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Allergan's Picture Gets Clearer in 2014

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A stronger economy may offer an opportunity for companies like Botox maker Allergan (NYSE: AGN.DL  ) this year.  Sales of the company's diverse product lineup, which ranges from breast implants to eye drops, are likely to head higher as employment picks up.   

Beauty's big bucks
Allergan makes most of its money selling specialty pharmaceuticals, including Botox. That drug racked up $1.8 billion in sales in 2012, and the company thinks sales could approach $2 billion for the full year 2013, roughly a third of Allergan's total revenue.  

That's attracted the attention of competitors including Merz Pharmaceuticals Xeomin and Valeant's (NYSE: VRX  ) Dysport.  But despite Xeomin's effectiveness and Dysport's being cheaper, Botox continues to gain ground with sales climbing 12.5% from last year to $485 million in the third quarter. Meanwhile, Merz and Valeant's competing drugs have mustered just 15% market share, with Botox controlling the rest.

Outside of Botox, Allergan's eye care business is its biggest.  The company's Lumigan, Restasis and Refresh helped Allergan's opthamology segment post sales of $2.7 billion during 2012, up from $2 billion in 2008. 

That business faces a stiff challenge this year because Restasis, a treatment for dry eye that recorded U.S. sales of $250 million last quarter, loses patent protection in May.

Challenging Lucentis and Eylea
The company hopes to offset some of the sales lost to generic versions of Restasis by winning a label expansion for Ozurdex as a treatment for diabetic macular edema, or DME, which is the leaking of retinal blood vessels into the part of the eye responsible for detailed vision.

,Diabetics have a 10% chance of developing the condition and estimates peg the U.S. DME patient population at one million and growing by 300,000 people per year.

If approved for DME, Ozurdex will attempt to take on the toughest cases of DME -- those that fail when treated with Bayer (NASDAQOTH: BAYRY  ) and Regeneron's (NASDAQ: REGN  ) Eylea, or Novartis (NYSE: NVS  ) and Roche's Lucentis.

Bayer, which markets Eylea outside the U.S., and Regeneron captured more than $640 million in U.S. sales in the first half of 2013, prompting Regeneron to guide investors to expect full year 2013 sales of over $1.3 billion. 

Novartis, which markets Lucentis outside the U.S., and Roche won FDA approval for Lucentis as a treatment for DME in 2012. That drug has become the 26th best selling drug in America, with U.S. sales of $464 million during the third quarter alone.

While it's unlikely that Ozurdex will become the dominant treatment for DME, it could become a viable second line treatment for those who don't respond to Lucentis and Eylea.

Relieving migraines and nocturia
Allergan also hopes to win approval for its inhaled version of pain reliever Levadex. The drug got denied by the FDA early in 2013; however, Allergan believes it's addressed all the issues raised by the agency in its complete response letter. That paves the way for approval in the first half of 2014.  The drug proved effective in treating acute migraines and could win share, particularly as a second line treatment for those who don't respond to triptans, which act like serotonin to activate serotonin receptors.

Allergan also hopes its drug ser-120 for frequent night time urination, or nocturia, will post similarly strong results in phase 3 trials as in phase 2. Aging baby boomers will likely drive demand for treatments like ser-120 given prevalence increases with age. Some 27% of women and 32% of men over age 60 suffer from nocturia two or more times a night, and 67% of those report the condition has a negative impact on their life.

Fool-worthy final thoughts
Double-digit sales growth thanks to Botox and Restasis this year is sure to take a hit when generic versions of Restasis hit the market. But Botox won't have to do all the heavy lifting in making up for sales post-Restasis. The company sells a variety of products and could win over investors if Ozurdex wins approval as a DME treatment, Levadex overcomes the FDA's concerns and ser-120 reports positive data later in the year.

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Todd Campbell

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

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