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We're So Vain: Botox Maker Is In High Demand

2 May 2014 in Trading Ideas

We all know Botox, the popular anti-wrinkle drug that has become a regular treatment for the facially afflicted – and those that think they are – but do you know the company behind it?

Many health-care investors are undoubtedly a little more familiar with Allergan, the Irvine, California-based pharmaceutical company that has seen its stock rise about 37% in the last half of April alone after an unsolicited $45.7 billion takeover bid from Valeant Pharmaceuticals.

The stock’s rise has also had a big impact on the Vanity Flair motif, where Allergan shares have a 28.5% weighting. The motif has gained 10.2% in the past month. In that same period, the S&P 500 is up 0.5%.

(In the past 12 months, the motif has risen 22.8%; the S&P 500 has increased 20.4%.)

 

Fortunately, at least for Allergan shareholders, the simple takeover bid by Valeant hasn’t been so simple, if only because Allergan has been playing hard to get. Since the news of Valeant’s offer was reported, news reports have come forth that Allergan has a) considered its own purchase of Shire Pharmaceuticals in order to make itself more difficult to acquire by Valeant; b) sought out companies like Sanofi and Johnson & Johnson to see if they would have interest in a richer bid; and c) watched as investment banks reached out to German manufacturer Bayer to see if that company had interest.1

All of which goes to suggest that if Allergan goes, it does not want to go cheaply.

On the surface, the attractiveness of Allergan isn’t much of a secret. As Bloomberg News pointed out, the company’s sales are projected by analysts to grow every year, reaching $9 billion in 2018, up from $6.3 billion in 2013, with Botox remaining as the company’s crown jewel.

Within that $6.3 billion, of course, are a whole lot of trips to plastic surgeons, with even more to come. The American Association of Plastic Surgeons reported that The American Association of Plastic Surgeons reported that its members performed more than 6.3 million botulinum toxin injections (Botox and other drugs) for wrinkle reduction in 2013, making this the most popular non-invasive cosmetic procedure.2

And the market for cosmetic procedures continues to grow, showing a 3% increase over the previous year.

The second-most popular procedure is a so-called soft-tissue filler, a procedure which fills in facial folds to build fullness. Last year, there were 2.2 million procedures performed, a 13% increase over 2012. And guess which product is the market leader? Juvéderm, made by – you guessed it – Allergan.

As Beth Nichols wrote at The Motley Fool, this field of medical aesthetics is a significant category for drug companies because procedures are almost exclusively paid for out-of-pocket, bypassing health insurance and the cost-trimming realities of managed care. The average cost for Botox injections nationwide is about $500. The effect will usually last three to six months, potentially giving the product a strong base of repeat customers.

However, an even bigger part of the future for Botox may be its expanded medical use. Today, Botox revenues are split down the middle between aesthetic indications and therapeutic indications. However, therapeutic is the big growth driver as new indications could lead to doubling in the sales of the overall franchise by 2020, according to TheStreet.3

Already, Botox is used to treat chronic migraine (US approval in 2010), neurogenic overactive bladder (US approval 2011), idiopathic overactive bladder (approved in Jan 2013). But many other indications are underway, including BPH and osteoarthritis, as well as depression.

Allergan’s story, however, could be an instructive one for investors who are initially attracted to aesthetic side of the business, especially if growth in more traditional medical uses proves to be the company’s better side.

1David Welch, Matthew Campbell and Jeffrey McCracken, “Allergan Exploring Sale to Sanofi, J&J,” Bloomberg.com, April 29, 2014, http://www.bloomberg.com/news/2014-04-29/allergan-said-to-explore-sale-to-sanofi-j-j-instead-of-valeant.html.

2Beth Nichols, “Why Valeant International Inc. Is Acquiring Botox and Juvederm Maker Allergan,” fool.com, April 23, 2014, http://www.fool.com/investing/general/2014/04/23/why-valeant-international-inc-is-acquiring-botox-a.aspx, (accessed April 30, 2014).

3Nicole Urken, “Botox at the Center of Recent Healthcare M&A Flurry,” April 24, 2014, http://www.thestreet.com/story/12681751/1/botox-at-the-center-of-recent-healthcare-ma-flurry.html?puc=yahoo&cm_ven=YAHOO, (accessed April 30, 2014).

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