Allergan Inc.’s medical cosmetic business continued to grow in the first quarter,thanks in part to sales of breast implants.
But the Irvine drug maker’s shares still fell on news of the earnings, as investors raised concerns about already slowing U.S. sales of the company’s flagship wrinkle-remover Botox and future sales during a down economy.
Botox aside, sales of breast implants, which still are a relatively small part of the company’s business, grew to $78.2 million in the first quarter, up 13.4% from the year-ago quarter. Breast implant revenue was part of an overall 23% sales hike to $203 million in what Allergan calls its medical device unit.
“Once again, we see a tale of two cities with the U.S. market being impacted by the economy and showing weak sales growth contrasted by all of our international regions registering double-digit growth,” Chief Executive David Pyott said during an earnings call.
Allergan makes silicone gel and saline implants, marketed under the Natrelle brand. Regulators in November cleared silicone implants for use in the U.S. after 15 years, giving Allergan a new profit window.
Allergan became a breast implant player through its $3 billion buy of Santa Barbara’s Inamed Corp. back in 2006. Its major domestic competitor is Mentor Corp., also in Santa Barbara.
Allergan has been taking market share from Mentor, said Tony Yao, a biotech analyst with Janus Funds, in a recent Barron’s article.
Economic concerns, Yao argues, are “not nearly as significant as people think” because implants only make up 8% of Allergan’s sales.
“In the U.S., our competitor has probably gained back some market share as it has been willing to discount prices by way of deals with free goods,” Pyott said.
Allergan hasn’t cut prices for its medical cosmetics, Pyott said.
The company has an advantage over competitors by cross-marketing Natrelle to select doctors with some of its other cosmetic offerings such as Botox, Juv & #233;derm skin fillers and Lap-Band for obesity, according to Robert Grant, president of Allergan Medical.
“(Companies like) Mentor do not enjoy the same breadth of product portfolio as we do,” Grant said. “Each individual product has to show strong track records of safety and efficacy on their own.”
And Allergan has worked to make medical cosmetics affordable to patients.
It struck a financing pact with Care Credit, a unit of General Electric Co., to help patients pay for their surgeries, Pyott said.
Cosmetic breast implant surgeries, unlike surgeries done after mastectomy, aren’t covered by insurance.
Meanwhile, some doctors are starting to see a bit of slackening demand for breast implants in the wake of economic weakness.
“We may not see the bottom fall out of the breast market, but certainly we’ve noticed a turndown,” said Marcel Daniels, a Long Beach cosmetic surgeon who has patients from OC.
“Two years ago, augmentation was booming because the housing market was still OK,” he said. “The last year, because of the housing and gas (being) $4 a gallon, (patients are) cutting back.”
On average, Daniels said doctors in the greater Long Beach market charge around $5,500 for enhancement procedures. In other markets, such as Beverly Hills, it could be as high as $10,000 or more.
Some analysts believe better days are ahead.
“While cosmetics sales have slowed, we believe that when the economy turns, this segment’s growth will accelerate. The future looks bright,” said Sean Lavin, an analyst with Lazard Capital Markets.
Slowing breast implant sales played a role in a recent downgrade of Allergan by Jefferies & Co. stock analyst Peter Bye.
Bye wrote that while Allergan continued to gain market share across most of its product categories, he saw the stock being hurt by a potential Botox and breast implant slowdown.
For the year, Allergan’s shares are down some 25% from their January high, but the company still ranks as OC’s most valuable with a market capitalization of $16 billion late last week.
