After a couple years under the hood at Allergan Inc., David E.I. Pyott took the specialty pharmaceutical maker out for a spin in 2000.
“I like to say this is the year we really got that Mercedes V-12 engine on top,” said Pyott, the company’s chief executive and president. “And it shows in many, many ways.”
One sign of how well Allergan’s engine is humming is on Wall Street. Last week, the Irvine-based firm’s stock was trading near 100, its high for the year. The company’s shares nearly doubled last year as investors rewarded Allergan for its financial performance and promising new products. The company has “more than delivered what we said to our investors,” Pyott said.
The company’s performance in 2000 earned the 47-year-old Scotsman recognition as the Business Journal’s businessperson of the year.
On a personal level, Pyott said his greatest source of satisfaction in 2000 was seeing “a lot of satisfied employees” who believe in Allergan’s mission of fulfilling unmet medical needs. Allergan employs 6,200 people in all and around 1,800 in Irvine.
Last week, Allergan counted a market capitalization of around $12.6 billion, making it the second most valuable OC company after Irvine chip maker Broadcom Corp. Pyott owns 632,000 Allergan shares, less than 1% of the company’s outstanding shares, a stake worth $61 million last week. Pyott had his work cut out for him when he joined Allergan as chief executive in January 1998. The company was coming off several years of disappointing financial results, product recalls, job cuts and a difficult consolidation.
Having run a large division of Novartis AG, Pyott spent the next couple of years retooling Allergan. The process included shutting down plants and eliminating administrative jobs, while shifting corporate resources to boost its sales and marketing and, in particular, research and development.
“We are gaining market share globally in all five of our businesses, so that is a real measure of success,” Pyott said.
Pyott, who holds three degrees and speaks four languages, succeeded 30-year Allergan veteran William Shepherd as chief executive. Pyott came to Orange County from Basel, Switzerland, where he ran Novartis’ nutrition division. Pyott had been with Sandoz Ltd., one of Novartis’ predecessor companies, since 1980. He became head of the nutrition operation in 1995.
For the nine months ended Sept. 29, Allergan saw sales increase 13% to $1.2 billion from the year-ago period, while net income grew 16% to $150 million. When Allergan reports fourth-quarter figures later this month, company officials said they expect revenue to come in between $400 million and $415 million, up from $380 million in the year-ago period. Analysts expect Allergan to post a profit of 47 cents a share, up from 40 cents a year ago, according to consensus figures from First Call Corp.
“(Pyott’s) been able to grow earnings per share at Allergan by 23% to 24% despite spending heavily on R & D;,” said David Buck, an analyst with Buckingham Research in New York. “That’s a big achievement.”
Allergan’s products deal with a range of conditions. The company’s flagship is the neuromuscular drug Botox,sales of which grew at a 40% clip in 2000. The drug’s initial approval was to treat muscle spasms around the eye. Last week, Allergan got the nod for Botox as a treatment for cervical dystonia, a neurological disorder that contorts the head and neck into painful positions.
Botox also has found an unintended niche among plastic surgeons who prescribe the drug as a treatment for facial wrinkles, charging $150 or more per syringe.
Allergan’s other products include eye-care drugs Alphagan, Betagan and Propine, which are used to treat glaucoma. The company also makes ophthalmic surgery products, contact lens care solutions and dermatology drugs.
“The other great thing about 2000 is we’ve seen the pipeline coming through,” Pyott said.
Allergan and Allergan Specialty Therapeutics Inc., a development unit, have doubled total R & D; spending during the past three years and spent around $270 million in 2000, Pyott said.
There is a lot of excitement about Allergan’s pipeline, according to Hans von der Luft, who follows Allergan for McDonald Investments in Cleveland. Von der Luft cited Lumigan, a new glaucoma drug that’s expected to receive Food and Drug Administration approval in the second quarter.
Lumigan’s clinical trials have shown that it can be an effective once-a-day treatment for the eye ailment with possibly fewer side effects than other drugs. Pyott called Lumigan “a real important milestone” for Allergan. He said Lumigan, which was found to reduce intraocular pressure somewhat more than beta-blockers, had the “characteristics of a product with great potential.”
Allergan also is awaiting federal approval for Botox as a treatment for brow furrow, or frown lines, and for its Tazorac psoriasis medication for acne treatment. Further down the pipeline, Allergan is developing a treatment for hyperhydrosis, or excessive sweating.
Some unexplored areas remain, however.
Allergan is still contemplating whether it should move into oncology drugs, Pyott said. But he admitted that was not a burning question because Allergan needs to move its initial program further through the pipeline. At that time, a decision on whether to seek a partner or do work in-house will be made.
Pyott said that Allergan is trying to boost its presence in retinal disease pharmaceuticals, an area in which he said the company is relatively weak. Allergan’s partnership with Ista Pharmaceuticals Inc., an Irvine-based biotechnology company, could help, he said.
Allergan faces competition on various fronts. Heavyweights such as Nestle SA’s Alcon Laboratories Inc., Merck & Co. and Pharmacia Corp. compete with Allergan on the eye-care front, while it battles with Bausch & Lomb Inc. on the surgical product area.
In early December, Elan Corp., an Irish-based rival drug maker, received U.S. approval to sell Myobloc, a putative competitor to Botox, for neck and shoulder muscle spasms. Myobloc is known as NeuroBloc in Europe.
“We regard competition as good,” Pyott said. “It sharpens us up.”
Botox’s growth was up more than 44% last year, he said, and the neurotoxin market was expected to reach $1 billion within three to five years.
“There’s room for more than one (company),” Pyott said. “NeuroBloc is different from Botox. Our product has 10 years of experience in the marketplace.”
Allergan faces “very few thorny issues” in 2001, Pyott said. He pointed to the co-mpany’s strong financial results, market value and that “we now have over $700 million in the bank. Those are pretty nice starting places.”
Still, Allergan won’t be challenge-free in 2001. Pyott expressed concern about global markets, which make up half of Allergan’s revenue. “Currencies have been pretty nasty the last six months,” he said.
Allergan is naturally hedged in Europe because nearly everything it sells on the continent is manufactured in Ireland with costs based in euros, Pyott said.
Another concern has to do with the loss of patent protection on Allergan’s Alphagan glaucoma treatment, Pyott said, even though he doesn’t expect any generic competition until 2003.
“We have already filed with the FDA what we hope will be a new, improved Alphagan,” he said.
Allergan’s stock price held steady during the drawn-out battle for the presidency. Allergan has been paying attention to the political winds, Pyott said. A year ago, the company did an analysis of how it might fare under various Medicare drug coverage proposals in Congress and “virtually every scenario was positive” for Allergan because it would lead to a great expansion of demand, he said.
Pyott offered his take on what to expect from a Bush administration in terms of healthcare policy: “Given the views of people who are likely to work in the Bush administration and also president-elect G.W. Bush’s manifesto, it appears to me that it’s going to be a market-based system and should be based on private insurance. Those are things that are positive, from my point of view.”
Allergan, which celebrated its 50th anniversary in 2000, has changed significantly during Pyott’s three years as chief executive. In the summer of 1998, Allergan cut 550 administrative jobs, mainly through a voluntary retirement program. The company also closed five plants and divested products that didn’t enhance its marketing efforts.
“I honestly believed at the end of 1998 or the very earliest months of ’99 people realized there was a much bigger and brighter picture (beyond) this,” Pyott said. “People also understood, despite well-founded popular belief that Scotsmen are very good at saving money,it’s all true, I hate to admit,that Scotsmen, in my case, also are very good at spending money.”
Putting money into R & D; and sales is key for a drug maker, Pyott said.
“People understood we made the cuts not just to put the money in the bank or satisfy voracious investors finally waiting to get their money, but to reinvest in the future of the company,” he said.
Today at Allergan, “there’s a good sense of urgency that pervades the whole organization. One of my favorite themes is using our relatively small size to our advantage, our speed of action,” Pyott said.
Allergan became more of a rarity last month when Glaxo Wellcome and SmithKline Beecham completed their merger to form GlaxoSmithKline PLC, one of a handful of drug behemoths that dominated the industry.
Pyott, who spent a good part of his career at one of the biggest drug companies, said there is room for a vertically integrated, specialty company such as Allergan. Various business practices, including outsourcing, help the company compete, he said.
“All these things level the playing field,” he said. “Being big is no longer great. If you’re small, you can basically acquire economies of scale through partnership. I even take a more radical view. Five years from now, a lot of these majors will actually break up again because they’re going to get crushed under their own weight.”
