Concerns about eventual competition for Allergan Inc.’s cash cow Botox don’t seem to be weighing on the Irvine drug maker’s shares.
For now, investors seem content with the company’s strong second-quarter results,Allergan posted a profit of $102 million, which beat analysts’ expectations of $98 million. The company also upped its guidance for the rest of the year.
“We believe that the quarter, and the increased 2005 (earnings) guidance was well received by investors,” Morgan Stanley & Co. analyst Marc Goodman wrote.
Botox was a key driver in the second quarter, as was Restasis, Allergan’s new dry eye drug.
Allergan’s third-quarter results are due in early November. Analysts expect sales of about $570 million, up 12% from a year earlier, and profit of about $103 million, up nearly 18%.
Allergan shares have been on a steady upward climb in recent months, rising 30% since May. The company’s market value was $12 billion last week, second only in Orange County to Irvine chipmaker Broadcom Corp.’s $16 billion at recent check.
Allergan’s performance “should continue to be driven by a unique anchor product in Botox,” Goodman wrote.
Botox, a neurotoxin used to treat neck spasms and cosmetically to reduce wrinkles, is one of Allergan’s top draws for investors with its lack of competition.
The drug made up 37% of Allergan’s $568 million in second-quarter sales.
Challengers are in the works, though they’re a ways off. By the end of next year, Santa Barbara-based Inamed Corp. could launch Reloxin, which stems from the same ingredient as Botox.
“We continue to believe that the nearer-term threat to the Botox franchise is Inamed’s potential launch of Reloxin,” said David Maris, who follows Allergan for Banc of America Securities.
Another Santa Barbara company, Mentor Corp., is developing a botulinum product known as Puretox.
But that could be even farther off, according to Allergan spokeswoman Caroline Van Hove.
“On Puretox, it’s important to know that we’re looking at a 2010 approval at the earliest,” she said.
Allergan, which has had a vast head start on its rivals and has made Botox a household name, has downplayed concerns about competing products.
Company officials have said they believe it would be hard for any potential competitor to overcome the familiarity that doctors have with Botox and its safety record.
Wall Street seems content with Allergan’s strategy to build up its arsenal beyond Botox.
The company’s pipeline of drugs in development, including possible treatments for neuropathic pain and gastroesophageal reflux disease, could be a “positive stock catalyst,” wrote Ken Kulju, an analyst with Credit Suisse First Boston.
Allergan also is looking to build on what it has created with Botox. The company is seeking a skin filler for the lower part of the face, according to analyst Maris. Skin fillers are injected for fuller looking cheeks.
“Management reiterated this desire and to that end believes it has become familiar with the dermal filler market and the available products in this class,” Maris said. “In addition, the possibility remains that a Medicis and Inamed merger may produce a forced divestiture of certain dermal fillers, which could be of interest to Allergan.”
Arizona’s Medicis Pharmaceutical Corp. said earlier this year it plans to buy Inamed Corp. in a deal set to close by year’s end.
Allergan is open to acquiring a skin filler, Van Hove said.
“There are many fillers being developed by private companies, and so we’re willing to license or purchase a product,” she said.
At the same time, Allergan continues to seek new uses of Botox, including for migraines.
The company has an agreement with the Food and Drug Administration for third-stage Botox migraine trials but hasn’t set a specific date, according to Van Hove.
This summer, Allergan got FDA approval to market yet another version of its Alphagan glaucoma drug, Alphagan Z.
Alphagan Z is a variant of Allergan’s original Alphagan drug with a lower dose of brimonidine, its active ingredient. Alphagan works by lowering intraocular pressure, a hallmark of glaucoma.
The drug is part of Allergan’s “patent defense strategy associated with protecting its traditional Alphagan anti-glaucoma franchise” through “steadily introducing next-generation product offerings,” Credit Suisse First Boston’s Kulju said.
Allergan lost a battle to keep generic versions of the older Alphagan off the market and launched a reformulated version, Alphagan P, in 2002.
Alcon Inc., part of Nestl & #233; SA with 500 workers in Irvine, and Bausch & Lomb Inc. of Rochester, N.Y., make generic versions of Alphagan.
“By staying one step ahead of potential generic competitors, Allergan has been successful in retaining about a $250 million revenue base for this glaucoma product line,” Kulju said.
But clinical trials showed that Alphagan Z didn’t prove much more effective than the original Alphagan, according to Morgan Stanley’s Goodman.
“Although this may initially seem disappointing because there is not much difference in the new label, we would note that management has not yet disclosed its marketing strategy for Alphagan P 0.1% yet,” Goodman wrote.
Allergan likely is holding off on its Alphagan Z marketing plans as it awaits potential FDA approval for Combigan, a combination glaucoma treatment made up of Alphagan and timolol, a beta-blocker, Goodman said.
European Union regulators cleared Combigan late last week.
Meanwhile, Allergan’s continued to use outside deals to build up its pipeline. Last week, the drug maker said it partnered with Sirna Therapeutics Inc., a San Francisco company, to develop treatment for age-related blindness.
Under the deal, Allergan is responsible for developing and commercializing treatments based on Sirna’s Sirna-027 compound. Sirna gets $5 million upfront and as much as $245 million based on future sales of the drugs.
In July, Allergan signed a deal with Pharmacopeia Drug Discovery Inc. of Princeton, N.J., to treat age-related vision loss.
