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Executives

David Pyott - Chairman & Chief Executive Officer

Jeff Edwards - Executive Vice President & Chief Financial Officer

Dr. Scott Whitcup - Executive Vice President, Research and Development

Jim Barlow - Senior Vice President & Corporate Controller

Jim Hindman - Senior Vice President, Treasury Risk & Investor Relations

Analysts

Marc Goodman - UBS

Steve Willoughby - Cleveland Research

Peter Bye - Jefferies & Company

Amit Hazan - Oppenheimer

David Buck - Buckingham Research

Greg Gilbert - Bank of America/Merrill Lynch

Gary Nachman - Leerink Swann

Ronny Gal - Bernstein

Larry Biegelsen - Wachovia

Ken Cacciatore - Cowen and Co.

John Boris - Citi

Allergan Inc. (AGN) Q1 2009 Earnings Call May 1, 2009 11:00 AM ET

Operator

Hello, and welcome to the Allergan first quarter 2009 earnings call. Following today’s presentation, there will be a formal question-and-answer session. Today’s conference call is scheduled to conclude at 9:00 am Pacific Time.

To ensure that we are able to accommodate questions from as many participants as possible, we ask that each of you limit to a maximum of two questions. (Operator Instructions) At the request of the company, today’s conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would like to introduce today’s conference host, Mr. Jim Hindman, Senior Vice President, Treasury Risk and Investor relations. Sir, you may begin.

Jim Hindman

Thank you, Pat. Good morning. With me for today’s conference call is David Pyott, Chairman of the Board and Chief Executive Officer; Jeff Edwards, Executive Vice President, Finance and Business Development, Chief Financial Officer; Dr. Scott Whitcup, Executive Vice President, Research and Development and Jim Barlow, Senior Vice President and Corporate Controller.

Before we move ahead, I would like to remind you that certain statements that we will make in this presentation are forward-looking statement. These forward-looking statements reflect Allergan’s judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting Allergan’s businesses. Accordingly you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter 2009 earnings release, which was furnished to the SEC today on form 8-K, as well as our filings with the SEC referenced in that disclaimer.

We will follow-up the question-and-answer session of this call with a short listen-only segment where we will provide additional miscellaneous information that relates to our business. Under regulation FD, in order to be able to discuss this information freely during the quarter, we must be sure that this is in the public domain. This conference call and accompanying webcast are being simultaneously broadcast over the Internet, with replays available for one week. You can access this information on our website at www.allergan.com.

At this point, I would like to turn the call over to David Pyott.

David Pyott

Thank you, Jim. Good morning ladies and gentlemen. Overall sales in the first quarter decreased 6.3% in dollars, being affected by the strength of the US dollar versus other currencies around the world, dragging down sales by 590 basis points and inline with the full cost we’ve given at the beginning of this year, our foreign exchange impact being in the range of 4% to 8%.

On a local currency basis, sales decreased by 0.4% given the impact of the recession, particularly on our elective cash pay businesses. We were however pleased with our product sales at $995 million where at the top end of the guidance we’ve provided for Q1, which we’ve been given as a range of $960 million to $1 billion. Furthermore, also based on feedback from many customers, it is clear that Botox has been the most resilient part of all of our cash pay businesses.

Regarding earnings, we generated non-GAAP diluted earnings per share of $0.55, which was 3.8% over the comparable number in Q1 of 2008 and comfortably over the guidance provided at the start of the year, as we applied great attention to management of our costs and focused our spending on high return areas of expenditure.

Non-GAAP R&D expenditure, as a percentage of sales was only 16.3% and is expected to be higher over the course of the year as we startup new projects. We were also able to increase R&D efficiency, negotiate to lower contract prices from CROs and benefited from currency regarding overseas R&D expenditure.

Since the beginning of the year, our ability to forecast trends across the world has improved considerably. Nevertheless, many uncertainties remain, for which reason we have not amended any of our full year guidance regarding sales or earnings.

The year holds many promising catalysts for performance, as we have potential product approvals in the United States alone for Botox, for post-stroke, upper limb spasticity, Lumigan are up 0.01%, Posurdex, ACULAR X, Juvéderm, lidocaine, and shaped gel Style 410 Breast Implant. Additionally, regarding the treatment of chronic migraine, we’re interacting with the FDA and hope to file shortly thereafter. Furthermore, we expect the approval of Lumigan in Japan.

Regarding Botox and the approval of Dysport for both cervical dystonia and glabellar lines, we commented yesterday that the FDA has requested that Allergan considers certain class labeling, that we assume is found in the Dysport package insert, including a REMS program and of course we have not yet seen the Dysport label.

We are pleased that the FDA has emphasized that the dosing units are different between the products and the clinical doses expressed in units are not interchangeable from one product to another. Commercially, we believe that education, about non-interchangeability of botulinum toxin products will cause physicians to carefully consider the adoption of this port, when they have the practical experience, our predictable outcomes with Botox, a highly established brand name.

With the completion of the FDA’s safety review of Botox and clarity on what the FDA would like in updated labeling and inner REMS, we hope that we’ll be able to obtain a timely action on our application for approval of post-stroke, upper limb spasticity in adults, which was granted priority review with a PDUFA date in Q2.

Commenting the performance of our individual businesses, I’ll start with Botox. Where we were pleased with the resiliency of sales and believe that the drivers of growth are multi-factorial, high patient satisfaction with the products performance based on 20 years of use, the quality of the Botox brand and the price points relative to other higher priced aesthetic treatments.

Sales declined 5.8% in US dollars, but it touched a growth of 0.7% in local currency. Based on our analysis of worldwide competition, it would seem that the market in Q4 2008 declined at about 2% at constant currency and that we gained a little share in the top 10 global market. For the full year 2008, we estimate that Botox enjoyed 83% market share facing five other products.

In Europe, we estimate that we’re maintaining market share, even as Merck has entered markets around the region with Zemen and the competitive sets went from two to three players. In the United States and Canada, we have drawn out detailed plans to execute against the arrival of competition both in the therapeutic and aesthetic arenas.

Regarding future drivers of growth, we are pleased that Botox Vista, which is the name for Botox Cosmetic has been launched in Japan and Botox, will grow better lines in China. In Japan we also secured approval for Botox for juvenile cerebral palsy.

Moving onto eye care pharmaceuticals, sales declined in U.S. dollars by 3.8% versus Q1 of 2008, growing 2.3% in local currencies, this contrast with Allergan’s end market growth reported by IMS Global for Q4 of 10% in the market growing at 6%. Most of the reason for this variance in growth rates lies in the U.S. business. Although, a year ago at the end of March 2008 inventories were at the lower end of our target range of wholesale inventory, they were still higher than the situation at the end of March, 2009.

In terms of end-market demand in Q1 of the United States, Verispan shows acquisition dollar growth at 14.3%, and an overall market growing at 9.3% with Allergan outpacing all the major competitors in the overall market as well as in the Ophthalmology Channel. In Q1, Allergan enjoyed a record value market share of 30.8% in the overall market and 35.2% in the Ophthalmology Channel.

Offsetting this strong U.S. pharmaceutical performance was the market for OTC artificial tears, which has slowed down considerably as it is subject to outer pocket spending decisions. The market in the first quarter as reported by IRI grew only 0.4% in dollars and Allergan’s tier line declined 13% as we consciously moved resources and detailing efforts from REFRESH and our other OTC brand to RESTASIS, which offers a much greater potential in the short term.

Putting the two pieces of the business together, eye pharmaceuticals no OTC tears, together Allergan end market U.S. demand, as measured by Verispan and IRI grew almost 13% versus Q1 of 2008. Regarding RESTASIS performance, we are pleased that Verispan reports growth in acquisition dollars, 15.6% versus Q1 of 2008.

We believe that our detailing efforts and increased investment in DTC over the course of this year will continue to drive strong growth. We should point that script grow is quite unreliable as a measure of performance as we fill ever higher amount of units per script. Growth in those market segments on which we focused were highly attractive.

Verispan reported acquisition dollar market growth of 10% for glaucoma, 31% for non-steroidal anti-inflammatories and 10% for anti-infectives with Allergan performing well in each segment. In glaucoma we’re pleased with the up-tick of Combigan, which now stands at 38% of the trailing prescriptions of Cosalt, accounting both brand and generics.

Alphagan P, 0.1%, now constitutes 46% of the trailing prescriptions of the Alphagan branded franchise. Performance in both these products is strong as we prepare for the launch of an authorized generic of Alphagan P 0.15% in Q4 of this year. The only area that we are dissatisfied with our performance is that of Lumigan, where the share is stagnant, being affected by the long overdue approval of Lumigan 0.01%.

We are working with the FDA to resolve an administrative issue which we believe is delaying the approval. We remain hopeful that this can soon be resolved. We’re at least pleased with Lumigan 0.01% has been approved by Health Canada in April.

Outside the U.S. we’re also pleased with our performance. Across the European Union, Allergan remains the fastest growing company amongst the major players, with continuing share gains in our focused areas of glaucoma and tears. This, despite price cuts in the U.K. and the launch of the first Alphagan generics in the U.K. Germany and parts of Scandinavia.

We are pleased with the very strong up-tick both for Ganfort and Combigan in Europe, where fix combination of products now account for more than 30% of the total market. We continue to secure many new country approvals and push deeper into many new emerging markets.

In China for May, we’re selling our products directly through a new, large sales force that we have established. We received the following approvals; Alphagan P 0.1% in Brazil, Alphagan P 0.15%in Egypt, and Combigan in Hong Kong. Key glaucoma products received patient reimbursement. Lumigan and Ganfort in Romania, Combigan and Ganfort in Poland; Combigan and Turkey; Optive Sensitive, our unit dose product was launched in Germany and Italy and Optive was approved in the U.K., Netherlands, Sweden, Finland, Switzerland, Poland and Hungary.

In Latin America, we achieved the leadership position in artificial tears for the first time ever and is the fastest growing major company in the region. In Asia we’re enjoying very high growth in India and in Southeast Asia. Regarding skin care, sales increased 45%, driven by Latisse and Aczone.

We’re delighted by the response of physicians and consumers to Latisse. There’s been considerable interest across the media with well over 300 million media impressions to-date. Brook shields will act as the product spokesperson. Direct-to-Consumer Advertising will commence shortly.

The $12 million of initial sales of Latisse include stocking your both physicians’ offices and pharmaceutical wholesalers, as well as shipments direct-to-physicians offices in terms of consumption. We are pleased with the reorder rates. Aczone is tracking in line with other recently launched acne drugs in terms of market share.

In terms of Tazorac acquisition dollar demand as reported by various span, is flat to the prior year with X factory sales down due to small changes in channel inventory. Year-to-date February, U.S. acne market has grown 24% in value, stimulated by several new product launches as well as the SKU to higher priced products.

In the urology area, sales are down 25% versus prior year, as wholesale stocking occurred at the time of launch in Q1 of 2008. We’re pleased that Sanctura XR is performing well in the lower level of sales force deployment since we exited the general practice channel in February.

During Q1, we made substantial progress with securing managed care formulary coverage at Tier-2 level in both commercial and Part D plans. We are in advanced discussions with the co-promotion partner. In the marketplace, the uniqueness of our product is well appreciated.

Regarding facial aesthetics, our sales of dermal fillers declined 21.5% in US dollars and 13.6% in local currency. Market conditions were particularly weak in the United States, relative to other regions of the world. We however believe that we may have marginally gained share in the U.S. as we sold Juvéderm across our network of accounts, in both dermatology and plastic surgery and supported the brand both with DTC and public relations activities.

In Canada, strong performance of our Juvéderm plus lidocaine products and the rapid switch to these next generation products suggest that we will have another winner once these products are approved in the United States. In Europe, the market has also been soft due to weak economic conditions, particularly in Southern Europe and in addition, we believe that we’ve lost some market share as we phased out and de-emphasized some older, lower priced products in continental Europe.

In Asia, Australia and Latin American, we’re growing rapidly, given many new country product registrations and are gaining significant market share with the Juvéderm plus lidocaine products performing strongly in Australia, Singapore and Hong Kong. The Juvéderm plus lidocaine products were just launched across Latin America in Q2.

Turning to breast aesthetics, sales decreased by 15.7% in dollars and 10.2% in local currency; in the U.S., volume declines in the market were offset by the pick up in value as the market transitions from saline to silicone gel. As Allergan had been disproportionately weaker in the saline segment, this may have aided our increase in market share. We believe that we ended up by gaining marginal share in Q1 even as we held prices.

As the recession spread around the world, we experienced double-digit sales declines in local currency in the operating regions outside the U.S. Silicone gel implants were approved in Taiwan. Regarding our supply chain, we are pleased that we closed our Irish facility below budget and ahead of time and are supplying all the world markets with quality products from our low cost base in Costa Rica.

Regarding obesity intervention, we reported a decline of 16.7% in dollars and 11.7% in local currency. The double-digit decline in the U.S. was offset by rather flat sales outside of the US. Based on our customer surveys and account win/loss analysis, we believe that we’re enjoying stable market share in the United States.

Around the world there was a wide disparity in performance with strong performance in Canada, Australia, the UK and some markets in Latin America, offset by large sales declines, particularly in southern Europe where governments constrain budgets or cut reimbursement rates.

In summary, we’re benefiting from many newly approved products and good execution in our specialist markets. During the remainder of the year, we look forward to several significant approvals and filings with the regulatory agencies.

I’ll now pass it over to Jeff Edwards who’ll comment on our financials.

Jeff Edwards

Thanks David and good morning to everyone on the call. Consistent with the third and fourth quarters of 2008, Allergan demonstrated its ability to generate solid earnings performance during the first quarter of 2009, despite a difficult economic environment and the challenges that accompany a strong dollar.

In fact, the currency headwind had an approximate $63 million detrimental impact on Allergan’s revenue in the quarter. As was the case in the prior several quarters, our diversified base of business and focus on expense control allowed the company to overachieve our earnings per share guidance for the quarter.

We continue to make selected investments in the areas of our business where the likely financial returns are more significant, while leveraging areas that were deemed to generate less favorable financial returns in this soft economic environment. This focused approach enabled the company to deliver non-GAAP diluted earnings per share results above the top end of our guidance range.

Non-GAAP diluted earnings per share for the first quarter were $0.55, marking a 3.8% increase over 2008 results for the same quarter. A reconciliation of all of the adjustments to GAAP earnings is set out in our earnings release. Non-GAAP selling, general and administrative expenses for 42.5% of product net sales for the quarter, totaling $423 million.

Our second lowest level is measured in dollars since Q3, 2007. In spite of this focus on cost controls during the quarter, Allergan was able to make meaningful directive investments to select high return projects, which represent important growth drivers for 2009 and beyond, including the launch of Latisse.

As I mentioned on our last earnings call, consistent with the pattern of spend in prior years, the first half of the year is expected to produce a higher level of spending as measured in both dollars and percent of sales compared to the second half of the year, which should produce some moderation of these investment levels.

This higher spending level during the first half of 2009 is reflective of launch activities and pre-launch costs associated with expected product approvals. In addition to these launch activities, the first quarter only realized a partial benefit from the restructuring program announced on the February 4 earnings call and therefore, produced a slightly higher spending level than would have been the case had the restructuring taken place earlier in the quarter.

Excluding the effects of non-GAAP adjustments and amortization of acquired intangibles, Allergan’s Q1, 2009 gross margin of 83.1% decreased by 40 basis points when compared to Q1 of the prior year, but increased by 70 basis points when measured sequentially versus the fourth quarter of 2008.

Gross margins associated with the specialty pharmaceuticals business were higher in the quarter; however, lower volume and less efficient absorption within the medical device business drove the slight overall year-over-year decline in margins. The primary driver of the increasing gross margins versus Q4 of last year was a favorable change in product mix between the quarters.

Excluding the effects of non-GAAP adjustments and amortization of acquired intangibles, Allergan’s operating income ratio increased by an excess of 300 basis points when compared to Q1 of the prior year. Allergan’s disciplined and selective approach centered on investment return as well as a currency translation benefit and our commitment to cost moderation has enabled the company to generate this favorable result. Moreover, it is our expectation that we should see this ratio continue to improve over the course of the year.

With respect to our balance sheet, consolidated Allergan day sales outstanding was 49 days, while consolidated Allergan inventory days on hand was 132 days. In addition to the traditional tracking of days around the topics of inventory and receivables, we are also very much focused on the associated dollars as we are committed to further improving upon our management of working capital accounts and use of capital employed towards capital expenditure and software.

At the end of the first quarter, Allergan’s cash and cash net of debt positions totaled approximately $1.09 million, the negative $403 million respectively. Operating cash flow after capital expenditures was approximately $105 million for the quarter, an increase of approximately $90 million over the $14 million reported in Q1 of 2008, as Allergan continues to sustain strong cash generating capabilities.

Turning to guidance, what we provide today account for Allergan’s current perspective on the state of the economic conditions and foreign currency markets for the remainder of 2009. As stated during our last earning call in early February, we work diligently to meet the targets provided.

Although, we have some latitude to make further adjustment to our spending plan, if there are additional notable negative movements within the macro economy or a continued strengthening of the US dollar, we acknowledge that our flexibility is not limitless as we will not inappropriately mortgage our future and we must continue to carefully monitor the markets to ensure. We are appropriately proactive and responsive, if we see any meaningful shifts in the data.

For the full year of 2009 and supported by the results we produced during the first quarter, we continue to believe the assumptions we utilized when providing you full year guidance during our last earnings call are reasonable and therefore we are maintaining all full year guidance provided on February 4.

For the second quarter of 2009 included the estimated impact of currency, Allergan estimates product net sales in the range of $1.50 billion to $1.100 billion, and non-GAAP diluted earnings per share to be in the range of $0.66 to $0.68. As you know, ongoing dramatic fluctuations in foreign currency exchange rates have created a challenging hurdle when comparing total dollar growth in 2009 to the prior year.

During the next several quarters of 2009, we will be facing a significantly negative foreign currency overlap environment, where the US dollar is substantially stronger than where it traded during this period of time in 2008. 2009 has begun as a solid performance year for Allergan, given the challenges faced in today’s market.

We are pleased with the Q1 results that Allergan delivered, which is another testament to the value of the depth and breadth of our diversified lines of businesses, as well as Allergan’s ability to effectively manage its businesses through difficult markets. We believe that Allergan is very well positioned to perform from a position of strength once we emerge from this economic downturn.

So with that, operator I’d like now to open the call to questions.

Question-and-Answer Session

Operator

Yes, thank you. (Operator Instructions) Our first question comes from Mr. Marc Goodman with UBS. Your line is open.

Marc Goodman - UBS

Yes, a couple of questions. First of all, can you address the tax rate in the quarter and what we should expect for the full year? Second of all, on the Botox headache, have you had the post Phase III meeting completely? Are you done or are there still discussions left? Are you comfortable that you’ve got enough data to file and that the FDA’s happy and that we’re definitely filing?

David Pyott

Let’s do the tax rate first and then we’ll move on to more important things. The guidance for the year that we announced on February 4 was approximately 29% and it remains unchanged. The increase you saw in this particular quarter, primarily due to a true-up in deferred taxes on the balance sheet in connection with some recently enacted tax law changes in California and a slight adjustment related to certain inter-company transfer pricing true-ups. So, it was really a one-off move Marc. So, we expect 29% for the remainder of the year in total.

Dr. Scott Whitcup

Marc, this is Scott. On the Botox for chronic migraine, we’ve been in continuous discussions with the agency since we first announced the Phase III data. Our plan is still to file the supplemental BLA mid year. I can never comment, whether the FDA is happy, but we continue to interact with them to get the information we think will lead to the filing and we’ll clearly update you as we move forward.

Marc Goodman - UBS

The publication is on track to see all the data by mid year?

David Pyott

We remain committed. Our preference clearly is to have this published as the first way to distribute the data and we’ve said that we’ve submitted it to top tier journal. As you know, there’s a little bit of science and some luck involved in getting it in one of the key tier-one journals, but we’re committed to have it published or presented sometime by the fall.

Marc Goodman - UBS

Okay. Thanks.

Operator

Thank you. Steve Willoughby with Cleveland Research; your line is open.

Steve Willoughby - Cleveland Research

Hi. I’m not sure if you commented on how much stocking revenue there was in the quarter with Latisse, but if you could provide that and then given that you haven’t started any major direct-to-consumer advertising yet, how do you stay within that range of $30 million to $50 million, given that you were only selling Latisse for maybe two-thirds of first quarter?

Jeff Edwards

Yes, in terms of what I stated in my opening remarks, clearly when you look at that $12 million, there is some stocking. Of course, unlike a regular product that only goes through wholesale, you can really say the three big states that pharmaceutical wholesale really accounts is, New York, Massachusetts and Texas and then there’s a couple of smaller ones.

Then of course to be fair, there’s some stocking in the doctor’s office. They order the case or a couple and they have to be consumed. That’s why I made the remark, that we’re very encouraged by the reorder rate; that is the real proof where Dr. Smith or Jones actually place us an order and we can of course note what was the time lapse between order one and order two and that really gives you a great measure of throughput.

In terms of I think the full year, it’s early days. That’s why we haven’t changed our guidance. I think that the next key event is once we get on with classical media, obviously there’s been a huge amount of noise in the media which I referred to. This is a very high interest product and on several media interviews I’ve said, in the long term, I think that Latisse can be even bigger than Botox Cosmetic, because it’s an even broader demographic and in terms, of let’s say habit, it’s so similar to using mascara or other products, liquid eyeliner. So ease of uptake is most certainly there and we’re very excited about this product.

Steve Willoughby - Cleveland Research

Okay and I appreciate all those comments; and then real quickly on Botox, if you could just comment, I guess relative to your expectations going into the quarter, how would you say Botox Cosmetic and Botox Therapeutic compared to what you were thinking, before the quarter started, either one stronger or weaker than expected? I’m just trying to see like the impact overall from the economy.

Jeff Edwards

That’s a great question. When you really step back, you can say Botox Therapeutic is much more predictable because of course, both in this country and around the world, Botox is pretty much reimbursed by whether it be a commercial plan or particularly overseas, government or a provincial agency, call it that way.

So, naturally when we came into planning for this year, it was pretty difficult. Even at the end of January, we had all sorts of data points, I’ll call it October and November, December, early January and just like you and Wall Street are trying to work out what trend are, we were doing the same thing.

I think that being said, we were relatively conservative and we did frankly pretty well. I made those comments in my opening remarks, but when we both look through our data and then I talk to customers both in this country and around the world, it’s very clear that Botox is one of the most resilient of all of the aesthetic treatments available and I think that’s due to price point and I think it’s also due to the fact that Botox is well established and people are very satisfied with the product.

Steve Willoughby - Cleveland Research

Okay. Thank you very much, guys.

Operator

Thank you. Mr. Peter Bye with Jefferies & Company, your line is open.

Peter Bye - Jefferies & Company

You’ve got a couple of products in the pipeline that have gotten recent approval in Canada that you alluded to them a little bit. Can you give us any color on what the label and reimbursement status of the Lumigan X and have you officially launched it there? What are you calling it and then two, anything more qualitatively on Juvederm and lidocaine and how that’s going there as far as one, just cannibalizing Juvederm and two, what it’s doing on market share?

Jeff Edwards

Well Canada has always been a great country for us, particularly with Botox and now we see the same with dermal fillers; it’s pretty early in the cycle. Taking Juvederm first, I think you can probably interpret from my remarks that not only has Juvederm XC it’s called, taken over a major proportion of the overall mix of Juvéderm and it’s at a slight premium, so that’s also good relative to the base product, but the sales increases, both in Q4 and Q1, you can see clearly it’s taken major market share from the rest of the market. So, that’s very, very encouraging.

In terms of Lumigan 0.01%, I’m not sure that we’ve yet stated what brand we’ll be using for that. Of course one thing you have to be cautious of in Canada is once you’re approved, that’s great, but getting on to the provincial formularies is what it’s all about and that takes a little bit longer. So, we can’t put big numbers in the bank yet, but obviously like everything, the earlier you get something the better and Health Canada moved pretty quickly on that particular file and I’d say that was a nice surprise.

Peter Bye - Jefferies & Company

Okay, great, just one follow-up I guess to that. Just more specifically on Canada a little bit of question too was how is it on the reimbursement front there; is it too early determine how the negotiations are going, or do you expect to be the exact same status as Lumigan? Anything you can tell us. I know it’s a relatively short period of time, but…

David Pyott

I think as a general remark, you should assume that the new Lumigan product will be reimbursed at the same rates as the existing ones, so that should be fairly simple. There’s really no major issues in terms of getting on to provincial formularies. It just takes time and they have very defined dates when these reviews take place.

Peter Bye - Jefferies & Company

Great, thanks.

Operator

Thank you. Mr. Amit Hazan with Oppenheimer, your line is open.

Amit Hazan - Oppenheimer

Thank, hi good morning. My first question is on I Dysport. I’m wondering if you can share with us a little bit your thoughts in terms of the market share assumption you have, kind of even generally just implied in your guidance for the year.

David Pyott

Right. Well, I think first of all in terms of timing of this approval that matches very closely with what we’d always assumed because, of course the PDUFA date for this port wasn’t exactly a mystery to either you, our competitors nor ourselves. So when it finally comes through, that’s a marker and finally you don’t have to guess any longer about how long this is going to take and of course I’ve been taking bets for years on when this port would finally get approved.

Of course, when we think about this port, this is not exactly a mystery product. We’ve been competing successfully against them for some 17 years. When we think about the original meeting of the two brands was in the United Kingdom, where to be fair they were first and we learned from that and have ever since, but there is a huge advantage of first mover, because physicians learn how to use a product. This is like learning a language, we’ve said that many times.

In respect to all the remarks made by the FDA, both in writing and orally, we were really pleased that they don’t use the word ‘Learning a new language;’ that’s our expression, but they have really emphasized the non-interchange ability of toxins and cautioned heavily against people who’re trying to do direct conversion ratios from one to another; we’ve said that for years.

When we look across multi-studies in Europe, across many different indications of patients, we’ve seen a range of conversion anywhere between 2:1 all the way up to 6:1 and that just says, “You’ve got to be very cautious about jumping to any conclusions.” What the real dose conversion ratio is for any individual patient.

Then of course, we have great experience in terms of actually competing with the product, which enables us certainly to have some pretty reasonable assessments, so what the up-tick rate should be and I’ve stated, when we look at the cosmetic market or expected use in Europe, we have well over 80% market share; even in those markets where this called as a disport brand has been historically strong such as the U.K. or Germany.

Peter Bye - Jefferies & Company

Okay great. Then just on spasticity, can you give us a little bit of color, just in terms of your discussions with the FDA since the delay last quarter and then since we’re getting so close here to your approval, can you talk a little bit about maybe how we should think about that opportunity taking off this year and next year, and to what extent that can potentially provide some upside?

Dr. Scott Whitcup

This is Scott. As you know we’ve had a file in with the FDA, which was granted a priority review. We announced that the FDA pushed back the date slightly, I think given what we now know today, we know why. My concern going into our PDUFA date coming up in Q2 was that they had a lot to do in term of getting the potential approval of disport out of the way and deciding what the label and REMS programs would be.

It looks like they’ve come to that conclusions we’ve not and paved the way. It’s still difficult to talk about exact timing, but the one barrier that I saw leading to the approval has been basically taken away and we’re planning to hopefully have detailed discussions on label in lieu of approval coming up shortly. So, we think that the main barrier to getting this approved has been away.

With that said, of course the FDA has to review the data and come to the conclusion that it should be approved. We still think that it’s an important medical indication, patients benefit and we’ve had a lot of positive feedback from physicians and so, we’re very hopeful that the FDA approves this so that we can get the information both to patients as according to the label and think of the data out there as quickly as possible.

David Pyott

Maybe I could also give you a reaction from the commercial point of view. When we look at this market and need around the world, it is one of the larger uses and of course the U.S. is almost the last country in the world that doesn’t have an approval for spasticity.

So we have a lot of great dates from around the world and let’s say the use is very limited because of course as a company we so strictly train our employees to assiduously avoid any kind of off label activities. So as Scott said, it’s so important to get the label so we can finally educate physicians how to bring this treatment to their patients for great benefit.

Amit Hazan - Oppenheimer

Thank you very much.

Operator

Thank you. Mr. David Buck with Buckingham Research, your line is open.

David Buck - Buckingham Research

Yes, thank you. A couple of questions for David. You talked a little bit about the Botox and how you are happy with that versus your initial expectations. Can you talk about, on Botox whether you’re seeing any signs of stabilization in terms of reorder rates on a sequential basis as we’re in the second quarter.

How big a role is financing and Lap-Band and also on breast implant? Is there anything that you’re dealing to change the financing environment and are you seeing any signs of stabilization for the other cash pay businesses and what were the results that we saw versus your own targets? Thanks.

David Pyott

Okay. That’s a lot of questions. So, let’s do the Botox question first. So, I think the way I answered the question, clearly I was saying we had a cautious view as we went into the year. When you can see the good numbers for Botox, I was really alluding to the fact that we are particularly pleased with the performance on the aesthetic side of the house; maybe that’s where we’ve been prudent and cautious. It’s better to be that way around than the other.

So, I think generally when it comes to sequential data, we still live in very turbulent times and I see that not just at this company, but other boards I serve on, reading the newspaper. I think we’ve got to be very cautious about interpreting lines through limited numbers of data, but I would say things are sort of looking flatter than anything else and I’m just like you looking at all our data, trying to work out what the trend are, does this trend up or trend down or flat? So, I think that would be a general comment across all of the cash pay businesses.

In terms of financing, we have worked with care credit which is a unit of GE Money for quite sometime now, to assist the financing of both augmentation surgeries as well as Lap-Band. Sometimes it’s good to be lucky. One of the other providers of this service have actually dropped out and so we could be left in a rather good position with this partnership with care credit where we offer some of the best rates in the marketplace.

So, I would say that is a case of being lucky versus wise maybe, but the end result is great. This is a good option for patients and for their providers.

David Buck - Buckingham Research

And do you have a sense of what percentage of procedures are actually financed?

David Pyott

I think I have a send of it, but I’m not sure I want to give the answer, but I would say, you shouldn’t take to the bank that this is some huge percentage. It is a part of the market, but it’s not the lion’s share of the market.

David Buck - Buckingham Research

Okay. So you don’t think your access to financing is one of the other reasons why the procedure has been down?

David Pyott

I think at the very margin, the very margin. This is not one where I could use that as a reason or let alone an excuse.

David Buck - Buckingham Research

Got it. Okay, thank you.

Operator

Thank you. Mr. Greg Gilbert with Bank of America/Merrill Lynch, your line is open.

Greg Gilbert - Bank of America/Merrill Lynch

Thank you. First for David; based on your market research and your travels, do you think docs unlikely to switch existing Botox cosmetic payment and that that battles really a new starts. Do you have any data on how much Botox cosmetic comes from new starts versus repeat users?

David Pyott

Yes, well as you know, I spend a lot of time in the marketplace to make sure that I understand what our customers need from us and what they think. I think particularly in light of the news yesterday, the way I was thinking about it is probably the cost of switch just went up. I think given the FDA’s emphasis on non-interchangeability, as I stated before, our viewpoint absolutely.

I think in addition when some consumers are aware of the fact there is a box warning for this category, they’re going to be even more thoughtful about products they want to try, versus ones they have experience with. So, I suppose to my point of view as the incumbent, that is a positive.

Also I think it’s clear that the marketing environment will have changed and again that tends to favor the incumbent. I think when it comes to existing versus new starts, I think in normal times there is quite a considerable flow of new patients. My take on looking at all of the market data is not slowed in this economy and in some were that’s logical.

If people haven’t started until now, presumably there was some reason of conservatism on attitude and of course Botox isn’t the only thing you can spend your money on, to good about yourself and improve your appearance. So, fewer new starts and I think in this environment. If we have a positive that Botox has such a long established record of performance and of course be the brand is almost second to none in terms of consumer awareness.

Greg Gilbert - Bank of America/Merrill Lynch

Thanks. My second question is more an SG&A question. I assume given the boxed warning that TV and radio and expensive ads for Botox cosmetics could be more difficult. So, am I right in assuming that you’ll have a potentially significant chunk of money that reallocate to either other brand to protecting Botox in other ways? Thanks.

David Pyott

Well, I think first of all Scott’s kind of hoping I’ll just give him all the money; that’s just a joke. I think we well may and Scott’s still smiling, but on a serious sort of answer to a good question, of course there again is the advantage that we have not only Botox as a brand, as part of our staple, we have Latisse now, we have Juvéderm and of course Restasis is also a major brand, which we’ve invested that has worked really well for us.

So, literally the last two days we’ve had a lot of thinking to do and that’s one of the key questions I’m going to address next week with our marketing group to see what are the thoughts, now that we’re moving from, how do we deal with all these things in terms of the letters and announcement and our move back into execution of our brand strategies.

Greg Gilbert - Bank of America/Merrill Lynch

Thanks.

Operator

Thank you. Mr. Gary Nachman with Leerink Swann; your line is open.

Gary Nachman - Leerink Swann

Hi, good morning. First question is on Latisse. Have ophthalmologists begun to stock this product or is it just dermatologists and plastic surgeons? We’re hearing anecdotally that actually some ophthalmologists have been mentioning its patients and have you been tying Latisse to Botox in anyway in terms of discounts?

Jeff Edwards

Right; first of all in terms of ophthalmology, of course ophthalmologists know an awful lot about this molecule. That is the reason that we have actually detailed Latisse to ophthalmologists, because we want to make sure that they know the molecule, they know exactly where is the true facts around Latisse, what is on the label.

They tend to know the precautions they should be issuing, but we want to make sure they’re very clear about that. So, ophthalmologists do play a role in this brand and based on both their natural position and also the fact that we have visited them and detailed the product and your second question was…?

Gary Nachman - Leerink Swann

Botox and Latisse?

Jeff Edwards

Yes, Botox and Latisse. I think the way I can answer that is, as you know we have the Allergan partners program and Latisse is part of that complete deal and the way it pretty much works; it’s by different levels of customer and everything that you buy from us does contribute to the status of where you are in those rankings and also the rebates that you’ll eventually receive.

Gary Nachman - Leerink Swann

What is the average price that physicians are paying for Latisse and then the average price that they are selling it to patient? Do you have that for us?

Jeff Edwards

The price to physicians is $78, with the introduction, so at least its $72. The recommended retail price is $120. I think there are many instances of the price being discounted from that. Of course that is the decision of the individual physician, how they choose to do that.

Gary Nachman - Leerink Swann

Okay and then next question for Scott, on Posurdex; when is the PDUFA date with the priority review, now that you have it and how is dialogue been with the FDA on this product? Can you just remind us, what sort of long-term safety data you have? Thanks.

Dr. Scott Whitcup

Sure. We announced that we had priority review; we didn’t announce the PDUFA date although I think we did say when we filed. So, we filed by the end of last year. So you can do the math with the priority review. The discussions with the agency have gone well to date. So, no issues to-date that have come to be of concern, but again, reviews our always difficult to predict. For that file we submitted a year’s worth of safety data.

Gary Nachman - Leerink Swann

Okay, thank you.

Operator

Thank you. Mr. Ronny Gal with Bernstein, your line is open.

Ronny Gal - Bernstein

Good morning and thank you for taking my question. Actually, they are all for Scott. Scott, both on CDH, I’d like to push a little bit further on a couple of the points; first, in your discussion with the FDA, have you clarified will the FDA accept the current two cases as basis for review and whether that review will be a six or 10 month review?

Dr. Scott Whitcup

The agencies, until the time you file, will almost never give you specific feedback. So at the end, they always say it’ll be a review issue once they get the file. So, our strategy to-date has been to make sure that we give them all the data in the file that will support eventual approval. To-date those discussions have gone well, but until it’s filed and then ultimately after that until it’s reviewed and you hear the approval, it’s almost unheard that they’ll give you definitive answers.

Ronny Gal - Bernstein

Okay. So we’ll probably get some update on this the next quarter and second, if you kind of look at the products you’ve mentioned on this call, it sound like, so I get to see if I’m right about this, you’re kind of looking at the spasticity, Lumigan X and Posurdex as things that might have action in the very near future and then somewhere later in the year, Juvéderm plus lidocaine and this file for 10-K?

Dr. Scott Whitcup

So Lumigan X, as David had talked about the call, was an administrative issue which we think as soon as it’s resolved will lead to an approval anytime now. Spasticity, as you know, we have a priority review and so, that’s coming up soon.

If you do the math Juvéderm plus lidocaine, is coming soon, so that’s another one that I think is a positive factor and then migraine which we talked about, would be filed this year, whether we do or not it will be an approval we predict next. Just one Ron; in Acular X, as you know we’ve had a number of product enhancements in Acular X to be approved this year, as well.

Ronny Gal - Bernstein

So this is kind of like mid-year or we looking like year end kind of thing on Acular?

Dr. Scott Whitcup

For Acular we haven’t said for competitive reasons.

Ronny Gal - Bernstein

Okay, and last, I think you talked to neurologists this week on the Botox for pain reformulation. Can you just give us a quick update, where is that in development? Have you actually gone through a proof-of-concept trial now or where does that stand in the development path?

Dr. Scott Whitcup

Sure. So, what Ronny’s talking about is we’ve been able to reengineer botulinum toxin and now the technology just put in whatever receptor we want; the first one is targeted for pain that is completing Phase I, but as part of that Phase I we do have a little bit of proof-of-concept parts to that trial and we’ll have data probably end of year, early next year on that program.

Ronny Gal - Bernstein

Thank you very much.

Operator

Thank you, Mr. Larry Biegelsen with Wachovia, your line is open.

Larry Biegelsen - Wachovia

Thanks for taking the question. Just before I ask, one clarification on the Botox chronic migraine publication Scott; you said it was submitted. Has it been accepted for publication?

Dr. Scott Whitcup

Yes, we don’t really comment until it’s out. So it’s in the process.

Larry Biegelsen - Wachovia

Okay, and on Botox, any clinical differentiation between Botox and Dysport that you plan to highlight? Then I have one after that. Thanks.

Dr. Scott Whitcup

So in terms of differences, there are a number of publications that we’ve been involved with over the years. There has been some data that we’ve shown at meetings, study done by Nick Lowe comparing the product in the cosmetic realm. We have a number of basic science publications to show the basically uniformity of the manufacturing, the safety of our product and we actually have a number of publications that are in process to further support efficacy and safety of our product.

Larry Biegelsen - Wachovia

Is there nothing more specific than that, Scott?

Dr. Scott Whitcup

Yes, nothing more than we can comment on today. I think one thing Larry, if any claims are being made by any companies, I think one should always ask, show us the data from large, well-controlled trials. There are not very many of those around. I think as a company all players in this industry should always go back to the real science and the real data.

Larry Biegelsen - Wachovia

So with some studies which you’ve shown greater diffusion with this port is not something you’re going to highlight? It sounds like.

David Pyott

I wouldn’t want to comment on that.

Larry Biegelsen - Wachovia

Okay. The Lap Band, I think it declined by about 17% in the quarter and the guidance is for negative 14% to negative 4% if my math is correct. What turns that around and you haven’t changed the guidance. Why should we be confident that the guidance is achievable on that? Thanks.

David Pyott

Well, I think as I stated, in the current phase if we take the United States, of course not only do we have the enemy of the economy driving down procedures, but we also have what is the market share of Lap Band in any given quarter versus what it would’ve been a year earlier and I’ve been commenting now for a couple of calls saying, the share is pretty stable as far as we can tell from all the surveys we do.

So, hopefully that continues and there will be lasting effect where then the enemy is only the economy and not the economy plus market share loss. Then I tried to give you a balanced picture of what’s going on overseas; where there are some markets that do very well, offset by some other ones that are doing poorly.

Larry Biegelsen - Wachovia

That’s helpful. Thank you.

Operator

Mr. Ken Cacciatore with Cowen and Company, your line is open.

Ken Cacciatore - Cowen and Co.

Great, thanks. As we continue to try to figure out where Medicis can compete against you in the cosmetic, can you give us a sense of how Botox is used or I should say where it’s used and in derm versus plastics and then maybe versus non-derm, non-plastics and then as well.

If David you could comment on your own acquisition strategy, a big asset was sold in the space of Stifel and maybe you could give us some commentary of this is an asset that you looked that? Why you would have passed on and there was cost of 80, just generally speaking if you won’t comment specifically on your own strategy? Thank you.

David Pyott

Well first of all, when it comes to, I’ll call it customer segments of aesthetic physicians, clearly the most important one is dermatology, followed by plastic surgery and then there’s other people who maybe licensed to some other form of doctor, but at some point in their careers left that and become basically aesthetic physicians.

So the beauty of our direct ship model is that we know exactly who is buying how much. It’s also quite clear due to being the first, given our scale of our total product range and also our marketing share position, that we have the greatest coverage of the market. We go very deep, right down to I’ll call it the lower quintile of dermatology and plastic surgery.

Of course on the plastic surgery side, relative to our competitor, we have the benefit of having another important fortune product range called breast implants and as I’ve stated post, the acquisition of Inamed a few years ago, when you look at the purchases of a plastic surgeon, the three largest consumables are: breast implants, Botox, and dermal fillers and of course, we have all three. That being said, when we look at customer surveys, we perform very favorably, not only in plastic surgery, but also very favorably in dermatology as well.

Than on your second question, I can’t really ever comment individual companies, obviously. Our strategy is a very simple one, which is we’re in these various verticals, ophthalmology, medical statistics, medical dermatology, neurology, urology, and obesity intervention and we very keenly follow what is going on in terms of what acquisitions might be possible, what product licenses might be possible, what products could be acquired.

It’s a disciplined process of looking at are the product really good, are they differentiated or could we do more with products in our hand? It’s a huge funnel process and hopefully I think our track record on the whole is pretty strong with the things we’ve bought have turned into value added operations for our shareholders.

Ken Cacciatore - Cowen and Co.

David, I’m sure you’re not going to comment on the specifics, but on the first question about derm versus plastics, is there anyway you can give us a sense of the percentage use of Botox in derm versus plastics?

David Pyott

No. You can imagine that I have that number down to the last digit, but clearly that’s something of great proprietary value to myself, meaning the Allergan team and I’m sure some of the people in the marketplace would like to know those numbers; I’m not going to disclose them.

Ken Cacciatore - Cowen and Co.

Okay, thank you.

David Pyott

Pat, we’ll take one more quick question.

Operator

Yes, thank you. Mr. John Boris with Citi; your line is open.

John Boris - Citi

Thanks for taking the questions. First on Latisse, have you quantified the total number of patients that have been proscribed Latisse? I think David, in the past you commented that there is an opportunity to drive in new patient. What percent of those patients are new versus existing users of Allergan products? Of those new patients did any of them walkout with additional Allergan products? And then I just have a follow-up on Sanctura.

David Pyott

Right. Well, in terms of number of patients, of course this early in, most of them will be first time users, because typically it depends on how the doctor wants to treat the patients, to get 30 or 60 days worth of supply and given that we’re so early into the launch, you’d have to assume that almost all of them are the first filled versus a repeat.

In terms of one of the other great benefits of Lastisse I talked about, the potential that one day could even be bigger than Botox cosmetics because of the appeal and the broad demographics.

The second part of it, of course is from our customers view point. Now, I’m talking of the physicians versus the end user. Clearly, this is bringing in a younger demographic into the doctor’s office and we’ve heard lots of anecdotal reports about first time patients and of course a smart physician once you have that new patient in the office, put it in the right manner they asked, whether they’d consider X or Y. So, I think we’re seeing, its early days still, some ability to offer cross treatment.

John Boris - Citi

Thanks and on Sanctura, if you look at underlying demand for the product scrip trends and price relative to the number reported, it seemed to be a pretty big differential between the two. Can you just elaborate on what happened with Sanctura XR in the quarter and then any update on where you’re at with a partnership with a pharma company on primary care?

David Pyott

Well, first of all what I do is I monitor scrip trends by channel and particularly I’m interested in how are we performing in urology. Given that we now as a company no longer directly cover GP, so we’re relatively pleased with the fact that trend are pretty flat over the last couple of month. That’s in some way good, because we have less people deployed than we did last year.

I commented, I think in my opening remarks that we’re at a pretty advanced stage with a potential partner and in fact I could say partners and we hope that we’ll be able to bring this to a close fairly soon.

In terms of the price question, I’m not sure that I really understood it, because I don’t see any particular disconnect inside the data I look at. I think one other point that you didn’t raise, but I would like to is, if we look back to last year, one of the biggest impediments was actually getting Sanctura XR (Inaudible) and we’ve made really huge progress there, but we now have a round about 50% of commercial managed care lives on tier two.

Recently one of the, I’d call it the marquee names actually has Sanctura XR as their preferred product and I think many other plans will tend to look to some of the leaders to see what they did and there’s a kind of a signaling effect which we will hopefully be able to replicate in some of the plans that are a little smaller.

John Boris - Citi

Thanks.

Jim Hindman

We’d like to thank you for your participation today. If you have any further questions, Joann Bradley, Emil Schultz and I will be available immediately following the call. Joann will now take five minutes to give you market share data.

Joann Bradley

Thank you, Jim. The following market share data we are providing is Allergan’s good faith estimate, based upon the best available sources for data such as IMS, as well as Allergan’s internal estimates. The market share and growth rate information is a annual total or trailing 12 months as of the end of December of 2008.

The market for ophthalmics is approximately $12.1 billion, growing at a rate of 8% and Allergan’s market share is 16%. The market for glaucoma approximates $4.7 billion, growing at a rate of 7% and Allergan’s market share approximates 18%. The market for ocular allergy approximates $1.1 billion, growing at a rate of 1% and Allergan’s market share approximates 5%.

The plain ocular anti-infective market is roughly $1.0 billion, growing at a rate of 2%, and Allergan’s share is 13%. The market for ophthalmic non-steroidal anti-inflammatories is about 390 million, growing at a rate of 10% and Allergan’s market share is 35%.

The artificial tears market inclusive of ointments is approximately $1.1 billion, growing at a rate of 9% and Allergan’s share is 20%. The U.S. topical market for acne and psoriasis is roughly $1.8 billion, the annual growth rate is about 3% and the Allergan’s market share is 6%.

The top ten markets for neuromodulators are roughly $1.3 billion, growing at a rate of roughly 8% and Botox has approximately a 91% market share. The worldwide market for neuromodulators is roughly $1.6 billion, growing at a rate of around 11% and Botox has approximately an 83% market share.

The worldwide market for facial filler substance aesthetics products is roughly 690 million, growing at a rate of roughly 3%; Allergan Medical has approximately a 32% market share. The U.S. market for facial filler substance aesthetics product is roughly 300 million.

The worldwide breast aesthetics market including both aesthetics and reconstructive is roughly 790 million, growing at a rate of roughly 4%, and Allergan has approximately a 39% market share. The worldwide bariatric surgery market for the band and balloon segments only is roughly 380 million, growing at a rate of between 20% and 25%, and Allergan has approximately a 75% market share and that concludes our call today. Thank you.

Operator

Thank you for participating in today’s conference call. Have a great day.

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Source: Allergan Inc. Q1 2009 Earnings Call Transcript
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