The market has not been kind to Allergan PLC (NYSE: AGN) following the failure of its September deal in which the pharmaceutical company transferred all patents for dry-eye drug Restasis to the Saint Regis Mohawk Tribe in New York.
The patents expired. So no preventing Allergan from facing patent challenges in both federal district court and the Patent Trial and Appeal Board (PTAB)—in the latter, the tribe can protect the patents on the ground of sovereign immunity. In October, a U.S. federal district court in Texas invalidated Restasis patents, and last month PTAB struck down the tribe’s motion to dismiss the review.
“The Tribe has not established that the doctrine of tribal sovereign immunity should be applied to these proceedings … in view of Allergan’s retained ownership interests in the challenged patents. The Tribe’s Motion is therefore denied,” wrote the board.
Bad news for Allergan, but its stock speaks otherwise. Shares of the company, which had fallen more than 20% since it announced the patent transfer deal, have bottomed out and are trading at $167 per share, up $23, or 16%, since March 2.
True, Allergan will likely lose exclusivity of one of its top earners, but with an aesthetic portfolio anchored by Botox—which had $3.2 billion combined U.S. and international sales last year, up 13.7%—bullish investors may be running over firm ground.
All About Aesthetics
“The largest growth that we see and the biggest opportunity is … continue to grow the portfolio of medical aesthetics. The proposition has always been about leveraging Botox, fillers, CoolSculpting, Kybella, SkinMedica and the like,” said Chief Executive Brent Saunders in a recent earnings call.
U.S. specialized therapeutics sales, which include medical aesthetics, eye care and therapeutic Botox, brought revenue of $1.9 billion in the fourth quarter, up 19.8% year-over-year.
Medical aesthetics grew the most:
• U.S. sales of $713 million, up 62% year-over-year.
• International sales of $389 million, up 36%.
Allergan made key purchases early last year to bolster the portfolio, adding LifeCell from medical device company Acelity LP Inc. for $2.9 billion and CoolSculpting from Zeltiq Aesthetics Inc. for $2.4 billion.
The acquisitions offered immediate positive cash flow. The former develops Alloderm, a regenerative human tissue used for breast reconstruction, and the latter is a noninvasive body contouring technology that freezes off unwanted fat.
“Both businesses perfectly complement our medical aesthetics portfolio, which now has three pillars: facial aesthetics, plastics/regenerative medicine and body contouring,” said Executive Vice President and Chief Commercial Officer Bill Meury. He said the outlook for the portfolio this year and beyond is very positive.
Allergan bought Elastagen last month for $95 million. The spinoff product of the University of Sydney contains human tropoelastin, a precursor to making elastin fibers in the skin, which are a key component to youthful skin, according to the company.
It plans to launch a line of “the next-next generation of fillers based on the technology. We plan to call [the line] Rejuvecross,” Meury told the Business Journal.
Growth in medical aesthetics was led by Botox cosmetics, up 17%, and the Juvederm collection of fillers, up 21%. “Our Juvederm collection has sales over $1 billion globally. It’s one of the fastest-growing parts of our aesthetics business, and we anticipate it will rival the size of Botox over time,” Meury said.
Botox Factor
With Allergan preparing for the loss of Restasis exclusivity—former Chief Financial Officer Teresa Hilado, who retired in February, said the company is assuming generic entry between April and July.
The company must also tackle Botox competitors that offer longer-acting and perhaps lower-costing toxins.
Local Botox players include Evolus Inc. and Bonti. The latter seeks to offer a Botox alternative with faster onset and shorter duration, and is targeting pain management.
Saunders said the company takes all competition seriously but pointed out that “the market is extremely competitive when it comes to toxin.”
Allergan may have the upper hand.
Meury said that Allergan has well-established loyalty programs. Its partner privileges program offers big doctor purchasers perks like upgrades, rebates and “instant product savings,” according to its website. Its consumer loyalty program gives coupons to repeat Botox customers.
U.S. competition includes Merz North America Inc. in Raleigh, N.C., part of Merz Pharma GmbH & Co. KGaA, which makes Xeomin, and Fort Worth, Texas-based Galderma Laboratories LP, which develops Dysport.
Eye to Future
Losing Restasis will be a blow to Allergan, which announced in January that it’s cutting more than 1,000 jobs as part of its cost-reduction efforts in anticipation of generic Restasis. Saunders said the move would cut “expenses by approximately $400 million.” The company did not disclose how many of the job cuts will be in Irvine.
The company also plans to vacate and sell three offices totaling 90,000 square feet at its Irvine campus on Michelson Drive, the Business Journal has reported. It will keep its main campus, which is fenced off from the public.
Meury said the future of the company’s eye-care business is beyond Restasis in treatments for glaucoma and various retinal disorders.
“Our strategy here is to shift the treatment paradigm in the next several years towards dropless therapies with the bimatoprost [sustained-release implant], along with our Xen implant, [and with] the retina, Ozurdex continues to be the anchor,” he said.
All three devices are intravitreal implants; bimatoprost, which has yet to receive Food and Drug Administration approval, tackles the medication adherence problem by turning daily glaucoma eye drops into a sustained-release, biodegradable implant.
Allergan’s pipeline also includes abicipar, a clinical-stage drug candidate that targets age-related macular degeneration and diabetic macular edema, and Pilo/Oxy for presbyopia, “all of which could have the potential to more than replace Restasis’ revenue loss,” Meury said. He added that the company’s over-the-counter artificial tears business is growing.
Growth Plans
Saunders said Allergan will take a break from acquisitions, “with the exception of things that are important to our long-term strategic growth like we did with our filler technology [Elastagen].”
Other opportunities in the research and development pipeline include expanding therapeutic use of Botox.
David Nicholson, executive vice president and chief research and development officer, said the company is exploring the efficacy of Botox in treating depression.
