David Pyott, the Scottish chief executive of drug maker Allergan Inc., likes to say that cautious frugality is in his blood.
Wall Street analysts know this first hand, as they’ve seen Pyott guardedly lower expectations only to easily beat them later.
That was the case last week, when Allergan delivered fourth-quarter sales and profits that topped Wall Street forecasts,after Pyott guided analysts lower in October.
“All in all, the fourth quarter is a testament to management for properly setting very conservative guidance in an incredibly challenging environment,” said Amit Hazan, an analyst with Oppenheimer & Co.
But now some analysts are wondering whether Pyott is being conservative enough in his lowered outlook for the current quarter.
Last week, Irvine-based Allergan gave a subdued first-quarter forecast amid concerns about an ongoing downturn in wrinkle remover Botox and other elective surgeries.
“This is not going to be a walk in the park,” Pyott said.
Allergan said it expects first-quarter earnings to come in at $152.1 million to $158.2 million, well below the $185.6 million analysts had been expecting.
The drug maker sees sales of $960 million to $1 billion, versus the $1.05 billion analysts had been looking for.
Some question whether the company has accounted enough for the sluggish economy, which has led patients to put off Botox and other procedures they pay for themselves.
“We have more concerns about guidance,” said Sean Lavin, an analyst with Lazard Capital Markets LLC in New York.
Lavin said he expects eye drug sales will be flat this year and a 24% drop for cosmetic Botox, which, combined with therapeutic Botox, makes up about a third of Allergan’s sales.
The analyst said he also sees fewer sales of breast implants and Lap-Band, an obesity treatment.
Eye Drugs
Earlier, Lavin said he was cautious about whether eye drugs, which “carried the company in 2008,” could continue to do so if Allergan’s medical cosmetics business keeps declining.
Allergan’s eye drug business slipped a bit in the fourth quarter,sales fell 3.6% to $467 million.
The company is set to face lost sales later this year when its patent runs out on Alphagan, its longtime glaucoma drug. Generic versions could appear in October.
Allergan is pushing a newer version of Alphagan in a bid to keep customers.
The company is “not going to fall off a patent cliff” when Alphagan goes generic, Pyott said. In 2006, Allergan ended a legal challenge to a generic version of the drug by licensing Alphagan to rival Alcon Inc., which is set to pay royalties.
For now, the downturn is most affecting Allergan’s medical cosmetics products.
Sales of flagship Botox, which is used for medical conditions such as muscle spasms as well as cosmetic procedures, sagged 11% in the recently ended quarter to $329.2 million.
Breast implant sales were down 12% to $71 million in the fourth quarter. Sales of Juv & #233;derm, which is used to fill in wrinkles in the lower face, fell 9% to $56 million.
Sales of Lap-Band, even with stepped up marketing by doctors, were down 8% to $69 million.
Allergan said last week it plans to cut 460 jobs, or 5% of its work force. The cuts, including 100 workers in Irvine, are mainly U.S. urology drug sales and marketing workers and marketing staff in the U.S. and Europe.
“I am going to say that (was) probably the worst day I’ve had at Allergan in 10 years,” Pyott said. “Laying off people is very unpleasant, very painful.”
New products could allow Allergan to rebound in 2010, Sanford C. Bernstein & Co. analyst Aaron Gal wrote in a client note.
Allergan has several products in the works. Due out this year are Posurdex, a steroid implant to treat retinal disease, and anti-inflammatory drug Trivaris.
Second-generation versions of Lumigan, a glaucoma drug, and Acular, an eye pain reliever, are before the Food and Drug Administration.
Already out is Latisse, a drug to stimulate eyelash growth that Allergan hopes will emulate the cosmetic success of Botox.
Latisse could do well since it’s relatively inexpensive, Pyott said. Its average cost to a patient should be $120, compared to $450 to $500 for Botox injections and $600 or more for Juv & #233;derm injections.
The eyelash drug could draw customers as young as in their late teens, compared to Botox Cosmetic’s 35-and-older customers, Pyott said.
“This is a great traffic builder for” cosmetic surgeons, he said.
The company also is working on getting Botox approved for headache treatment. A final submission to the FDA is set to go in at midyear. A headache formulation could be in production in 2010.
Allergan also is awaiting regulatory word on marketing Botox for muscle twitching. Doctors now prescribe it for that in what’s known as off-label usage.
R & D;
The company plans to spend $697 million to $731 million, or 17% of sales, on research and development this year, compared to $798 million, or 18% of sales, in 2008.
Some believe Allergan, which has seen its shares drop 40% in the past year to a recent market value of $12 billion, could be an acquisition target.
Talk has intensified in recent weeks, stoked by Johnson & Johnson’s $1.1 billion pending buy of Mentor Corp., a Santa Barbara-based Allergan rival that makes breast implants.
“As long as I’ve been here, that’s been the speculation,” said Pyott, who’s run the company since 1998. “We just have to remind everybody (that) we think we have a very bright future with our strategy, with our products.”
