Allergan Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.29.13 | About: Allergan plc (AGN)

Allergan (NYSE:AGN)

Q3 2013 Earnings Call

October 29, 2013 11:00 am ET

Executives

James M. Hindman - Chief Financial Officer

David E. I. Pyott - Chairman and Chief Executive Officer

Jeffrey L. Edwards - Chief Financial Officer and Executive Vice President of Finance & Business Development

Scott M. Whitcup - Chief Scientific Officer and Executive Vice President of Research & Development

Joann Bradley

Analysts

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

Ken Cacciatore - Cowen and Company, LLC, Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Marc Harold Goodman - UBS Investment Bank, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

David Risinger - Morgan Stanley, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

David W. Maris - BMO Capital Markets U.S.

David G. Buck - The Buckingham Research Group Incorporated

Liav Abraham - Citigroup Inc, Research Division

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Vamil Divan - Crédit Suisse AG, Research Division

Operator

Hello, and welcome to the Allergan Third Quarter 2013 Earnings Call. [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.

James M. Hindman

Thanks, Rebecca. 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, Chief Scientific Officer; and Jim Barlow, Senior Vice President and Corporate Controller.

Before we move ahead, I would like to remind you that certain statements that we'll make in this presentation are forward-looking statements. 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 third quarter 2013 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 it 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 the information on our website at www.allergan.com.

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

David E. I. Pyott

Great. Thanks, Jim. Good morning, ladies and gentlemen. Third quarter sales increased strongly over Q3 of 2012 by 14.0% to local currencies and by 12.9% to U.S. dollars. We're delighted that this is the highest growth rate we have delivered in the quarter since 2008, and that the expansion was broad-based across many product lines and businesses.

Furthermore, we're benefiting from our global reach in all of our operating regions, namely North America, Europe, Africa, Middle East. Latin America and Asia Pacific achieved at least double-digit growth in local currencies in the quarter. This is reflective of the strong growth being experienced in our product markets, and in general, of Allergan's market share gains as we introduce the steady stream of new innovative products to our customers around the world.

Regarding operating performance, we generated non-GAAP diluted earnings per share of $1.23, an increase of 18% over Q3 of 2012, and well above the outlook provided on the last call of $1.18 to $1.20, thanks to the robust sales. This result was achieved after we continued to invest both into targeted sales and marketing programs to launch products and build our markets, as well as into R&D.

Regarding progress with our pipeline, we're pleased that we're delivering most of the major regulatory approvals we're seeing for this year. Since the last earnings call, we have received FDA approvals for VOLUMA and BOTOX for crow's feet lines, as well as the first positive opinion from the French agency for crow's feet lines, marking the first step in the mutual recognition procedure, which should lead to approvals for this indication across the 27 countries in the European Union, as well as Norway and Iceland.

Furthermore, we secured approvals for BOTOX for overactive bladder in Canada, the U.K. and a positive opinion in France. Also, the Japanese authorities approved our Natrelle breast implant products, including the round, soft cohesive line; the style 410 shaped anatomical line; as well as the tissue expander range. As such, Allergan is the only company to have regulatory approval for both breast augmentation and reconstruction in Japan. We expect to secure reimbursement for reconstruction post mastectomy around the end of the year.

Our global partnership with Medytox, excluding Korea, is a reflection of our long-term efforts to continue to build the facial aesthetics in therapeutic markets for neuromodulators, and should result in us offering an expanded suites of products, including a potential liquid presentation. The Medytox transaction is contingent upon receiving certain government approvals.

Regarding LEVADEX in the U.S., we're on track for filing by year end, all the data required by FDA in its complete response letter, and anticipate approval in Q2 of 2014. Regarding the disposal of the Obesity Intervention business, we're pleased that we have entered into a definitive agreement with Apollo Endosurgery and expect to close the transaction before year end.

Regarding RESTASIS and FDA's draft guidance in generics of cyclosporine, we're encouraged that 22 medical societies, patient groups and consumer groups submitted comments, all raising concerns about public health and patient safety if generics were to be approved of Allergan's complex oil and water emulsion. It is noteworthy that not one single submission was made in favor of the draft guidance. FDA's officials, even within the generics division, have admitted as recently as June 2013 that equivalents of ophthalmic drugs is "an emerging topic" being considered for FDA's regulatory science enhancement initiative.

Allergan has submitted studies of several test emulsions showing that these emulsions that meet the draft guidelines nonetheless significantly differ from RESTASIS. Based on our investigations, FDA has never, in the past, approved an ophthalmic emulsion based solely on in vitro data. In the coming months, the draft guidance has the highest management attention, and we will take every appropriate legal and regulatory action to uphold sound science and patient safety.

Now commenting the performance of the businesses. I'll commence with ophthalmic pharmaceuticals. Allergan sales increased in Q3 by 9.0% in local currencies with mid-single-digit growth in the U.S. being boosted by strong double-digit growth internationally. RESTASIS with 21% growth in local currencies continues to grow very strongly, not only in value, but also in volume, given good response to our increased investment in direct-to-consumer advertising in the U.S. and an expanding base of prescribers in U.S. optometry. In addition, RESTASIS is growing strongly in Canada and Turkey in particular.

In the glaucoma category, we're experiencing a difficult market in the U.S., and low Q3 growth for LUMIGAN given the impact of generics of major patent expired products. Ex-U.S., we enjoyed strong double-digit growth for both the bimatoprost and brimonidine franchises in the quarter, and are pleased that per IMS data for Q2, that's the last period for which data is available, the LUMIGAN became the #1 selling glaucoma product in the world.

In Europe, we launched GANFORT unit dose in September into the preservative-free category in the first wave of countries, namely in Germany, the Netherlands and the U.K., adding to the launches of LUMIGAN unit dose earlier in the year. In the U.S., we're encouraged that 2014 LUMIGAN formulary coverage in Part D and in commercial plans will be broadly similar to the situation in 2013. And now that we have converted all of the prescriptions over to the improved LUMIGAN 0.01% product, that we can concentrate all our efforts onto growing the brand again.

Regarding the world ophthalmic market per IMS for Q2, IMS shows first half of the year growth of the market at a robust 12%, boosted by 28% growth in retinal therapeutics and Allergan growing end market at 11%. For glaucoma, IMS reports world market growth at only 3% for the first half, given the U.S. situation, with Allergan worldwide growth at a healthy 10%.

Regarding the LUMIGAN franchise, IMS reports LUMIGAN and GANFORT growing double digits in Europe, Africa, Middle East, Latin America, Canada and Asia Pacific, as well as in Japan by Allergan's local partner, Senju, and also outperforming the growth of the Travatan franchise in each of these geographies. Going forward, we expect to benefit from Merck's deemphasis of ophthalmology worldwide.

For the artificial tears category, IMS, for the first half, shows a world market growth of 6% with Allergan underperforming with only 1% growth, given our priority on RESTASIS where it is available. Growth is, however, picking up from the introduction of OPTIVE Advanced, sold as OPTIVE Plus and plus unit dose in Europe, which was recently approved in Mexico, Chile and Turkey. In September, we also launched an exciting new product, OPTIVE Fusion [ph], a breakthrough combination of 2 effective polymers, hyaluronic acid and carboxy methylcellulose, in Italy, Spain, Portugal and Belgium, and we'll roll this product out across the world outside the U.S.

In the U.S., hyaluronic acid is not monographed as an OTC ingredient for ophthalmic pharmaceuticals. This is Allergan's first entry into the hyaluronic acid peer segment, which in Europe accounts for about 20% of the overall market.

OPTIVE Fusion will address the aqueous deficient segment, the dry eye market, while OPTIVE Plus offers relief to the lipid efficient dry eye sufferer.

OZURDEX growth continues on a sharp trajectory driven particularly by Europe and the U.S. We recently received reimbursement pricing in Brazil.

Moving on to BOTOX, sales in Q3 increased by 13.9% to local currencies, in line with year-to-date local currency growth of 13.6%, with year-to-date double-digit growth in both the aesthetic and therapeutic franchises.

Regarding the global market up to Q2, the last period for which data is available, we estimate first half of the year growth at 14%, with Allergan also growing at 14%. Allergan has gained some share in therapeutics as we established the new categories of Chronic Migraine in neurology, offset by some minor share loss in aesthetics as new products enter the market around the world.

Since the last earnings call, we received several major BOTOX product approvals, some referenced early in my comments, but in addition, BOTOX was approved for Chronic Migraine in Norway, for neurogenic bladder in Taiwan and for overactive bladder in Korea, Russia, the Czech Republic and Qatar.

In the U.S., the therapeutic business continues to grow strongly, driven by Chronic Migraine, the 2 bladder indications and an increased growth in neuro rehabilitation, the latter benefiting from a sales force expansion we executed at the end of 2012, and also due to the downsizing of Ipsen's commercial presence in the U.S. in the spring.

Regarding Chronic Migraine, we enjoyed broad access with 93% of commercial lines and 100% of Medicare lines having policy coverage and are continuing to improve results in the prior authorization process to drive down denial rates.

We have a steady flow of new injectors trained and adopting BOTOX into their practices and continuing high levels of product satisfaction, both by patients and their doctors. And emphasis is now in shepherding patients through their first year of treatment, helping to ensure patients become loyal repeat users, and also in decreasing the interval between injections closer to the labeled indication of every 3 months. In order to further build this market, we have invested heavily into branded TV advertising since July to increase patient awareness and to encourage patients to find a trained specialist.

Metrics regarding awareness, website visits and doctor searches are all trending positively.

Regarding urology, sales are on an even stronger upswing than in Chronic Migraine, albeit off a smaller base. Regarding reimbursement, we're able to secure coverage in some major commercial plans in September, with now 79% of all commercial lines enjoying policy coverage. 82% of Medicare lines have coverage.

Over 3,000 urologists are regular injectors out of an overall universe of all urologists at just over 10,000, many of which, of course, do not address incontinence. Urogynecologist, the subspecialty focused on female incontinence, is a group particularly focusing on this treatment option.

Preparing for further major growth in 2014, we're currently deepening our geographic reach by adding a modest number of field representatives in the United States. In Europe and the countries where we have secured reimbursement, we're satisfied with the initial demand for BOTOX for Chronic Migraine and for bladder, as well as with our continuing growth in the base movement disorders categories.

Turning to the aesthetic side of the BOTOX franchise, we enjoyed strong growth in Q3 in most of the principal markets of the world, with only a few exceptions where there are competitive products being introduced, such as is the case in Canada, Australia, Korea and Mexico. We're enjoying very strong end market growth in Russia, Japan, China, most countries in the East and South Asia and Brazil.

In the U.S., based on survey data, market growth in Q3 has accelerated to the low double digits. Furthermore, it is encouraging that BOTOX Cosmetic in September enjoyed 82% share and exactly the same as in September of 2012, with Xeomin share at 5% and the year-over-year gain coming at the expense of this quarter.

In Western Europe, we estimate that the market in Q3 is growing mid to high single digits and that we're currently holding share.

Facial aesthetics in Q3 grew strongly at 21.3% year-over-year in local currencies, in line with year-to-date growth, with all regions of the world registering strong growth levels. Of course, the market is poised for a further strong upswing with the recent FDA approval for VOLUMA and the introduction of our by-credit cost technology, including VOLBELLA and VOLIFT, to markets around the world. VOLBELLA was launched in Australia and Korea in September, VOLIFT in Australia. In the U.S., we're rapidly organizing training sessions for VOLUMA for our customers from mid-November, after which we will ship product. This is anticipated all to occur around mid-November.

In the U.S., based on survey data, we believe that the market in Q3 grew mid-single digits in volume. In Q3, JUVÉDERM was at a market share high with over 35% with year-over-year share gains coming from Restylane and RADIAS [ph].

In Europe, survey data for Q2, the last period for which data is available, shows the market continuing to expand strongly in the double digits, with Allergan leading this growth with the introduction of our new innovative products and rapidly gaining market share. We're encouraged that even markets in Southern Europe are enjoying strong growth.

Performance in the Breast Aesthetics business continued to improve in Q3, with year-over-year growth at 7.5% to local currencies versus year-to-date growth standing at 1.4%. This is due to Europe now coming past the periods in 2012 when the market and Allergan sales surged as a consequence of the PIP scandal and the consequent need for revision surgery.

In addition, we're benefiting in 2013 from the U.S. introduction of the shaped 410 Natrelle implant, continuing mix shift from low-price saline to higher-priced round and shaped gel implants, as well as an initial stocking shipment to Japan.

In Europe, our survey data for Q2 shows that the market end units declined 8% year-over-year due to the PIP issue, and is 7% smaller than in Q2 of 2011. Offsetting this is the market share gains Allergan has made since 2011.

Given the growth in Allergan's Q3 sales in the European region, we're assuming that the Q3 market has posted some recovery. In the U.S., based on survey data, the market is posting low volume growth, and we're willing to concede some market share due to low pricing from Mentor, which has really placed an emphasis on this, whereas Allergan is concentrated in the mix shift to value-added products and service.

Our skin care and other franchise grew 52.0% in Q3 year-over-year, boosted by the acquisition of SkinMedica and offset by a steep decline in SANCTURA XR as the product is being genericized. In terms of real performance, sales of our U.S. medical dermatology products increased 64% in Q3.

Turning to ACZONE, with diminished brand competition and a successful investment since June in direct-to-consumer advertising targeted at the adult female patient, ACZONE is growing rapidly, with the year-to-date August increase in turning prescriptions, per IMS, of 34% in a market growing only 2%. TAZORAC is also benefiting from our focus on the acne market, growing year-to-date trailing prescriptions by 11% and the retinoid market growing 4%.

Regarding real performance of our topical physician dispensed Skin Care business, we're pleased that SkinMedica is substantially outperforming in the U.S. market due to the benefits occurring to customers who are purchasing a full range of aesthetic products from Allergan, as well as due to our sales force presence.

Regarding LATISSE, sales increased in Q3 by 4.9% to local currencies with modest growth in the U.S. boosted by strong growth off a small base in Canada and Brazil.

I'll now pass over to Jeff Edwards who will comment our financial performance.

Jeffrey L. Edwards

Thanks, David, and good morning to all of you on the call. During the quarter, Allergan continued to demonstrate long-term strength of its business model by delivering strong sales and earnings performance. Our ability to exceed our EPS expectations is true reflection of the depth and breadth of Allergan's business and our strong competitive position within each of our specialty areas of focus. Our commitment to diligently managing expenses and thoughtfully targeting investments enabled the company to deliver non-GAAP diluted EPS results above the top end of our expectations.

Non-GAAP diluted earnings per share from continuing operations for the third quarter of 2013 were $1.23, with growth of 18% compared to the third quarter of 2012 from continuing operations. A reconciliation of all of the adjustments to GAAP earnings is set out in our earnings release. Excluding the effects of non-GAAP adjustments, amortization of acquired intangibles and discontinued ops, Allergan's Q3 2013 gross margin of 87.4% increased 90 basis points when compared to Q3 of the prior year, which was driven primarily by improved standard costs and the continuation of favorable pricing, region and product line mix, as well as positive royalty dynamics led by substantially reducing to our royalties.

The non-GAAP selling, general and administrative expenses to product and sales ratio from continuing operations for the third quarter was 38.1%, totaling $583 million. The comparable ratio and expense value for the same period in 2012 were 38.4% and $520 million, respectively. Consistent with our historic trend, we anticipate a sequential reduction in the non-GAAP SG&A expense to net sales ratio in the fourth quarter of 2013.

Non-GAAP research and development expenses were 16.4% of product mix sales for the quarter, totaling $251 million, an increase in spend of approximately $24 million over the $227 million or 16.8% of product net sales spent in the third quarter of 2012.

With respect to our balance sheet, consolidated Allergan sales outstanding was 54 days, while consolidated Allergan inventory days on hand was 133 days. This quality 54-day DSO result has been generated in spite of continuing ongoing upward pressure related to trends to longer terms in certain foreign markets and emerging markets.

With respect to end-of-quarter DOH levels, they are slightly higher than previous quarters due primarily to the JUVÉDERM VOLUMA inventory build in anticipation of the recently received U.S. approval.

In the third quarter, operating cash flow after CapEx was approximately $545 million. On a year-to-date basis, operating cash flow after CapEx was just over $1 billion. At the end of the third quarter, Allergan's cash and equivalents and short-term investments in cash and equivalents and short-term investments net of debt positions totaled approximately $3.2 billion and $1.1 billion, respectively.

We currently project capital expenditures to be in the range of $150 million to $200 million for the full year of 2013.

Regarding full year expectations for 2013, Allergan estimates product net sales in the range of $6,125,000,000 to $6,200,000,000, and our full year non-GAAP diluted earnings per share from continuing operations to be in the range of $4.74 and $4.76, which includes -- excludes the impact of the 2012 R&D tax credit reported in 2013 as a non-GAAP adjustment and includes the $0.07 estimated dilution impact related to the MAP Pharmaceuticals acquisition.

With respect to the divestiture of the Obesity Intervention business on October 28, 2013, Allergan entered into a definitive agreement to sell its Obesity Intervention business to Apollo Endosurgery for an upfront cash payment of $75 million, subject to certain adjustments and certain additional considerations. The transaction is expected to close in 2013, subject to customary closing conditions. For your information, expectations for other lines of the income statement and specific product sales expectations are included in the current release.

With that, operator, I'd like now to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Ronny Gal with Sanford Bernstein.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

The question's about BOTOX. Can you tell us a little bit about the price per unit of BOTOX? Has there been upward pressure on the product? And should we think about the liquid talks as launching both aesthetic and therapeutic, or are you likely to target that product into 1 of the 2 market segments?

David E. I. Pyott

Ronny, I missed the point on upward pressure. It sounded good, but I want to answer precisely what you're driving at. I like upward pressure.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

So we obviously do a survey of aesthetic franchise every quarter. We noticed that some of the physicians were discussing fewer discounts on the lower end of the market, which suggests as to what upward pressure on price per unit of BOTOX in the United States.

David E. I. Pyott

Yes, okay. I'll take that question first. Clearly, if one looks at the baseline of 2012 when we naturally expected the reintroduction of Xeomin, why it's a market share leader, not only invest to grow the category, but also to defend. And if we now then move a year later, obviously, when you start, let's say, doing less promotional activity, you do have a good effect in terms of net selling prices post direct-selling reductions from list to net. So good work being done in terms of net price realized. Your second question regarded our collaboration with Medytox and liquid. Clearly, liquid would have predominantly greatest interest in aesthetics, but we're also looking at some other things with Medytox as well. It's a very interesting company in Korea with good science.

Operator

The next question is from Ken Cacciatore with Cowen & Co.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Just the question is if you look at -- you have a very clean balance sheet and you've combined that with a global commercial platform. It would seem obvious to many of us that you should be hoping or seeking to leverage your balance sheet more aggressively. But when we talked to investors, some argue that there aren't actually many assets available in your therapeutic categories or in aesthetic and derm. So it's an issue that you'd like to be more aggressive, but can't find the assets? Or you just don't think being more aggressive with a balance sheet is necessary or wise here?

David E. I. Pyott

Okay. So this is always the acquisition question. We're constantly looking at various deals that can be acquisitions of companies, they can be licenses, they can be collaborations. And I think if you just run your eye across our press release, you can see, just in the last 3 months, we've done some things, although they haven't really devoured vast amounts of cash. So clearly, let me restate what has always been the overarching goal, which is to put our balance sheet to work. But of course, you also want us as investors to be good stewards of our capital and invest and acquire wisely, both for good strategic reasons and also for good return.

Operator

The next question is from Douglas Tsao with Barclays.

Douglas D. Tsao - Barclays Capital, Research Division

David, I was just hoping you could perhaps provide some context for the new approvals that you've had recently in the Aesthetics business, in particular, VOLUMA, as well as BOTOX for crow's feet. I suspect or we've heard that there are sort of off-label use of those products and those sort of indications already, but obviously, new approvals allow you to market into the -- into them, specifically. So can you help us understand how you expect to sort of capitalize on this and how significant are these approvals?

David E. I. Pyott

Okay, so let's take VOLUMA first. This is a product that clearly has been heavily expected by, particularly, the key opinion leaders because those are the people that typically travel to conferences in Europe and indeed Latin America and Asia. And so they've heard from their colleagues, sometimes they've observed their colleagues injecting this product. As I've shared in my remarks, if we look at already robust market growth in Europe post VOLUMA introduction, VOLBELLA, VOLIFT, Allergan is growing of the order of 2x faster than the market. So you know who the locomotive is. Also, as a reminder, if we look at Canada, which is probably the most similar market to the U.S., not just due to geographic proximity, but other reasons, I estimate that the introduction of VOLUMA added to probably about 40% market growth over about a 2-year period. So clearly, the U.S. is a bigger market, you got to be careful with applying percentages to a bigger and bigger breadbox. But clearly, we're going to have, really, a dramatic effect and we're going to invest very heavily in training. Coming back on to BOTOX for crow's feet, that will be the only area where you'd be correct, that there has been some off-label use of BOTOX for crow's feet around the world where there are some markets, however, where it is already indicated. The real advantage for us is now that we can conduct training because, of course, we always want to ensure great results by as many of our injectors as possible. And the only way to address these issues was through medical affairs hitherto extremely inefficient and now, we command training programs. And I think it's going to also reinject reasons -- (reinject) and really create more stimulus for physicians to go back for advanced injector training. And that will have a benefit not just on crow's feet, but for the indicated -- hitherto indicated for head lines as well. So these things are really significant. And I think when you reflect upon all of my market share data, you can see the world consumer is alive and well, even in places like Southern Europe where I still -- maybe I'm not that surprised because I live there, but I'm amazed by just how much consumers still have money in their pocket to remain looking great.

Operator

The next question is from Jami Rubin with Goldman Sachs.

Jami Rubin - Goldman Sachs Group Inc., Research Division

David, I can't imagine that you're very happy with Allergan's share price performance over the past 2 years, we're now approaching through the second year of underperformance, and the lack of transparency on the sustainability of the generic RESTASIS franchise continues to create investor anxiety. Can the company -- I know you've already commented upon -- on VD [ph], but can you comment on your sense of urgency to explore other value-enhancing opportunities? You do have tremendous balance sheet capacity, you have tremendous restructuring capacity. How high a priority is this, just given the years of underperformance? And as a related question, are there any scenarios ahead of May 2014 where investors can gain visibility on whether there are ANDAs on file for generic RESTASIS?

David E. I. Pyott

Okay. So first of all, if you reflect upon my remarks about RESTASIS, our absolute conviction is that the science just isn't there for creating bioequivalence based on an in vitro pathway alone. Now obviously, we're taking every possible step that we can, also to try and educate those in the agency that are willing to listen to us. We've commented upon our test emulsions being completely different than RESTASIS. However, following, if you like, the cookbook that they put out, that would suggest that the cookbook just doesn't work. Now, how the agency, meaning the generics division, will comment in the public domain, one can only conjecture. That's their business to do their business. So in a nutshell on RESTASIS, we're planning clearly to uphold good science and patient safety. That being said, we're not ostriches around here. We do think about scenarios and we've clearly talked about our ability to restructure, if it became necessary. Jeff, on the last call, also remarked about our ability to buy back stock should we be required to do so in a negative scenario. And I think earlier, when I was addressing the issue of acquisitions, it's quite clear that we have a lot of capacity for acquisitions, and we do our homework quietly and discreetly. And you do see some activity from us. And maybe one day, there'll be something bigger. You just -- like you saw back in 2006 when we acquired Inamed.

Operator

The next question is from Marc Goodman with UBS.

Marc Harold Goodman - UBS Investment Bank, Research Division

David, you mentioned glaucoma is an area...

David E. I. Pyott

Can you speak up, Marc, just so I get all your points.

Marc Harold Goodman - UBS Investment Bank, Research Division

I'm sorry. David, you mentioned that glaucoma was an area of weakness in the quarter, tough third quarter in the U.S. I think you said it was due to generics impacting now, and I was a little confused why are the generics impacting more this quarter than they have in the past. And then secondly, can you just update us on emerging markets? How's the growth going there and what are some new countries that you're looking to expand in over the next year or so?

David E. I. Pyott

Okay. So if we look at glaucoma, you can really see it's a tale of 2 different cities because if we look at LUMIGAN, year-to-date, the number happens to be the same. We've had a double-digit decline in sales of LUMIGAN in the United States, offset by double-digit growth or literally, internationally, meaning the whole conglomerate of the rest of the world x United States. So very different market conditions. Now to be fair beyond LUMIGAN alone, of course, we have the benefits overseas of GANFORT and now, we have the introduction of LUMIGAN unit dose, most recently, GANFORT unit dose. And preservative-free in Europe is probably of the order of 5%, 6% of the overall glaucoma category. So I'm just giving you the context. It's not going to change the course of LUMIGAN growth, but it's a nice, little additional booster. So another positive thing coming back to United States is we've now completed the switch from 0.03%, the original product, to 0.01%. That clearly consumes some energy to make sure that happen logistically with as many prescribers as possible. Now that's behind us, we can really focus on growing the brand again. We have some good data in the marketplace, recent studies conducted by Medical Affairs showing that when patients move from another prostaglandin to LUMIGAN, they can get an additional drop in pressure of the order of 3 or 4 millimeters of mercury. And we know from our interactions with glaucoma specialists that this data is quite compelling to them. So I'm being careful to look for silver linings in black clouds, but in recent months, there does seem to be a little bit of an uptick in volume of prescriptions and growth year-over-year. Looking at emerging markets, historically, we've been growing in the upper teens. That continues to be the case, we have some really good growth numbers. When you think back not just on my comments on this call, but prior ones in terms of all the product introductions we've been receiving, it's pretty easy to work out that the BRIC countries, if we just want to take a subset, Brazil, Russia, India, China are all doing well. For us, Japan is kind of an emerging market, although, of course, it's not, for most, just due to the history of the spinoff of AMO a decade ago. And so Japan is also in a really good upswing right now, both directly through Allergan for aesthetics, breast prosthetics just on the cusp. And then we don't see the sales, but we see the economic benefit of the success of GSK with BOTOX Therapeutics and Senju with our glaucoma products. And Jeff kind of makes remarks, and that explains why the royalty receipts are growing quite healthily. In terms of new markets, ones we're looking at next are ones like Vietnam, Indonesia. We're deepening our presence in the Middle East. We're going to create a hub in Dubai. I was just listening today about the huge new airport they're constructing. It is really a zone of enormous activity right now. And we're also further out looking at not just North Africa where we're present, but other parts of Africa, because the time will come in the next 5 to 10 years. And there is an increase in disposable income and improved physician training, which is the real key, of course, for our products. So I hope that gives you a good overview of all of those things. And a comment I would make about the health of our markets, I think many analysts and investors underestimate the carrying power of our long list of approvals since 2010, which number no less than 11. And as you know, products don't suddenly happen in a year. They take 5, 6 years typically to get to peak.

Operator

The next question is from Seamus Fernandez with Leerink.

Seamus Fernandez - Leerink Swann LLC, Research Division

So just a quick question on -- if you can provide us with an update on the progress with LEVADEX. And again, David, how you would see LEVADEX enhancing and sitting into the BOTOX market? And if you would seek to expand the sales force early on next year to promote that product, should we see -- should we see approval prospects being positive?

Scott M. Whitcup

So this is Scott. I'll take the first part of the question and turn it over to David in terms of marketing and positioning. So on the LEVADEX, as David said, we've been gathering the data required to answer all the questions from the FDA's complete response letter. We believe that currently, in-house, we have those data. We'll put together our response, and as we stated, have that submitted back to FDA by the end of the year. Currently, by timelines, they would have a couple of quarters to go through that, which is why we'd said we expect approval second quarter of 2014.

David E. I. Pyott

Right. So coming back to the marketing side of the house, I don't want to say that delay is ever a good thing, but at least, it's given us the opportunity to single-mindedly focus on establishing BOTOX for Chronic Migraine in neurology practices. So delay is never good, but at least, we've had no distraction of trying to establish 2 products simultaneously. That being said, we think the call overlap with BOTOX for Chronic Migraine is extremely high. This will be a sales visit where you can just roll straight from one product into the other. Regarding coverage beyond the neurology specialty alone, we've been very careful to limit the amount of training capacity we offer to non-board-certified neurologists so far. And as that capacity becomes available, then we extend. So I think the best way to think about a bigger move into expanding sales force into the very top end of other specialties. And I think the word PCP is probably not right because when you really look at these physicians, they're not board-certified neurologists, but they certainly look like neurologists when you see what they prescribe. And being a practical kind of person, at that point, I don't really care what kind of doctor you are long as you're qualified and knowledgeable. So in summary, I think the expansion into the top end of others will occur sometime in 2015, following on from Scott's remark that we expect product approval in Q2. So we want to focus on the neurology specialty first and then go for expansion.

Operator

The next question is from David Risinger with Morgan Stanley.

David Risinger - Morgan Stanley, Research Division

David, my question is about pricing. Generally speaking, I think that most investors, including me, think of Allergan as having upside to price in various categories of its business. So my question is can you comment on the Mentor price pressure in a little bit more detail and then talk about opportunities for price inflation in other areas at the company, in particular, for BOTOX?

David E. I. Pyott

Yes. I think when you reflect upon my comments, if I take -- let's take the Aesthetics business first. You'll see that we've done a pretty good job of mix shift inside the Breast Aesthetics business. So we've avoided what I'd call price discounting practice by others. And maybe, to some degree, it's a fight between the 2 other companies trying to -- it's a little bit of a race to the bottom. We have abstained from that, particularly in the United States. When you think about my comments about dermal fillers, there are 2 we've done, I think, a good job, where new products that are better performers in terms of delivery of results. And we look at the VOLUMA label, which is a very favorable, saying, duration up to 2 years. And quite frankly, one of the reasons VOLUMA took so long to get approved was FDA needed to see the long-term data that this product does indeed, as it should, hyaluronic acid go away. So as much as I was frustrated waiting, as they say, sometimes the best things take time. And I don't want to say JUVÉDERM is like or VOLUMA's like great wine, red wine, but it is a great product. So lots of good mix shifts both within breast aesthetics, as well as fillers. And I think, clearly, in the past, I've signaled that we believe a time will come where it's time to take some very modest increases of price for BOTOX as well, given that we haven't had a price increase in the United States for, I could be wrong in my numbers, but it's like 2008. So you can do the math, it's a long time. And clearly, we're -- on the therapeutic side, we're the one and only in migraine and neurology. And BOTOX, in the scheme of biologics, is a very, very economical product to payors and with great results. So overall, I'd like to tell you a good outlook for pricing. And of course, one thing I admitted to answer on the last call is, of course, for next year, LEVADEX is another nice growth driver as we indeed we expect OZURDEX for DME to be both in the U.S. and Europe.

Operator

Greg Gilbert with Bank of America.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

I have a 2-part question on capital deployment. David, one element of your acquisition strategy has been to find companies that can offer 10% or better revenue growth. I was wondering though if you and the board are open to deals that create economic value and add to franchise value even if they don't meet that revenue growth threshold. And then as a follow-up to your comments on share buyback, it sounds like you view that as an emergency lever rather than something that could be a good idea near-term. Any comments on that?

David E. I. Pyott

Right. Well, why don't I take the last one first where I would be personally disappointed if we just were to go into a stock repurchase program because we're unable to find any other better ways to deploy our capital. Now, that being said, if Jim Hindman has some ridiculous sum of money in his treasury, even I get off my throne and become practical, right? Then your question on profile of potential companies, clearly, we're looking to franchises that have growth potential because Allergan is a growth company. Assuming that we manage our way through the generic challenges of LUMIGAN and RESTASIS, we have really good growth outlook for the coming 5 or so years. So then answering your question on assets that might not have such great growth profile, one could extract huge synergies, and therefore, get growth that way. I would be much more skeptical about them, although like everything, if there was a real compelling story that I believe there was a multi-year benefit that Allergan would be a company with greater and improved strategic position at the end of that, then that's something I would consider. So I'm not so adamant to say never, but I would certainly be looking with quite skeptical eyes on why would we be doing something like that. I'm not really interested in same strategic position, just cutting the haircut of cost for 1 or 2 years and then arguing that we're a better company at the end. I don't think you as investors would particularly believe us either.

Operator

David Maris with BMO Capital Markets.

David W. Maris - BMO Capital Markets U.S.

On the pipeline, can you tell us what you expect out of the upcoming AAO? And in particular...

James M. Hindman

David, could you speak up a little bit?

David W. Maris - BMO Capital Markets U.S.

Maybe you could just tell us a little bit of what you expect from the upcoming AAO, in particular on DARPin, what should investors look for in the data or ignore in the data that would give any insight into why a fixed dose regimen might work?

Scott M. Whitcup

So David, this is Scott. On the DARPin data, our plan is to go through the full Phase II program. So as we've said, there's 3 stages to that program. The first, stage 1 was a dose escalation. I think from there, you'll get some idea on efficacy in duration. The Stage II was a randomized comparison to RESENTIS [ph], but as we've said, there was PRN [ph] treatment and no loading doses. So from there, I think you'll have to realize that the key data to give you an understanding of what you might expect in Phase III is the typical paradigm where patients receive 3 monthly loading doses and then you go to a fixed schedule. That, we're investigating in the Stage III. We'll talk about the study design, but we'll not have data from that last stage. I tend to ignore no data so I wouldn't ignore anything, but I think there'll be enough data for investors and physicians and scientists to understand the potential of DARPin and to understand the decisions we've made on the development program. And that will be presented at the Retina Subspeciality Day, which is just before the official AAO meeting.

Operator

David Buck with Buckingham Research Group.

David G. Buck - The Buckingham Research Group Incorporated

First, David, for the Japanese market for breast implants, can you talk a little bit about the...

James M. Hindman

David, can you talk up? I'm sorry, we can't hear.

David G. Buck - The Buckingham Research Group Incorporated

So on Japan and breast augmentation, can you talk a little bit about the pace of the rollout? For glaucoma in the U.S., can you talk about whether you're still expecting to see a soft market and some of the same dynamics in 2014? And then for RESTASIS generics, can you talk about what needs to happen for the FDA to, in fact, basically backtrack on their draft guidance, what are the next steps?

David E. I. Pyott

Okay. So the first question was on timing of rollout of Japan breast aesthetics line. As I've stated, x factory, there is a small initial stocking effect already in Q3. There'll probably be a little bit more in Q4 in terms of getting real sales underway that will start from the beginning of '14. Looking at the U.S. glaucoma market, I commented in my prepared remarks that formulary coverage for LUMIGAN is pretty much the same across the board for both commercial plans and Part D. So my expectation is that we will start gaining a little bit of market share in LUMIGAN in 2014 given the data we have and the focus we have on the product. And finally, in terms of predicting what generics division will do on RESTASIS, I really wish I was a soothsayer, but I'm not. And all I can do is take the appropriate action on our side. And I suppose one question that hasn't been asked that I should be addressing is to say some people say, well, will we know if and when you file the citizens' petition? And the answer is maybe we won't have to. But clearly, if the agency doesn't take the appropriate action, we'll be given no other recourse. And when that filing occurs, it becomes public extremely quickly. So that means everybody knows at the same time.

Operator

The next question is from Liav Abraham with Citi.

Liav Abraham - Citigroup Inc, Research Division

Just a question on long-term guidance.

David E. I. Pyott

We can't hear you. If you could talk really closely into the microphone, please.

Liav Abraham - Citigroup Inc, Research Division

Okay. So my question is on long-term guidance. Can you concern that you're still confident in your aspirational targets of medium-term, double-digit earnings growth? And then also earlier this year, you spoke about 10% medium-term topline organic growth. Is this something that you are still comfortable with? And can you remind us of the primary drivers that will help you attain this goal given the incremental pressures to your drive franchise, not just from a generic, but also from potential incremental brand of competition?

David E. I. Pyott

Right. Well, I mean, I think if you first of all reflect upon my remarks about upholding good science and patient safety for RESTASIS, I believe that we can be successful in defending the RESTASIS franchise for quite a long length of time. So that's a very important starting point. Nobody has directly asked me the question about the LUMIGAN patent trial. The way that I would put that in context is to say the general arguments about the novelty of the formulations and the patents are extremely similar to all of the other glaucoma patent trials that we've gone through in the last, call it, 10 years. That being said, of course, and some of you know that I'm a lawyer, every time you go to court, you have a different judge and a different jury. And patents are both swords and shields. And when you put them up for attack, you cannot guarantee that you'll win on every occasion. So I have to give that a fair balance. So those 2 things stated, assuming that we're successful in defending RESTASIS from inappropriate bioequivalence and in vitro assays and we prevail in the LUMIGAN trial, the outlook for this company looks strong. And I can reiterate about 10 percentage revenue growth and double-digit earnings growth on a non-GAAP basis. And when you think through why I say that, that is because almost all of our markets worldwide are in good growth situation. Even in glaucoma, when you read the transcript or maybe you jotted it down, end market, IMS reports Allergan growing 10% year-to-date June in glaucoma, which is pretty good considering that the market only grew 3% also per IMS worldwide year-to-date June. And think about the 11 products we've had approved since the end of 2010, if I just take the FDA data, let alone all the other incremental approvals we've had, whether it be in Europe or Asia or elsewhere. And I do give you a lot of detail on that on every call. So some really good metrics, some good situations to give us really carrying power for the next 5 or so years. And that, of course, stating the obvious again, is all based on things we know today and no fantasies of the acquisition or license deal that's just around the corner. We never count those until they're signed.

Operator

The next question is from Annabel Samimy with Stifel, Nicolaus.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Most of them have been answered, but I did note that a common theme here are on OZURDEX. It was growing sharply and that you also mentioned that it's one of the medium-term growth drivers in DME. So can you help us understand that market a little bit, what sharply means, and how big does the DME opportunity offer to you?

David E. I. Pyott

Right. So why don't Scott handle, if you like, the medical condition side first and then I'll add some color in terms of how big this could be.

Scott M. Whitcup

So in terms of diabetic macular edema, OZURDEX has been approved for 2 relatively small indications of uveitis and retinal vein occlusion. Because of the epidemic in diabetes, unfortunately, the number of patients with diabetic eye disease is exploding. There are anti-VEGF therapies out there that have been approved, but if you look at the data, there is a significant proportion of patients, some studies, approximately 30%, who either don't respond well to the anti-VEGFs or who need additional therapy. And we believe that the data will support that OZURDEX is a great treatment for diabetic macular edema and that they're, even with anti-VEGF therapy, a huge unmet need. In addition, OZURDEX has given approximately every 6 months. And for patients who have the burden of requiring oftentimes monthly injections, this is a great alternative. So we believe that the DME approval will help further spur growth of OZURDEX. And I'll turn it over to David in terms of the growth rate.

David E. I. Pyott

Yes, well, considerable means of the order of magnitude of 50%. I think to give investors a greater handle on this, we will certainly consider once DME's approved, sharing what are the sales with you because I certainly appreciate seeing is believing. And I think another thing also that probably has, to some degree, confused investors is the fact that we're so dramatically outselling OZURDEX in Europe relative to the United States. And with all respect for you, of course, most of you are based in the United States, and naturally, you then tend to consult key opinion leaders in this country, and that is totally normal, whereas in Europe, there are some markets that are very, very strong for OZURDEX. In fact, when I look at our patient share, now don't get confused between patient share and value share, given that LUCENTIS is -- and [indiscernible] are very expensive products, we're in the double-digit number in terms of patient share in retinal disease. So that gives you a little bit of an insight on what could be coming down the road.

Operator

The last question is from Vamil Divan with Credit Suisse.

Vamil Divan - Crédit Suisse AG, Research Division

So just one quick one. I know -- I appreciate the comments you've made around...

James M. Hindman

Can you please speak up? I'm sorry, we can't hear on this end.

Vamil Divan - Crédit Suisse AG, Research Division

Sure, sorry. I appreciate the comments you made around RESTASIS and around the FDA. Now just around the RESTASIS X, if there's any comments you can provide regarding, if nothing else, just timing, how long that might be...

James M. Hindman

Yes, Vamil, it's cutting out. [Technical Difficulty]

Vamil Divan - Crédit Suisse AG, Research Division

Just about RESTASIS X, if you can provide any color around the potential for that product in terms of timing and how long it would take to get through a Phase III potential to the market?

Scott M. Whitcup

Okay. So what we've said is that you will see posted on clinicaltrials.gov approximately end of this year that the study design for RESTASIS X, it will give you some insight into what the product is for competitive reasons we haven't settled out. But that study will be a Phase II. So although we're excited about the potential, it's still a bit away from Phase III in the market. But you'll get some initial insight end of this year and then we'll start talking more about what it is subsequently.

James M. Hindman

We'd like to thank you for your participation today. If you have any other further questions, Joann Bradley, David Nakasone and I will be available immediately following the call. Joann will now take 5 minutes to give you market share data.

Joann Bradley

Thank you, Jim. The following market share data we are providing is Allergan's good phase estimate based upon the best available sources for data, such as IMS, as well as Allergan's internal estimates.

The market size, share and gross rate information is a moving annual total or trailing 12 months as of the end of June 2013, except to where noted as year-to-date through June 2013. The market for ophthalmics is approximately $19.8 billion, growing at a rate of 12%. Allergan's market share is 16%. Year-to-date, the market is growing 12% and year-to-date, Allergan's share is 16%. The market for glaucoma, approximate $5.3 billion, growing at a rate of 2%. Allergan's market share approximates 26%. Year-to-date, that market is growing 3% and year-to-date, Allergan's share is 27%.

The market for ocular allergy approximates $1.5 billion, growing at a rate of 4%. Allergan's market share approximates 3%. Year-to-date, that market is growing 6% and year-to-date, Allergan's market share is 3%. The plane ocular anti-infective market is roughly $1.4 billion. That market is flat and Allergan's share is 7%. Year-to-date, that market is growing 1% and year-to-date, Allergan's share is 7%.

The market for ophthalmic nonsteroidal anti-inflammatories is around $540 million, growing at a rate of 12%. Allergan's market share is 6%. Year-to-date, that market is growing 9% and year-to-date, Allergan's market share is 6%. The artificial tears market, inclusive of ointments, is approximately $1.7 billion, growing at a rate of 7%. Allergan's share is 21%. Year-to-date, that market growth is 6% and year-to-date, Allergan's share is 21%.

U.S. topical market for acne and psoriasis is roughly $2.6 billion with an annual growth rate of 9% and Allergan's share is roughly 10%. Year-to-date, that market is growing 10% and year-to-date, Allergan's share is 11%.

The top 10 markets for neuromodulators are roughly $2 billion, growing at a rate of roughly 14%, and BOTOX has approximately an 84% market share. Year-to-date, that market is growing 14% and year-to-date, BOTOX market share is 84%.

The worldwide market for neuromodulators is roughly $2.6 billion, growing at a rate of roughly 13%. BOTOX has approximately a 77% market share. Year-to-date, that market is growing 14% and year-to-date, BOTOX market share is 76%.

The worldwide market for dermal facial fillers is roughly $1.1 billion, growing at a rate of approximately 9%. Allergan has approximately a 38% market share. Year-to-date, that market is growing 12% and year-to-date, Allergan's share is around 39%.

The worldwide breast aesthetics market for aesthetic and reconstructive is roughly $900 million, growing at a rate of around 1%. Allergan has approximately a 41% market share. Year-to-date, that market is declining around 3%. And year-to-date, Allergan's share is about 41%. And that concludes our call for today. Thank you.

Operator

Thank you for your participation. You may disconnect at this time.

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