Allergan's Restasis Rubbing FDA the Right Way Dave Marino-Nachison (TMF Braden)
August 25, 1999
Shares of eye care and specialty pharmaceutical company Allergan (NYSE: AGN) may be headed back toward their mid-July highs. Last night, the company announced that the Food and Drug Administration (FDA) issued an "approvable letter" in regard to Allergan's developmental Restasis drug.
The letter, according to the company, outlines "several points" Allergan must address before the government will okay Restasis, a prescription eye drop for treatment of moderate to severe chronic dry eye disease.
But the letter still indicates that Restasis is back on the road to market after a disappointing break from last month. The shares fell nearly $18 in one day after an FDA advisory panel voted against recommending the drug for approval since test data showed that the drug couldn't outperform test placebos.
That was taken badly by investors, who didn't see the sense in maintaining much optimism about a prescription drug that, if it didn't improve on placebos, probably wouldn't outperform over-the-counter products and thus wouldn't benefit either Allergan or consumers. The news ended a long, steady rise for Allergan shares.
But if Restasis is for real, there could be a significant market opportunity in sight for Allergan.
Some reports have the potential market standing at 3 million consumers and $100 million in annual sales, which would be a healthy addition to the company's revenue mix. Last year, Allergan sold about $505 million in eye-care pharmaceuticals, which represented about 40% of total sales and was the largest of the company's revenue segments.
New product development is serious business for Allergan, where research and development (R&D) expense has increased as a percentage of revenue in each of the past three years.
In April, Allergan approved a $70 million expansion plan for its Irvine, California headquarters and R&D campus. The new space, the company expects, will allow it to bring on 300 new scientists by the year 2003. More than 800 people worked on R&D last year.
A commitment to developing its product pipeline -- along, perhaps, with the notion that the FDA's July comments weren't a death knell for the company -- probably played a key role in convincing investors it was okay to start pushing shares of Allergan upward, even before the government began to look favorably on Restasis again.
If the dry eye drug works out, there may be even more reason to examine the company closely.
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