The Allergan Model




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Video title: The Allergan Model
Released on: February 10, 2009. © PharmaVentures Ltd
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Allergan is a 'restless company', according to David Pyott, its CEO, and that is what makes it an exciting and dynamic company to work for. Made famous by Botox, Allergan's roots are firmly in ophthalmology an area it continues to grow alongside its medical aesthetics, making the company a global niche player. Here, Mr Pyott describes the essence of the Allergan's business model and how he never forgets how important it is for them to be close to their customers.
Allergan's roots are firmly in Ophthalmology
Fintan Walton:
Hello and welcome to PharmaVentures business review here in San Francisco. On this show I have David Pyott who is CEO and Chairman of Allergan based in Irvine, California. Welcome to the show.
David Pyott:
Thank you.
Fintan Walton:
David, Allergan is a company that is probably well known for BOTOX it&s also known for its ophthalmic products, many people who have got contact lenses will do will remember Allergan as a brand name, but what is Allergan? How would you describe the Allergan Corporation?
David Pyott:
Well really Allergan is a company that concentrates on very specific medical specialties, so often the words specialty pharma is used for us and in some ways it&s appropriate although I think the other specialty pharma&s are quite different from us or we are different from them. And then we have a lot of biotech elements as well because of course BOTOX by a definition is a biotech product that is a very, very large molecule. And the other thing that&s unusual about us is that we do this pretty much on a world wide scale, so we are not just US company or just a UK company or just a European company.
Fintan Walton:
So in a sense you are a global niche player will that be a way you describe it?
David Pyott:
I think that&s correct, yeah. Obviously our original origins where as you state within ophthalmology interests in the new (indiscernable) contact lenses and we actually never had contact lenses per say we had the solutions to lubricate them and clean them and span that off to advance medical optics about six-years ago. So really still almost half the company is ophthalmology pharmaceuticals or ophthalmic pharmaceutical and then of course things have developed and the greater story actually started here in San Francisco was an ophthalmologist discovery that you could use the botulinum-toxin my goodness, this is some 19-years ago for a useful therapeutic benefit and it was first Strabismus so crossed eyes and blepharospasm which is uncontrollably fluttering eyelids and that kind of got us into the BOTOX business. And BOTOX today is approved for over 20 indications because we have many muscles in our body that can be relaxed for a while for benefit and in fact half a BOTOX is for therapeutic use.
Fintan Walton:
Right.
David Pyott:
But of course everybody in the world knows that there is the other BOTOXVistabel in Europe, BOTOXCosmetic here the famous wrinkle remover.
Creation of world largest company in Medical Aesthetics
Fintan Walton:
Right. But is it for a company like Allergan key to that is identifying specific markets, so are you driven by on the commercial side for the specific indications, for the specific users or are you just driven by what&s opportunistically available from a technological point of view?
David Pyott:
Right. Well may be because I am a marketing person, I am sure if my head of R&D was sitting here he might answer the question fractionally differently so I think of a very much as channel first. So I say how do we make sure that we have products for every single major pharmaceutical indication in ophthalmology, so the obvious ones are you know Glaucoma, retinal (indiscernable) and Dry Eye or anti-inflammatories. And in fact we&ve been the fastest growing company in ophthalmology for six-years now. And I used to joke, but it&s history that people who say what&s next, now would say we would like to bigger than Pfizer, I mean in ophthalmology and so
Fintan Walton:
Right.
David Pyott:
You understand (indiscernable) don&t suffered from megalomania you know we did that two-years ago and in kind of transitioning quickly what we did was create that model in other fields so neurology which is BOTOXtherapeutic, urology we are moving into because there is an application for BOTOX in overactive bladderDermatology we&ve been in for a long, long time probably 40-years and then a couple of years ago, three in fact we bought a company called Inamed [PharmaDeals ID = 22286] to add their products dermal fillers and even breast implants to our BOTOXCosmetic offering.
Fintan Walton:
Right.
David Pyott:
And well overnight we created the worlds largest company in Medical Aesthetics and that was something we didn&t really exist in fact I think I probably invented the word in my office and that now repeated it often and off that every news paper in the world has some rendering in their language of the word to Medical Aesthetics, so it kind of worked.
Allergan Business Modeland future plans.
Fintan Walton:
So you&re also provide words for the dictionary as well, but key to this when I want to try and understand about the Allergan model because you&ve clearly got growth and you&ve had growth, historic growth for a company like Allergan but I am trying to get the feel for how do to you take the company like Allergan and take it into the future, what&s going to be Allergan in the next 5 to 10-years, because what I&ve heard so far is that you focus on something like BOTOX and you look at it&s multiple, multiple potential applications and move into those particular applications and you build around elements of niche in this so can you grow Allergan, because if I look at Allergan it&s a company made up of niche products
David Pyott:
Yes.
Fintan Walton:
Each of which hopefully build up your revenues to up to the 4 or $5 billion levels that you are at the moment, but how do you take Allergan and take it up to 10 billion, 15 billion, 30 billion
David Pyott:
Right.
Fintan Walton:
And become a Pfizer?
David Pyott:
I am not sure I&d want to do that. I think proximity to the customer is incredibly important and the bigger you get the more challenging that becomes and so if I think back to you know the original ophthalmology model it was really focused on the customer, surround the customer and when now we are so big because we are the second largest in the world lot of people with technology come to us, but I should go the other side that you&ve been suggesting which is R&D. In the last 10-years we actually grew sales by a compound rate of over 20% most of it was organic versus acquired.
Fintan Walton:
Sure.
David Pyott:
And at the same time we increased earnings per share by over 20% as well, I think the thing I am most proud of for the company is that we moved the R&D budget from some $100 million one hundred in 1997 to almost $800 million in 2008, so huge growth which then explains why there is lots of new products coming. I think even more directly answering your question in where is the unfinished business I think it&s to fully build out the verticals of urology i.e. what would fit with BOTOX beyond following our own clinical development programs for that reason we entered into a relationship with GlaxoSmithKline [PharmaDeals ID = 21857] a number of years ago, where we represent Glaxo in the neurology channel in the United States for IMITREX-STATdose and AMERGE. And that was a to get more volume in this channel, but also we have on the horizon an approval under clinical development program for BOTOX for chronic daily headache and so you can see the perfect match, learn the business, another vertical that we are really trying to build out is urology and so there we actually bought a product which is Trospium product that&s well known, a very uniquely formulated product called Sanctura-XR and launch that at the end of 2007 and its launch curve is very much inline with the products that the majors sold. So in urology I am pretty happy. And then even in-license the bladder cancer [PharmaDeals ID = 31519] product that is right in the kind of the niche as you say of the urology specialist and so you can see we are gradually building out a little portfolio product.
Acquisitions, Finanical strength and aim for becoming largest niche company.
Fintan Walton:
So you are clearly building your research and development capabilities, but in the end if you want to get growth and the type of the growth that you need you clearly need to go out there and acquire, is it acquisitions the way forward for Allergan?
David Pyott:
I think it&s only part of the recipe, we&ve had so many products approved recently are on the verge you know they are under review that we are feeling pretty good, nevertheless I&d like to improve the chances of probabilities of success i.e. how do we supplement what we have internally because of course none of us know we know the rules of probability of different stages of drugs being approved, but we can&t really say you know the program X, Y or Z definitely be approved, we just can&t do that. And so when we see interest in licenses or in the past where we&ve seen interesting companies to buy we do that and especially in this market where credit is tough we are lucky that we have over a billion US dollars in the bank and we generate well over half a billion dollars of free cash flow.
Fintan Walton:
So in the end is your aim to become the largest niche company in the world?
David Pyott:
Some ways priority there, but we are never satisfied. And I think another part of our rather unusual recipe that we haven&t touched upon is that we are really a strange mixture of classical pharmaceuticals, biologics, small molecule some of these things like in Europe in particular most of our artificial tears are sold over the counters so you can say you know huge proximity to consumer healthcare.
Fintan Walton:
Sure.
David Pyott:
We have medical devices and then in this country where the role is permitted for direct to consumer advertising we advertise BOTOXCosmetic. We were one of the first companies ever to advertise the LAP-BAND which is a device a Gastric band for treating morbid obesity. RESTASIS the first and only therapeuticDry Eye product, JUVÉDERM the dermal filler which is a medical device so you can see we really use a concerts of different methodologies both to position products to market them and bring them to the customer.
Key strengths and differentiation for Allergan.
Fintan Walton:
So what is the strength? What is the key differentiation for Allergan? What makes you Allergan?
David Pyott:
I think two things, this is a company that is incredibly close to the customer and we hear a lot of things, new suggestions of what how we could be better our new products that we might want to take a look at. I think it&s a very restless company because it is sufficiently small and I still see ourselves as a small company with 9000 employees and you know just over 4 billion in revenues, so we are a minor compared to the big names. And I think as we&ve shown many times over the years we are capable of doing some very hard left to right turns when we see an opportunity and then really go for a gold. And the people who work for us love that because nothing really stays the same for too long and that makes it exciting and if there is it&s done well of course there is opportunity for promotion and reward and you know the usual things.
Fintan Walton:
So in the end Allergan is going to stay the same in a sense, so it&s business model is still gonna stay the same going forward?
David Pyott:
In assessments and I think again stressing on R&D as you&ve heard you know massive increases in R&D in fact we doubled the spend from roughly 400 million to roughly 800 million in the short space of three-years so we hired a lot of scientists. And it&s always using that scientific knowledge to apply to very specific areas and we probably know better than just about anybody what has a decent chance of being successful or not which explains why we&ve had a very good track record in terms of the ratio of approved product to failure. And also I think another huge advantage is almost all of our products are either topical&s or in the case of BOTOX an extremely targeted delivery of a therapeutic so when one thinks about regulatory risk I think most agencies very quickly would say drug-drug interaction probably not a big topic, safety profiles pretty clear and then of course it&s much easier to say and does it work. And of course that&s what the clinical development program is for.
Fintan Walton:
So is part of the strategy to try and develop drugs which have relatively low hurdles, regulatory hurdles is that another thing that, that?
David Pyott:
Yes can be sometimes I think the one I will say the very difficult one first is BOTOX.
Fintan Walton:
Of course.
David Pyott:
Our people are amazed that still we need only one gram overall botulinum-toxin to serve the whole world with all of those 20 license indications, so it is an incredibly potent and incredibly difficult molecule to make and replicate every single batch. Well coming to the other side I think we&ve by listening to our customers often found opportunities and the latest one is LATISSE and so I would like to call this my Christmas present from the FDA in December of 2007 because it literally almost arrived under the Christmas tree and we were really applying the insight in our glaucoma drug, LUMIGAN which is one of the very top prescribed glaucoma drugs that in it&s label the side effect was can happen lengthening and darkening of eye lashes. And so we of course asked ourselves if this could be turned into a medicalized indication is the first and only prescription drug and sure enough it is now licensed and it is a remarkable product.
Fintan Walton:
Well that&s a very niche market must be in terms of?
David Pyott:
Well it depends how you define niche because.
Fintan Walton:
Well in size but I am sure you can tell it?
David Pyott:
Well you know when I started almost 11-years ago BOTOX was 90 million, this year it would be in excessive of $1.3 billion, so the label orphan drug doesn&t really apply and Latisse we&ve already told (indiscernable) should be in excess of $500 million.
Fintan Walton:
And it obviously has applications to in not just for poor eye length eye lash length but also potentially for cosmetic use?
David Pyott:
Well this is only cosmetic, because this will be paid out of pocket, the glaucoma drug clearly is reimbursed wherever you live.
Fintan Walton:
Sure. So this is will never be reimbursable?
David Pyott:
This will only be cash pay that&s why it&s a different pack, a different name and really matches and is perfect with BOTOX and our dermal fillers. And the other part of it that is really nice is it&s a market that really doesn&t exist, because it is a perfect complement to mascara, so the way we describe it this is the converse so your eye lashes length and dark and thicken and we are both males so we don&t fully understand that, we like to see the result and then you apply mascara that&s the paint and the effect is wow and all the women I talked to including at this conference they are bombarding me to know when it&s available. And the official answer is this quarter.
Allergan Future plans
Fintan Walton:
Right. Just finally then looking at Allergan today and going into the future what should Allergan look like in five-years time? What do you think it will look like besides everybody going around with big eye lashes?
David Pyott:
Yes, well today we are the second largest of pharma -- pharmaceutical companies so we would like to dream about being the largest in the world and we have a very good competitor, so that would be an interesting you know sportive competition. We would like to remain the largest Medical Aesthetics company in the world and I think with examples like Latisse or JUVÉDERM our dermal filler where in 15 months in this country we went from zero to being market leader in a market with only really three or four products, so pretty unusual. And as I said before really building out neurology, building out urology and if ever we bought a company that was in one of the fields I&ve mentioned that had another specialty and I was convinced it really was the same kind of niche, limited number of doctors typically in the US less than 10,000 and even kind of go down the gears whether in Germany or France. UK is always different because of the gate keeper principle.
Fintan Walton:
Sure.
David Pyott:
Now typically in the UK specialty groups sort of 5, 600 in a way we understand, so we are always looking for those things and if another specialty came along that match that model we get into it and keep it and if it didn&t we&d sell off the part of the company that went beyond the bounce, that also explains why whenever we we don&t do it very often kind of stray over the fence into general practitioner market typically we look for a partner whether it would be a co-promote or an out-license because we see�
Fintan Walton:
So you know where your strengths are?
David Pyott:
That&s right, we say that&s kind of the land of the big battle ships you know if you were out in the ocean you know you can be sunk by the wake of one of those little with those battle ships, we were just a little destroyer here and we want to stick to our knitting or what we are good at.
Fintan Walton:
So I get the impression that you still you want to get big because you still want to remain small?
David Pyott:
Yeah and I think with the recipe that you know for 10-years now we&ve gone almost 20% per year on sales, yet through a lot of hard work and delegation and people who like accountability, love working for our company, you don&t like accountability I would say to you this is a miserable place to come to and hopefully you want to apply so to speak.
Fintan Walton:
Right.
David Pyott:
Although we love you know the best talent that exists and we really make an effort to be in close contact both with our customers and our not just our senior management team, the middle management team. And I just came back from meeting in Europe and they were commenting to me how surprised they were that I know who everybody is and what they do and what their objectives are. Well you have to do it through hard work, right?
Fintan Walton:
Yes.
David Pyott:
But it can be done.
Fintan Walton:
David Pyott, thank you very much indeed for coming on to PharmaVentures business review. Thank you very much indeed.
David Pyott:
Thank you for the opportunity.
David Pyott
Chairman of the Board and Chief Executive Officer
Mr. Pyott, Chairman of the Board and CEO, joined Allergan as President in January 1998. Previously, he was head of the Nutrition Division and a member of the Executive Committee of Novartis AG from 1995 through 1997. Mr. Pyott has more than 23 years of international experience in nutrition and health care and has worked in Austria, Germany, the Netherlands, Spain, Switzerland, Malaysia and Singapore. Mr. Pyott holds a diploma in German and European Law from the Europa Institute at the University of Amsterdam, a Master of Arts degree from the University of Edinburgh, and a Master of Business Administration degree from the London Business School. He has also been honored in the Queen&s Birthday Honors List in 2006 and holds the title of Commander of the British Empire.
Allergan
Founded in 1950, Allergan, Inc., with headquarters in Irvine, California, is a multi-specialty health care company that discovers, develops and commercializes innovative pharmaceuticals, biologics and medical devices that enable people to live life to its greatest potential to see more clearly, move more freely, express themselves more fully. Allergan employs more than 8,500 people worldwide and operates world-class research and development facilities and state-of-the-art manufacturing plants. In addition to its discovery-to-development research programs, Allergan has global marketing and sales capabilities, with a presence in more than 100 countries.