A slowing economy may not trip up Allergan Inc., but competition looms for its key medical cosmetic products.
That’s the word of caution from watchers of the Irvine-based drug maker as the new year unfolds.
Allergan’s stock is up 15% from a year earlier with a market value of $20 billion last week, easily making it the most valuable Orange County company on Wall Street.
Many attribute Allergan’s gains to its diversification and stronghold in medical cosmetics to remove and smooth wrinkles as well as breast implants and a device to treat obesity.
The company’s other products include eye and skin drugs.
In results due at the end of the month, Allergan projects fourth-quarter profits of $172 million to $175 million, up 10% to 12% from a year earlier. Sales are expected to come in at $975 million to $1 billion, up 18% to 21%.
“We’re in excellent position as we’re operating in a wide range of exceptionally high growth markets driven by global aging and the desire to remain active and look better,” Chief Executive David Pyott said during the company’s last quarterly conference call.
Products acquired in 2006’s $3.2 billion buy of Santa Barbara-based Inamed Corp. are helping to spur growth. They include Lap-Band, a stomach banding device to treat obesity, Juv & #233;derm, a skin filler to smooth wrinkles in the lower face, and silicone breast implants.
The products joined Allergan’s homegrown medical cosmetic blockbuster, Botox, which is used to temporarily remove wrinkles on the forehead and around the eyes.
Advertising for wrinkle removers, breast implants and Lap-Band is spurring growth. Through September, Allergan spent 56% more on advertising than a year earlier, Pyott said. The company doesn’t disclose the dollar amount of its ad spending.
The cosmetic products could face a test with a slowdown in the economy. The impact could vary by product, according to analysts.
Botox, which grew through the early 2000s downturn, is seen holding up along with Juv & #233;derm, they say. But a slowing economy could give pause to those seeking breast implants.
Botox and Juv & #233;derm require less than $1,000 in out-of-pocket costs, according to analyst Larry Biegelsen, who follows the company for Wachovia Capital Markets. But breast implants require $5,000 to $15,000 in upfront money from patients, he said.
Competition
A bigger issue could be looming competition for Botox and Juv & #233;derm.
Scottsdale-based Medicis Pharmaceutical Corp., which briefly vied with Allergan to buy Inamed, is developing Reloxin, a wrinkle remover that’s chemically similar to Botox. Medicis is developing Reloxin with France’s Beaufor Ipsen SA.
Without regulatory snags, Reloxin could debut by the end of the year.
“Many dermatologists and cosmetic surgeons are excited about the possibilities for a lower-priced” competitor to Botox, Joel Schlessinger, an Omaha, Neb.-based dermatologist who participated in Reloxin trials, told the Wall Street Journal last month.
Botox, including both its cosmetic and therapeutic uses, accounted for $872 million of Allergan’s $2.2 billion in sales through the first nine months of 2007.
One analyst, Elliot Wilbur of CIBC World Markets, is wary about the competition.
“While Botox cosmetic growth rates remain robust in the U.S. and will likely offset any market share loss in the first 12 to 18 months, we just can’t see how additional competitive entrant can be spun as anything but a negative,” he said.
That view is shared by Peter Bye of Jefferies & Co., who predicted that the arrival of Reloxin could slow or end Allergan’s annual price increases for Botox.
The company also faces additional competition for Juv & #233;derm from Medicis’ Puragen line of lower-face wrinkle smoothers. Medicis already offers Restylane to smooth wrinkles.
Medicis also recently paid $20 million for about 10% of Mountain View-based Revance Therapeutics Inc., which is experimenting with a rival for Botox that doesn’t need to be injected into the skin.
Wachovia’s Biegelsen downplayed the competitive threat facing Allergan.
The company’s “broad portfolio of aesthetic products provides the company with unique marketing, bundling and cross-selling opportunities that in our view competitors cannot match,” he said. “We believe investor concerns over new Botox competition are overblown.”
