Is This Poison a Tonic for Investors?
Is Allergan sitting on a surprise for 2002? The Irvine (Calif.)-based pharmaceutical company may just have a blockbuster in Botox, the muscle-relaxing neurotoxin that has become a favorite treatment for wrinkles with baby boomers. The drug has never been approved for cosmetic purposes, although many plastic surgeons are testing it for eventual regulatory approval. Now, Allergan (AGN) is saying that could happen sometime this year.
Botox has been on the market to treat crossed eyes and excessive blinking since 1989, and it was approved to treat cervical dystonia, a neuromuscular disorder that's characterized by severe neck pain, in December, 2000. But perhaps its most common application -- which the company won't talk about or comment on -- is to temporarily smooth wrinkles. Analysts estimate that the drug's use for cosmetic purposes by plastic surgeons and dermatologists makes up some 30% to 50% of its total sales, which are estimated at $300 million worldwide in 2001.
"OFF-LABEL" TREATMENT. Last year, Allergan, which sells mainly skin- and eye-related drugs and products, applied for Food&Drug Administration approval of Botox to treat eyebrow furrow -- the crinkle between the eyes. If the FDA acts this year, Botox could become "the Viagra of 2002," says Greg Gilbert, a Merrill Lynch analyst. The agency never comments on approval timetables.
Until the FDA decides, Allergan can't advertise or market Botox for cosmetic uses. But ever since the drug was discovered to have wrinkle-reducing effects, nobody has stopped doctors training themselves in its use. This kind of "off-label," or unapproved, use is supported by FDA so long as the practice is grounded in good science. Meanwhile, news of the substance's effects have been widely covered, especially in women's magazines.
An approval for the product's cosmetic use would likely boost Allergan's shares, which are trading at around $73, giving the company a price-to-earnings ratio of about 42. The stock price looks pretty affordable, considering the earnings disappointments and lack of growth among other drugmakers, says Buckingham Research analyst David Buck, who recently upgraded the stock to a strong buy.
GROWING DEMAND. Buck expects earnings growth to be 22% for the year, higher than Allergan's target of 20%. The prospect of Botox being approved to treat brow furrows also prompted him to raise his estimate of the drug's sales growth to 27%, up from 25%.
"The real opportunity is in [states] between the coastlines. That [market] won't really grow until you get a trained sales force promoting Botox," says Don Ellis, a Thomas Weisel Partners analyst who covers Allergan. His firm recently interviewed 100 plastic surgeons, most of whom, he estimates, are located on the coasts. Of those surveyed, 69% reported using it -- and most were increasing their patient base every month, Ellis says.
All of which is quite amazing for a substance derived from the bacteria that causes botulism, a deadly form of food poisoning. Botox is a neurotoxin -- a poisonous protein -- that acts on the nervous system. When injected, it relaxes the muscle, which makes the skin over the muscle appear smoother. Most patients get touch-up injections every few months as the drug's effects wear off. Some 1.1 million injections for cosmetic purposes were performed in 2000 (the latest year for which figures are available), according to the American Society of Aesthetic Plastic Surgery (ASAPS)-- an increase of 120% from the previous year.
BEATS SURGERY. Some plastic surgeons are anticipating that this could be a banner year for cosmetic procedures, courtesy of, believe it or not, September 11. As a result of "reevaluating their priorities" and an increased "focus on personal improvement" in the wake of the terrorist attacks, ASAPS believes more people might consider cosmetic surgery in 2002.
Botox has the advantage of being both a minimally invasive procedure (all it takes is an injection) and relatively inexpensive -- around $500 a treatment -- compared to more radical options, such as facelifts. Dr. Alan Mattarasso, a plastic surgeon based in New York City, says Botox is the only nonsurgical procedure he does. "In the areas where I use it," he explains, "it works better than a lot of the surgical procedures available."
Mattarasso uses Botox injections to treat brow furrow, the horizontal lines on the forehead, crow's feet, and chords in the neck. Even without a "reevaluating of priorities," the aging population represents a ready and growing market, say analysts.
Another plus for Botox and Allergan: Lack of serious competition. Elan Pharmaceutical's (ELN) Myobloc, a drug similar to Botox, has been approved for cervical dystonia but is also being used off-label to reduce wrinkles. Myobloc has so far produced modest sales. A third product, already marketed in Europe, is now undergoing clinical testing in the U.S. Approval on this drug, called Dysport in Europe and to be marketed here by Inamed (INMD), could occur sometime in the next several years, analysts believe.
REASON TO SMILE? There could still be a few wrinkles. Some skeptics wonder if Botox really has much more upside. Most plastic surgeons who would use it are already experimenting with it. Botox is sold directly to doctors, so there are no prescription data to analyze. Plus, FDA approval in 2002 isn't guaranteed.
Also, the agency may be slower than expected in finishing its review, since Botox doesn't address an urgent medical need. Allergan notes that the product's side effects -- for its approved indications -- include difficulty swallowing, respiratory difficulty, and weakness of the injected muscle leading to droopiness.
Most of the doctors already administering Botox say they've seen very few side effects and report that most patients are satisfied, according to analysts. If this 12-year-old product gets an O.K. from the FDA, Allergan investors could be in for a facelift
Botox has been on the market to treat crossed eyes and excessive blinking since 1989, and it was approved to treat cervical dystonia, a neuromuscular disorder that's characterized by severe neck pain, in December, 2000. But perhaps its most common application -- which the company won't talk about or comment on -- is to temporarily smooth wrinkles. Analysts estimate that the drug's use for cosmetic purposes by plastic surgeons and dermatologists makes up some 30% to 50% of its total sales, which are estimated at $300 million worldwide in 2001.
"OFF-LABEL" TREATMENT. Last year, Allergan, which sells mainly skin- and eye-related drugs and products, applied for Food&Drug Administration approval of Botox to treat eyebrow furrow -- the crinkle between the eyes. If the FDA acts this year, Botox could become "the Viagra of 2002," says Greg Gilbert, a Merrill Lynch analyst. The agency never comments on approval timetables.
Until the FDA decides, Allergan can't advertise or market Botox for cosmetic uses. But ever since the drug was discovered to have wrinkle-reducing effects, nobody has stopped doctors training themselves in its use. This kind of "off-label," or unapproved, use is supported by FDA so long as the practice is grounded in good science. Meanwhile, news of the substance's effects have been widely covered, especially in women's magazines.
An approval for the product's cosmetic use would likely boost Allergan's shares, which are trading at around $73, giving the company a price-to-earnings ratio of about 42. The stock price looks pretty affordable, considering the earnings disappointments and lack of growth among other drugmakers, says Buckingham Research analyst David Buck, who recently upgraded the stock to a strong buy.
GROWING DEMAND. Buck expects earnings growth to be 22% for the year, higher than Allergan's target of 20%. The prospect of Botox being approved to treat brow furrows also prompted him to raise his estimate of the drug's sales growth to 27%, up from 25%.
"The real opportunity is in [states] between the coastlines. That [market] won't really grow until you get a trained sales force promoting Botox," says Don Ellis, a Thomas Weisel Partners analyst who covers Allergan. His firm recently interviewed 100 plastic surgeons, most of whom, he estimates, are located on the coasts. Of those surveyed, 69% reported using it -- and most were increasing their patient base every month, Ellis says.
All of which is quite amazing for a substance derived from the bacteria that causes botulism, a deadly form of food poisoning. Botox is a neurotoxin -- a poisonous protein -- that acts on the nervous system. When injected, it relaxes the muscle, which makes the skin over the muscle appear smoother. Most patients get touch-up injections every few months as the drug's effects wear off. Some 1.1 million injections for cosmetic purposes were performed in 2000 (the latest year for which figures are available), according to the American Society of Aesthetic Plastic Surgery (ASAPS)-- an increase of 120% from the previous year.
BEATS SURGERY. Some plastic surgeons are anticipating that this could be a banner year for cosmetic procedures, courtesy of, believe it or not, September 11. As a result of "reevaluating their priorities" and an increased "focus on personal improvement" in the wake of the terrorist attacks, ASAPS believes more people might consider cosmetic surgery in 2002.
Botox has the advantage of being both a minimally invasive procedure (all it takes is an injection) and relatively inexpensive -- around $500 a treatment -- compared to more radical options, such as facelifts. Dr. Alan Mattarasso, a plastic surgeon based in New York City, says Botox is the only nonsurgical procedure he does. "In the areas where I use it," he explains, "it works better than a lot of the surgical procedures available."
Mattarasso uses Botox injections to treat brow furrow, the horizontal lines on the forehead, crow's feet, and chords in the neck. Even without a "reevaluating of priorities," the aging population represents a ready and growing market, say analysts.
Another plus for Botox and Allergan: Lack of serious competition. Elan Pharmaceutical's (ELN) Myobloc, a drug similar to Botox, has been approved for cervical dystonia but is also being used off-label to reduce wrinkles. Myobloc has so far produced modest sales. A third product, already marketed in Europe, is now undergoing clinical testing in the U.S. Approval on this drug, called Dysport in Europe and to be marketed here by Inamed (INMD), could occur sometime in the next several years, analysts believe.
REASON TO SMILE? There could still be a few wrinkles. Some skeptics wonder if Botox really has much more upside. Most plastic surgeons who would use it are already experimenting with it. Botox is sold directly to doctors, so there are no prescription data to analyze. Plus, FDA approval in 2002 isn't guaranteed.
Also, the agency may be slower than expected in finishing its review, since Botox doesn't address an urgent medical need. Allergan notes that the product's side effects -- for its approved indications -- include difficulty swallowing, respiratory difficulty, and weakness of the injected muscle leading to droopiness.
Most of the doctors already administering Botox say they've seen very few side effects and report that most patients are satisfied, according to analysts. If this 12-year-old product gets an O.K. from the FDA, Allergan investors could be in for a facelift
