Is Botox Really Recession-Resistant?

The lineup of Allergan (NYSE: AGN  ) products reads like a Hollywood starlet's wish list: Botox, breast implants, Latisse. Last week, the company reported 14% higher quarterly sales, aided by a 16% surge in Botox sales. The company also boosted its full-year sales forecast despite the market's reacting violently to a possible recession and sovereign debt issues. Is Botox really recession-resistant? Can the company manage yet another possible recession?

Looking at the recent recession, Allergan doesn't seem entirely resistant. The top line started to suffer in the fourth quarter of 2008. The stock took more than a 40% hit at the time, along with the markets, but began to recover ahead of them. Sales began to recover only in the second half of 2009.

During that period, Botox sales also declined. The company even offered $50 coupons. Still, in constant currencies, sales always grew, albeit much more slowly. In the worst quarter, they were just about flat. Again, in constant currencies. When sales began to recover, management declared Botox recession-resilient.

Data released by the American Society of Plastic Surgeons seem to confirm what the company has been saying. There were 8% more Botox procedures in 2008 compared to 2007; 4% less procedures in 2009; and 12% more in 2010. Botox injections did much better during those years than most other plastic procedures -- invasive and minimally invasive.

How is Botox faring these days? Well, CEO David Pyott said in the recent earnings call that he sees the U.S. aesthetic Botox market growing around the midteens. In Europe, Botox sales, despite economic challenges, are expected to continue growing in the low double digits, Pyott said. He believes Botox's customers are in the higher income brackets and are better able to absorb higher food, gas, and clothing prices. In Latin America and Asia-Pacific, conditions "remain buoyant," he said.

The injectable neurotoxin is also approved for a variety of medical conditions, including most recently for chronic migraines. It might also soon be approved for urinary incontinence, another possible growth catalyst.

Botox is not without competitors. In 2009, Medicis' (NYSE: MRX  ) Dysport was approved and Botox has been losing market share since, from 83% in the third quarter of 2008 to 76% today. Pyott said Allergan has "contained" Dysport in the U.S.

As for Merz's upcoming launch of cosmetic Xeomin, Pyott said Allergan is ready. He didn't comment about the possible launch of a competitor in 2013 from Johnson & Johnson (NYSE: JNJ  ) . J&J also competes with Allergan in breast implants.

The company reported 14% sales growth for its eye drugs, a segment that accounted for 47% of revenue in the quarter. Some of these products have more competition and may be less resilient in a recession. Allergan's growth also came from expanding international sales, which now account for more than 41% of revenue.

On the down side, the Botox maker needs to smooth a few financial wrinkles of its own. Also, there could be pricing pressure in the U.S. and Europe. And if the recession goes into full gear, even if for now it seems its customers can take it, Allergan will feel some pain. On the plus side, Allergan has been expanding margins and the recent acquisition of Vicept exposes it to the large rosacea market.

All told, short term, there may be more pressures and unknowns than I'm comfortable with. While the stock has more than recovered from its 2008 lows, it might be prudent to wait and see how recessionary pressures play out. Long term is a different story. If the potential treatment for male pattern baldness proves successful, there's no telling where Allergan can end. But that's quite a few years down the road.