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Allergan (AGN) announced Friday that the FDA has approved Botox for the treatment of Overactive Bladder, a condition that affects millions of Americans and is currently treated by medications that are heavily marketed on television, but have not been proven very effective. The stock didn't pop after this news, suggesting that it wasn't very exciting to investors. The stock has already been on a great run (as most healthcare stocks have been) since the end of December, but I believe this is a good reason to be excited about the stock long term, for three reasons.

The market is growing. The press release notes that approximately 3.3 million people currently take prescription medications for overactive bladder, and it is estimated that more than 10 million people experience symptoms of the condition and are not currently treated. A quick internet search for those statistics yields estimates that between 10 million and 30 million people have the condition, and as many as 200 million worldwide. Anyone who regularly watches television (and commercials) can probably tell you that there are plenty of commercials aimed at increasing awareness of the condition, and that there are medications you can take to help with that. The problem with those medications, as noted in Allergan's press release, is that most people who try the drug stop taking it within a year because it is ineffective. This is part of the reason that there are so many commercials aimed at creating new customers, to fill the void the old ones leave behind.

Market share is theirs for the taking. Botox is often thought of as an expensive treatment; one which is mostly cosmetic and reserved for those who can afford the extra expense. Many insurance policies recognize and cover treatments for overactive bladder, and it is believed that Botox will soon be included in the list of covered treatments for many people. A WebMD article from October said that "If Botox gets broader FDA approval for overactive bladder, insurance will likely begin to cover the cost." (click here for article)

Consumer reports has a report on overactive bladder drugs analyzing the different medications and their effectiveness (report here). Only four of the drugs got a "Best Buy" rating, and reported that the cost of those four drugs ranges from $169-$220 per month. Meaning the drugs that are actually effective cost at least $1,000 every six months. The average time range that one Botox treatment was effective was 169 days, or about 5 ½ months (this number is according to the studies done and reported in Allergan's press release). According to the WebMD article about the Botox studies, a treatment costs about $1,000.

A small market share could be a big boost for sales. According to the Q3 financial statements, Allergan reported net sales of over 4.2 billion for the first three quarters of the year. Botox accounted for 1.29 billion dollars of those sales. One customer, with two treatments per year, will bring in approximately $2,000 annually. If Allergan got 5% of the current market of 3.3 million people, it would result in increased sales of $330 million. At that rate, Botox sales would increase by more than 15 percent.

There may be some potential headwinds for the stock, and a few scenarios that could make it tough for Botox sales to grow. If insurers refuse to cover the treatment, that may limit the size of the market that Allergan can sell to. Doctors and patients may not choose the treatment right away due to the slightly more invasive procedure required, as opposed to taking pills. Botox may not gain market share because of these things, or it may never take off as a treatment for OAB. The company may face other headwinds, namely concerns that discretionary spending is taking a hit in the new year due to tax hikes; a sizable portion of the business is non-essential cosmetic, or "cosmeceutical" treatments.

Though there may be headwinds, Allergan is a great company poised for growth. It won't take a lot for Botox to gain a small piece of the market, and it has the potential to become the top treatment for OAB, even if it doesn't happen immediately. For more reasons that this is a good name to own right now, you can read Brian Carney's article on Allergan.

Source: Give Your Portfolio A Face-Lift With Allergan