernandez, an analyst with Boston-based investment bank Leerink Swann LLC.
The comments from Pyott came after an earnings call on Allergan’s mixed third-quarter results.
Q3
The company’s quarterly net income dipped slightly to $249.4 million. That number was affected by a $62.5 million payment to Switzerland-based Molecular Partners AG for drug technology. Allergan and Molecular agreed to expand their partnership for drug development in August.
Allergan saw $323.6 million in quarterly profit, excluding one-time charges, up 15% from 2011’s third quarter.
Quarterly revenue rose 6% to $1.41 billion, hurt by currency fluctuations.
Allergan narrowed its 2012 guidance. It now expects adjusted profit of $1.27 billion to $1.28 billion, compared to a previous estimate of $1.266 billion to $1.28 billion.
The company sees its full-year revenue coming in at $5.7 billion to $5.77 billion. Allergan previously expected $5.65 billion to $5.8 billion in 2012 revenue.
It is No. 63 on this week’s list of Fastest-Growing Public Companies (see list, page 40).
