Allergan Inc., long known as a maker of eye and skin drugs, is “partly” morphing into a medical cosmetics company with its $3.2 billion pending buy of Inamed Corp., Chief Executive David Pyott said.
“The way I look at it is it’s just another of these major businesses that we’re going to be in,” Pyott said of medical cosmetics. “Basically, what we’ve done is create probably the world’s leading player in medical aesthetics.”
Santa Barbara-based Inamed brings Allergan dermatology products, breast implants and a “Lap-Band” for fighting obesity. The medical cosmetics join Allergan’s own Botox wrinkle-reducing drug.
Still Focused on Eyes
Even after the Inamed buy wraps up later this quarter, “still 50% of the sales will come from ophthalmology,” Pyott said.
Allergan’s first product was an eye drop for allergies. Eye drugs now make up nearly 60% of the company’s $2 billion in yearly sales. Allergan is committed to being a specialty drug maker, Pyott said.
“What we’ve done here is really follow the same kind of strategy that we’ve done for many, many years,building leadership in specialty pharmaceuticals,” said Pyott, who has been Allergan’s head for eight years.
Still, medical cosmetics are providing some sizzle for Allergan.
The company surprised some in the drug world in November when it emerged with an offer for Inamed eight months after the company accepted an earlier $2.5 million bid from Medicis Pharmaceutical Corp. of Scottsdale. Medicis eventually bowed out.
Inamed has three major product lines: dermal fillers for smoothing out the lower face, breast implants and obesity treatments, including the Lap-Band.
The implants have yearly growth rates in the mid-teens and the fillers are in the mid-20s, Pyott said. The obesity treatments are growing at about twice that, he said.
Wall Street’s “loved this so much because they could see that this was a move from a position of strength,” Pyott said.
Boosting Botox
Buying Inamed gives Allergan a complement to its Botox Cosmetic wrinkle-reducer, according to analysts.
“They’ll be able to cover a greater portion of the face,” Timothy Chiang, an analyst with Natexis Bleichroeder Inc., a New York investment bank, said in published reports.
The deal “essentially increases their share of voice into the dermatologist’s office,” he said.
Allergan’s buy of Inamed is “strategically attractive on several fronts,” wrote Ken Kulju, an analyst at Credit Suisse First Boston.
Those include expansion into surgical obesity treatment and new ways to promote Botox, he said.
What analysts really like: “a broadening in product offerings into the relatively price inelastic private-pay cosmetic surgery market,” Kulju said.
Translation: Allergan will be selling products that patients pay for themselves, without constant pressure for lower prices from insurers.
A good portion of Inamed’s business is paid for in cash. But that was a secondary concern for Allergan, according to Pyott.
“We do reimbursement all day,” he said, with Allergan’s eye drugs and therapeutic Botox, used to treat neck spasms.
Allergan now is awaiting antitrust clearance for Inamed. One wrinkle, so to speak, has been Inamed’s Reloxin, a potential Botox rival that Inamed licensed from France’s Beaufor Ipsen SA.
Inamed returned the rights to Reloxin to Beaufor Ipsen for about $10 million in cash.
“That went back to France, so we divested it as a way to clear the obvious major (hurdle),” Pyott said.
Returning Reloxin to Beaufor Ipsen “effectively resolves any potential FTC concerns over this matter,” Credit Suisse analyst Kulju wrote.
Reloxin might not be ready for the U.S. market until 2008, he said.
Push by Doctors
Allergan’s seen a push for more medical cosmetics by doctors using Botox, according to Pyott:
“Our customers have been telling us for a couple of years, ‘You know, you have this wonderful product called Botox. Wouldn’t you like to be more in this business?’ Which was a polite way of saying wake up and get into this business.”
Allergan started looking at skin fillers, the most frequent follow-up procedure to Botox.
“Botox is typically nose upwards, and fillers are typically nose and downwards,” Pyott said.
Could Allergan make more acquisitions in medical cosmetics?
“Actually, you’re asking the same question that companies are asking their investment bankers,” Pyott said. “We literally set something off here.”
Inamed Division
Allergan plans to integrate Inamed into the company, including research and development operations. Pyott said he is “adamant” that the drug maker’s Irvine research and development operations remain focused on specialty drugs.
Allergan has tapped Steven Pal, currently corporate vice president of global strategic marketing, to run what will become the Inamed division of Allergan.
“He has been with us for about seven years, joined us from Warner-Lambert after they were acquired by Pfizer,” Pyott said. “He was originally running the Botox business in the U.S., so he knows Botox pretty well.”
Allergan plans to put Botox Cosmetic into the Inamed division.
“So it’s not like we just came and gave you a bear hug,” Pyott said. “We’re putting our crown jewel right into your operation.”
Inamed’s device research and development is set to stay in Santa Barbara.
“The R & D; still reports through me,” said Scott Whitcup, Allergan’s executive vice president, research and development. “So we still will be involved in making decisions of which technologies, clinical trials (and) opportunities to pursue.”
Pyott said he expected some queries about buying breast implants and an obesity treatment after selling off Allergan’s own eye surgery device business about four years ago as Santa Ana-based Advanced Medical Optics Inc.
“And in fact, I didn’t get that question for several hours on Day 1, although I was prepped to the eyeballs,” he said. “One person said, ‘So, are you kind of following fashion with pharmaceutical companies that had left medical device and now go back into it?'”
His response?
“If you want to give me the credit for being a clever follower of fashion, I’ll take that,” he said. “But actually, no, and this is really, in both cases, all about growth. How do we enhance the growth of the company?”
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R & D; Rolls On
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| Whitcup: has new $60 million Irvine lab |
Allergan Inc.’s research and development arm continues to hum along.
The company is looking at new uses for Botox, said Scott Whitcup, executive vice president of research and development.
A big push: getting Botox approved for migraines.
“We’re in phase three for migraine,” he said. “That’s a big indication because we’re going after patients with fairly severe migraine. These are people with headaches for at least half the month. We’re going after the severe end of the spectrum.”
Allergan doesn’t expect Botox to be approved for migraines until around 2010, according to Chief Executive David Pyott.
The company also is eyeing Botox for overactive bladder, which mainly affects women, and benign prostate hypertrophy, a condition that comes with male aging.
Botox even could be used as a potential treatment for obesity, according to Whitcup. Allergan scientists are looking at injecting the drug into the stomach’s wall to help a patient feel fuller and cut hunger.
Glaucoma Pill
On the eye drug front, memantine, a glaucoma pill that Whitcup said could be the first to preserve vision, is moving along in trials. Memantine protects the optic nerve, which controls vision.
“Glaucoma isn’t just a disease of increased pressure,” Whitcup said.
Two clinical trials with about 1,000 patients each are under way for memantine, Whitcup said.
Memantine would work with Allergan’s existing glaucoma treatments, which include Lumigan and the Alphagan family.
“As an adjunct to protect your vision, you would take this medication,” Whitcup said. “That’s another reason why we’re so excited about it. It doesn’t go in and compete against what’s already there. It’s protection on top of what patients are already doing.”
Another emerging glaucoma medication is Combigan, a drug that combines Alphagan and timolol, a pressure-relieving beta-blocker. Combigan is being launched in Europe, and Allergan is working with the Food and Drug Administration on approval here, Whitcup said.
Allergan also is continuing work on Posurdex, an implant placed in the back of the eye that releases dexamethasone, an anti-inflammatory drug, into the retina. Allergan acquired Posurdex in 2003 by buying Sunnyvale-based Oculex Pharm-aceuticals Inc.
In dermatology, Allergan has de-emphasized its work on oral tazarotene for psoriasis, Whitcup said. The FDA sent Allergan a “non-approvable” letter for tazarotene in 2004 and had asked for a risk management program, an extra clinical study and manufacturing changes.
“We sort of still believe that the product would have benefited patients with moderate to severe psoriasis, but given how many restrictions (regulators) are putting around physicians using the product, and the requirement even after it were approved for additional studies, it became clear we had better opportunities for those research and development dollars,” Whitcup said.
More research and development spending has marked Chief Executive Pyott’s eight years at Allergan. Through the first nine months of 2005, Allergan spent $279.5 million, or about 16% of its $1.7 billion in sales, on research and development.
Whitcup, a doctor who has been with Allergan since 2000, took over as the drug maker’s executive vice president of research and development in 2004, replacing longtime research head Lester Kaplan.
New Lab
And he’s got a new, shiny space to work in. At the end of last year, Allergan opened its Herbert Research Center, a $60 million facility with special areas for modular biology, neuromodulator research, high-throughput screening and chemistry.
At the time Allergan opened the Herbert center, the company said it “represents a significant expansion” of its capability to conduct early research into eye diseases such as age-related macular degeneration, glaucoma and dry eye, along with work in neurology topics such as Alzheimer’s disease and neuropathic pain.
“The basic first need for the building is that we’ve grown so much,we ran out of space,” Whitcup said.
Allergan employs some 1,100 research and development scientists worldwide. The company declined to give specific Orange County numbers.
,Vita Reed
