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Allergan Chief Has Injected New Energy Into Once-Lagging Firm

Pharmaceuticals: Botox maker's stock, profit, sales have shot up in his 2 1/2-year tenure. Future success may be tied to blockbuster drugs.

September 25, 2000|MARC BALLON | TIMES STAFF WRITER

Allergan Inc. was suffering a midlife crisis three years ago. Sales and earnings were flat. Morale was poor. The Irvine-based specialty pharmaceutical company seemed like a good candidate for Botox, its anti-wrinkle and neuromuscular drug.

But in the last 2 1/2 years under Chief Executive David Pyott, the 50-year-old firm has been rejuvenated. Allergan's stock, trading in the mid-$80 range, has jumped fivefold, far ahead of the blue-chip Standard & Poor's 500 index and the drug industry overall. Operating profit increased by double-digit percentages both in 1998 and 1999, as have sales, which reached nearly $1.5 billion last year.

"Allergan has gone from being a minor, insignificant company to a player of growing stature," said Steven Gerber, an analyst with CIBC World Markets in Los Angeles.

Allergan's future is by no means secure. The mid-size pharmaceutical company is squaring off against industry giants that can pour billions of dollars into developing and marketing the next miracle treatment. Indeed, the company almost succumbed to a takeover bid four years ago.

But Pyott has taken a number of steps aimed at securing a niche for Allergan in the intensively competitive drug industry.

Shortly after taking the reins in January 1998, the 46-year-old Pyott, known to some as the "velvet hammer," eliminated scores of administrative jobs and shuttered four factories. Allergan estimates the cuts will save the company more than $75 million through 2001.

He also stepped up spending for research and development and marketing, adding about 200 scientists and more than 300 people to the sales force. The company now has 6,165 workers, 1% more than when he began the job cuts. Those investments have helped boost sales of Botox and glaucoma drug Alphagan.

Like other biotech companies, Allergan is constantly in search of the next wonder drug. To enhance its pipeline of products, Pyott has formed alliances with a growing number of firms.

But Pyott and industry observers believe Allergan's own star drug, Botox, and another potential blockbuster, glaucoma drug Lumigan, are keys to sustaining the company's growth.

Botox comes from an unlikely source: botulinum, a lethal toxin generally associated with food poisoning. The substance can be used in biological warfare.

Allergan's drug is a highly purified form of botulinum that has been approved for treating such neuromuscular disorders as crossed eyes and uncontrollable blinking.

But Botox's ability to relax tense muscles throughout the body gives it great potential. For years, doctors have used Botox for migraines, to iron out wrinkles and for other treatments not yet approved by the Food and Drug Administration. Movie stars and corporate titans are even using it to stop excessive sweating.

Despite the limited approved uses, Botox sales surged 43.5% last year to $175.8 million, accounting for about 12% of the company's total sales. In the first six months this year, sales climbed an additional 44%, and Allergan believes Botox could become its biggest seller once regulators approve more uses.

Pyott, a marketing guru and former head of the nutrition division at Novartis, thinks the drug might be able to treat up to 93 conditions, ranging from lower-back pain to cerebral palsy. He has tripled the amount budgeted for testing of the drug.

Botox is undergoing U.S. clinical trials for movement disorder, limb spasticity, migraines, cosmetic uses and excessive sweating, among other conditions. The drug cannot be marketed for specific treatments without FDA approval.

Industry observers also believe Botox is a hot prospect.

"There are certain drugs like penicillin that become legends," said Dr. Mitchell Brin, director of movement disorders at the Mount Sinai School of Medicine in New York. "Botox is going to become a legend."

Marc Goodman, a health-care analyst at Morgan Stanley Dean Witter in New York, believes Botox will be a windfall for Allergan for years to come. He predicts sales will jump from $240 million this year to $650 million in 2005, even though a competitor, Elan Corp., is hoping to obtain FDA approval soon for its own neurotoxin drug.

Although Lumigan has yet to appear on pharmacy shelves, it is drawing similar raves.

Lumigan, which drains fluid from the eye, appears to work as well as other glaucoma drugs on the market but with fewer side effects. Whereas Lumigan may irritate eyes in a small percentage of patients, other medications can induce shortness of breath and irregular heartbeat and, in rare instances, change patients' eye color, said Dr. Harvey DuBiner, an Atlanta ophthalmologist who has conducted clinical studies on the drug.

"It has home-run potential," DuBiner said.

Tim Coan, specialty pharmaceutical analyst with ING Barings in New York, expects the drug to generate sales of $380 million in 2004.

Allergan hopes to submit Lumigan for FDA approval this month. The agency usually issues final decisions in about a year.

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