Allergan's CEO Discusses Q4 2010 Results - Earnings Call Transcript

 |  About: Allergan plc (AGN)
by: SA Transcripts


Hello, and welcome to the Allergan Fourth Quarter 2010 Earnings Call. [Operator Instructions] 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 Hindman

Thank you, Terry. 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 will 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 fourth quarter and year-end 2010 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 with a 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 this information on our website at

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

David Pyott

Great. Thank you, Jim. Good morning, ladies and gentlemen. Allergan is in a strong position as we enter 2011. With a record number of R&D approvals in 2010, both from FDA and regulatory agencies around the world coupled with a modest recovery of most major economies and the return of almost all of our cash pay markets to above prerecession levels, and finally, the worst of the impact to generics on our U.S. Ophthalmology business behind us, with all those factors we're looking ahead at several years of strong revenue growth.

Regarding our outlook for sales, as laid out in our press release, we're forecasting growth in a range of between 4% and 8%. Regarding earnings, we're looking to a range of 12% to 14% for non-GAAP EPS, even after we've absorbed approximately $100 million of incremental costs from U.S. healthcare reform and European price cuts and increased rebates. Especially looking at R&D, you will notice from our forecast that we have made the strategic decision to strongly increase our investment as we reload our pipeline with the goal of assuring Allergan's long-term growth objectives. However, it is also clear that we'll be leveraging SG&A spend, particularly in developed markets.

Now reviewing the results of the fourth quarter and the full year. Sales increased versus the fourth quarter of 2009 by 6.9% in dollars, reflecting some impact of the weak euro and by 7.4% in local currencies. For the full year, sales growth over 2009 was 8.4% in dollars and 7.5% in local currencies. Operating performance was strong, with non-GAAP diluted earnings per share at $0.88, marking a 12.8% increase versus the fourth quarter of 2009 and at the top end of the expectations provided at the time of our last earnings call.

Earnings were driven by strong sales growth, particularly outside the U.S. where we enjoyed mid-teens sales growth, with high teens or better sales growth in Asia Pacific, Latin America and Canada, and even double-digit growth in several European countries. Performance was boosted by gross margin expansion for both the Pharmaceutical and Medical Device segments.

For the full year, diluted EPS of $3.16 increased 13.7% over 2009 after we increased R&D investment, and on a non-GAAP basis by 13%, this is R&D spend, to $662 million. In line with common practice with consumer brands, we were able to leverage direct-to-consumer spending for individual products in post-launch years. In 2010, we spent $171 million versus $185 million in 2009.

Before covering the performance of the businesses, I'd like to comment on our partnership with MAP Pharmaceuticals to co-promote LEVADEX in the United States. This product is a great fit with our portfolio, with LEVADEX being likely indicated for acute migraine and BOTOX approved for chronic migraine offering headache specialists with a continuum of care. Timing after the establishment of BOTOX for chronic migraine looks ideal and the partnership leverages our investment into our sales and marketing infrastructure. Allergan and MAP will be virtually the only companies actively marketing branded products in the headache market.

Now looking at the products. Regarding BOTOX performance, growth in the fourth quarter versus prior year was 11.1% in dollars and 11.2% in local currencies, marking an acceleration versus full-year sales growth of 8.4% in dollars and 7.1% in local currencies. For the full year, as stated in our press release, sales of BOTOX Cosmetic increased 11% over 2009, showing both economic recovery and our ability to sustain only a marginal loss to our high worldwide market share.

BOTOX therapeutic increased 6% over 2009, with BOTOX maintaining or even marginally gaining world share. Obviously, with the mid-October approval of BOTOX for chronic migraine in the U.S., there was only a small incremental contribution to sales in the fourth quarter. On a global basis, we estimate in Q3, the last period for which we have market data, that BOTOX enjoyed 77% market share, down only two percentage points from Q3 of 2009. In the Aesthetic Market segment, Dysport procedure share in the U.S. seems to have stagnated at around 17% to 18% since April with of course value share being lower. In Europe, Merz and Galderma have made small market share gains with their launches of Bocouture and Azzalure. In the Therapeutic Market segment, Dysport and Xeomin have gained only marginal share in the U.S., even with sampling and Xeomin has garnered little share in Canada.

Regarding chronic migraine, we are pleased to report that there is great physician interest in the headache community. Our sales force is fully deployed, with one group focused on movement disorders and the other on chronic migraine. We're commercializing a 200-unit vial and recommend purchase of this SKU for chronic migraine. We've made very strong progress securing coverage for BOTOX for chronic migraine in the critical area of commercial managed care formularies, as well as Medicare formularies. Typical policy at managed care organizations is to provide proof of failure on two prior medications, making the prior authorization process quite smooth. At this point, we're putting greater emphasis on hands-on training for physicians as this is now the greater rate limit step for sales build.

Moving on to Ophthalmic Pharmaceuticals. Sales increased 6.6% in dollars and 7.4% in local currencies over Q4 of '09. For the full year, growth was 7.7% in dollars and 7.0% in local currencies. Noteworthy was the strong LUMIGAN and GANFORT fourth quarter year-over-year performance, a 17.7% growth in local currencies. In the fourth quarter, there was a disparity in eye care performance with low growth in the U.S. offset by high international growth as we manage through the impact of the authorized generic of ALPHAGAN 0.15% and generics of ACULAR. Our data provider, SDI VONA, shows Allergan in the fourth quarter growing year-over-year in the U.S. 2.3% in a market growing very healthily at 14.2% in acquisition dollars.

Outside the U.S., we enjoy double-digit growth in Europe, Latin America and Asia. In the U.S., we're very pleased that we're positioned for better growth in 2011. LUMIGAN 0.01% has started very strongly with NRx share at the last week of data already at 24% of the overall LUMIGAN franchise after its launch just before the American Academy of Ophthalmology in October. As it has been the experience in Europe and Canada, ophthalmologists appreciate the comparable efficacy to the original LUMIGAN, but with dramatically lower hyperemia and discontinuation rates. LUMIGAN 0.01% enjoys comparable managed care formulary status to the original LUMIGAN and we're well positioned prior to the arrival of Xalatan generics.

In market, RESTASIS in the fourth quarter grew strongly year-over-year in acquisition dollars at 14%. x factory sales growth worldwide was lower, growing only 7.1% due to an increase in channel inventory during the fourth quarter of 2009. COMBIGAN grew 35% in acquisition dollars, offsetting most of the decline in ALPHAGAN sales. Regarding generics, we're pleased that branded ALPHAGAN and COMBIGAN continued to hold over 70% share of trailing prescriptions of all brimonidine-containing products. The impact of generics on the ACULAR and ACUVAIL franchise has unfortunately been substantial as we had little time to transition to our improved ACUVAIL product. For 2011, we're excited to launch LASTACAFT, a product with a strong anti-allergy profile and we're also benefiting from a permanent J-Code for OZURDEX.

Canada enjoyed a spectacular quarter due to strong performance of LUMIGAN and ALPHAGAN, where generic ALPHAGAN was on back order and also the launch of RESTASIS. Due to the strong uptake of LUMIGAN 0.01% and its reimbursement on all provincial formularies, we announced in Jan 1 that the original LUMIGAN product will be discontinued across Canada. In Europe, double-digit sales growth was driven by LUMIGAN 0.01%, GANFORT, our Artificial Tears line and strong uptake of OZURDEX, especially in Germany. Allergan is also benefiting from market share gains in both glaucoma and tears across the European Union.

Regarding facial aesthetics, we continued to enjoy strong growth. In the fourth quarter, sales year-over-year increased 22.6% in dollars and 23.3% in local currencies and for the full year 30.1% in dollars and 28.5% in local currencies. Allergan is growing strongly in every operating region in the world and based on our analysis is gaining share in every region, thanks to the introduction of innovative products. Market growth is being stimulated by the new lidocaine-containing products and the success of JUVÉDERM VOLUMA outside the U.S. where there is great interest in the use of fillers for volumizing, especially the mid-face area. Where locally permitted, we have also invested in JUVÉDERM direct-to-consumer advertising.

Regarding skin care, sales decreased in the fourth quarter versus prior year by 9.8% in dollars and 9.9% in local currencies. Obviously, the major reason for the reduction is the decline in LATISSE sales year-over-year by 33%, which requires some explanation. Analyzing our x factory sales, both direct-to-physician and to wholesalers, it is clear with the benefit of post-hoc analysis that there was a stocking effect in Q4 2009 in doctor's offices. This accounts for about half of the decline.

Another contributor to the sales decline is our heavy sampling campaigns in the fourth quarter. From early October to mid-December, we offered a $100 rebate in cash for LATISSE after receiving a BOTOX Cosmetic or JUVÉDERM treatment. The sampling campaigns were strategic as we know from our consumer market research, the patients have a high degree of loyalty once they have initiated use of the product LATISSE. We're quite encouraged by recent improvements in usage and aptitude surveys regarding perceptions, regarding safety of LATISSE and also intention to purchase.

On a positive note, LATISSE was the fourth largest medical aesthetics product in value in the U.S. and had an estimated half a million customers, even more than JUVÉDERM at the end of its second year of commercialization. In 2011, much management attention is focused on the growth of LATISSE and also our hair growth pipeline. In Canada, LATISSE, which was recently launched, has enjoyed strong uptake and has garnered quickly wide distribution in physicians' offices. Regarding other products, principally medical dermatology, x factory sales increased 5%. This understates fourth quarter year-over-year acquisition dollar growth reported by SDI VONA of 39% for ACZONE and 17% for TAZORAC. For breast aesthetics, Q4 sales increased year-over-year 8.9% in dollars and 10.3% in local currency, broadly in line with growth for the full year of 11.0% in dollars and 11.1% in local currencies. In the U.S., we continue to see a gradual pickup in the mix towards silicone gel implants.

For the first three quarters of 2010, the last period for which we have market data available, we believe that we have gained some worldwide market share. We're pleased with our performance in Korea and Australia where we have taken over direct selling operations. Regarding last week's advisory from the U.S. FDA, regarding the extremely rare occurrence of anaplastic large-cell lymphomas in breast implant patients, we're gauging customer reaction carefully. We're knowledgeable about all occurrences reported worldwide, both in Allergan implants, as well as those of competitors. In early 2010, as some reports occurred, we already assembled a panel of the most preeminent experts in rare cancers and epidemiology, presenting them with all the facts that were available as patient health and safety are always our highest priority. Our intention is to publish the findings in an appropriate medical journal. At this stage, we do not expect a major impact on our sales in 2011, which is reflected in our outlook for worldwide sales.

Regarding the obesity intervention product line, sales in the fourth quarter year-over-year declined 9.9% in dollars and 9.8% in local currencies. For the full year versus 2009, sales declined 5.8% in dollars and 7.0% in local currencies. In the U.S., we continue to suffer from the apparent correlation of this market with high unemployment rates. We estimate that the Cash Pay segment of the market declined 26% in 2010 to about 10% of the overall market, whereas the reimbursed market for all bariatric procedures declined 3%. Within this reimbursed market, the band market declined 4% and stapling procedures declined 3% as sleeve gastrectomy grew on a small base. Regarding LAP-BAND share within the band market, we're now entering a time frame where our share year-over-year is stable.

In Q4, we estimate our share at 73%. Outside the U.S., Australia had a particular poor Q4, which we ascribe to economic conditions and consumer credit conditions as we do not believe that we lost market share. In Europe, Latin America and Canada, we continued to enjoy modest growth. For 2011, we look forward to receiving FDA approval for the lower body mass index indication, improving managed care access, disseminating exciting health economics data on LAP-BAND.

Commenting urology, Q4 sales decreased 7.1% in dollars as we absorbed the impact of generics with original SANCTURA product and no longer have growth in the GP channel after termination of the co-promotion agreement with NovaQuest. SANCTURA XR, our latest generation product, however, continues to grow strongly. Q4 acquisition dollar growth was 21%. We remain excited about the strength of our emerging urology pipeline, led by BOTOX for neurogenic detrusor overactivity, which was filed with the FDA, as well as EMEA and Health Canada in Q4.

Finally, you may have seen from our 8-K of this morning announcing the retirement of our two longest-serving directors, Gavin Herbert and Leonard Schaeffer. Gavin Herbert was our company founder. He has served Allergan's board for 60 years, building the company in giant steps in his more than 30 years as CEO. Leonard Schaeffer has served the board with excellence since 1993. I wish to thank them both for their high standards, their wise counsel and making available their profound knowledge of the healthcare industry.

I'll now pass over to Jeff Edwards, who will provide detailed comments on our financials.

Jeffrey Edwards

Thank you, David, and good morning to all of you on the call. During the fourth quarter of 2010, Allergan generated strong sales, operating results as we are again able to overachieve our sales expectations despite headwinds relating to U.S. healthcare reform, Europe pricing pressures, and the ongoing generic impact to our ALPHAGAN P 0.15 and ACULAR brands. Allergan's diversified base of business and thoughtful directed approach to reinvest back into the business enabled the company to deliver non-GAAP diluted EPS results at the top end of our earnings per share guidance for the quarter.

Non-GAAP diluted earnings per share for the fourth quarter were $0.88, marking a 12.8% increase over 2009 results for the same quarter. Excluding the effects of the R&D tax credit catch-up, non-GAAP diluted EPS for the fourth quarter approximated 8%. As a reminder, the fourth quarter EPS for 2010 was positively impacted by approximately $0.04 due to the retroactive benefit caused by the renewal of the U.S. R&D tax credit in 2010. A reconciliation of all of the adjustments to GAAP earnings is set out in our earnings release.

For the full year of 2010, Allergan delivered non-GAAP diluted earnings per share of $3.16 despite the various friction points described above and continuing competition in the neuromodulator market. The strong full-year result was above the high end of our initial range of expectations provided in February 2010 of $3.09 to $3.15. Our strong commitment to the long-term future of our company and to our shareholders is evident in this result as we're able to both invest strongly into the growth drivers of the business and pass stronger earnings performance on to our shareholders in the form of greater EPS performance.

Excluding the effects of non-GAAP adjustments in amortization of acquired intangibles, Allergan's Q4 2010 gross margin of 85.8% increased 110 basis points when compared to Q4 2009 and Allergan once again saw a sequential quarterly improvement in both its Pharmaceutical and Medical Device margins. This continuing positive gross margin trend has been driven primarily by improved year-over-year standard cost with the very substantial contribution coming from our breast product line, given our changeover to lower cost manufacturing base in Costa Rica, favorable volume-based manufacturing variances, lower year-over-year inventory provisions and lower royalty expense.

The non-GAAP selling, general and administrative expenses to product net sales ratio for the fourth quarter was 40% totaling $517 million. The comparable ratio and expense value for the same period in 2009 were 41.7% and $503 million, respectively. We are recognizing the benefits of leveraging many of our businesses while continuing to have the latitude to make meaningful investments and investments which are focused on projects that we believe will yield the greatest financial returns. You can expect this approach and method to continue during 2011 and we should continue to make progress towards further leveraging this ratio.

Non-GAAP research and development expenses were 15.5% of product net sales for the quarter, totaling $200 million, an increase in spend of approximately $15 million over the fourth quarter of 2009 and sequentially above the level of spends of the third quarter of 2010 as we continue to fund new projects and increase funding of projects, which continue to advance for our pipeline. Allergan's consistent commitment to investment within our R&D process has proven to be a productive one and has resulted in promising Pharmaceutical and Medical Device pipelines.

Excluding the effect of non-GAAP adjustments, Allergan's fourth quarter operating income ratio increased by 260 basis points when compared to the fourth quarter of 2009. Continuing enhancements to gross margins and enhanced leverage within the SG&A category are the primary drivers of this improvement. These favorable results are reflective of the company's continued application of a disciplined and selective approach centered on maximizing return, while maintaining appropriate future focused investment levels.

With respect to our balance sheet, consolidated Allergan days sales outstanding was 46 days, while consolidated Allergan inventory days on hand was 115 days. Excluding fourth quarter payments to the DOJ of approximately $594 million, Allergan generated operating cash flow after capital expenditures of approximately $185 million in the quarter and $955 million for the full year of 2010. This compares to $1,018,000,000 generated for the same period in 2009.

At the end of the fourth quarter, Allergan's cash and short-term investments net of debt positions totaled approximately $2.7 billion and $535 million, respectively. Please recall that there is a potential that some of this cash balance may be utilized to retire our existing convertible debt, which is puttable and callable on April of 2011.

For the first quarter of 2011, Allergan estimates product net sales in the range of $1,170,000,000 to $1,220,000,000, and non-GAAP diluted earnings per share to be in the range of $0.71 to $0.73. Regarding full year expectations for 2011, Allergan estimates product net sales in the range of $5,020,000,000 and $5,220,000,000, and our full year non-GAAP diluted earnings per share between $3.54 and $3.60, which represents growth of between 12% and 14%.

As we have previously communicated, our 2011 expectations include approximately $100 million of pretax equivalent headwinds relating to U.S. healthcare reform and Europe pricing pressures. Given our substantial investment in R&D planned for 2011 as we continue to execute against our strategy to consistently reload our pipeline, as well as our ability to fully absorb the headwinds just mentioned, our strong expectations with respect to operating performance and earnings growth rate for the year is really reflective of our resolute focus on execution and our very well-positioned business model. For your information, expectations for other lines of the income statement and specific product sales expectations are included in our earnings release.

With respect to 2011 capital expenditures, we project CapEx of between $160 million and $180 million for the full year. Regarding 2011 cash flow, we expect to generate operating cash flow after CapEx of approximately $900 million. We have assumed moderate levels of share repurchase activity of approximately 4 million shares in 2011, with our repurchase objectives limited to only match expected employee stock option-based compensation programs.

Our solid results during the fourth quarter and full year of 2010 is another testament to the value of the depth and breadth of Allergan's diversified lines of business. We will strive to continue to build on our momentum and effectively execute our business strategies, further strengthening Allergan as a leader in our selected specialty markets. We look forward to our new opportunities emerging for Allergan in 2011.

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

Question-and-Answer Session


[Operator Instructions] Your first question comes from Ronny Gal of Bernstein.

Ronny Gal - Bernstein Research

Just a quick question on two products. First, on VOLUMA, when do you expect VOLUMA approval in the United States? And second, I understand you'd be talking a little bit about the ophthalmic pipeline and I've noticed the retinitis pigmentosa trial of brimonidine DBS was completed. If you, Scott, can you give us potentially like a headline view of those results?

David Pyott

I'll take the first one, Ronny, also just to get the record straight, I may have misstated the R&D number for 2010, which on a non-GAAP basis was in fact $762 million an increase 13% year-over-year, just so we get the record straight. Then first one you had VOLUMA, clearly because we have to go through a full clinical review cycle here in the United States, that you'll find that in our pipeline listed as 2012 plus. And obviously, we're really looking forward to getting that product in the market because it's doing exceptionally well in all the markets where it's been introduced. And then over to Scott on Opthalmology.

Scott Whitcup

So Ronny, your question was on the brimonidine for retinitis pigmentosa. So those trials are recruited but the trials -- because retinitis pigmentosa is a slowly progressive disease, they take a while. You'll probably have first visibility to those data at our R&D day, which will probably be March or April of next year is what we've said.

Ronny Gal - Bernstein Research

Scott, do you have any clinical data on patients you had on brimonidine DBS? Do you have any indication of those that, that device is in your protective post -- essentially you've got proof of concept in humans?

Scott Whitcup

Yes, we haven't sort of look at full data sets and released on any of those data. There was a paper with topical brimonidine recently published by Ted Krupin on topical brimonidine, so it might be interesting for you to take a look at that. That was a study in low tension glaucoma, but that wasn't with the implant.


Your next question comes from Ken Cacciatore, Cowen and Company.

Ken Cacciatore - Cowen and Company, LLC

I was wondering, David, if you could give us some context around the clinician education for the migraine indication. If you can't give us specifics using a baseline of clinicians that were using it pre-approval, can you give us is it a sense of 3x, 4x? And then percent specialists and neurologists being trained versus general practitioners?

David Pyott

Well, what we've quickly learned is that we really have two types of training. One is web-based, which is obviously the quickest. But what we really have understood and this is in line with really, I could say, decades of experience with other indications, hands-on training with real patients, ideally initially with the accompaniment of the colleague is really key. To give you a sense, we wish to double the number of injectors this year based off the baseline. Another really key fact is, and this has been reported in some of the surveys that naturally pre-approval use was basically paid for out-of-pocket in the main. And so actual use was much closer to about 100 units per patient in practice. Clearly, the label is 155 units and our goal is to get existing users of the product up to the labeled dose very quickly because that's where we have the clinical data set and that's what the label states.


Your next question comes from Corey Davis, Jefferies.

Corey Davis - Jefferies & Company, Inc.

This is probably for Scott. Could you just maybe go down the list of the top areas where you're going to be spending your R&D budget in 2011 top projects?

Scott Whitcup

Sure, Corey. We've made a major reinvestment -- I shouldn't say reinvestment, but continued investment in our core area which is ophthalmology and so we have programs across the board. Retina is a big emerging area, so we've got a couple of major projects in retina. A lot of money going into new treatments in glaucoma and really a refocus on front-of-the-eye diseases. So you'll see both on and then at R&D day a number of new programs on the ophthalmology space. BOTOX continues to be a big investment, so we've got big Phase III urology trial still in progress with idiopathic overactive bladder and our targeted toxin did well through Phase I and is into Phase II in two indications, one, for overactive bladder and two, for postherpetic neuralgia. And then the third measure is on the aesthetic side. So we've got a number of things both pharmacologically and on the device side and in aesthetics as well. So those are the major areas of focus.


Your next question comes from Greg Gilbert, Merrill Lynch.

Gregory Gilbert - BofA Merrill Lynch

One question of Scott, who will hopefully give us multiple answers. Scott, I was hoping that you could give us what you see as important pipeline readouts in 2011, including those that maybe you're not asked about often, they could be proof of concepts FDA actions, what have you. So can you run through some of the learnings in 2011 that are important to you?

Scott Whitcup

As David have stated, we've got a number of new programs that we geared up last year and starting this year and we'll get readouts at the end of this year for a couple of major retina programs for probably a handful of our ophthalmology, glaucoma programs. And then some of the major readouts you'll see actually this year are neurogenic overactive bladder data. So the first will be in the European Congress in Vienna, you'll see the first Phase III data and then the American Conference later, you'll see the second Phase III, I believe that's in Washington. Idiopathic data probably rolls out next year, so our new entrée with BOTOX into urology will roll out with the data this year and next year. And then the targeted toxin probably will be next year. If the targeted toxin shows good efficacy and safety, not only is that a major product for pain, but it opens up a platform for discovery because we can target other diseases with the targeted toxin. So I'd say, those are the big ones and then end of next year, of course, everyone, especially us. Men with less hair or women with thinning hair, those programs are fully resourced, but hair growth unfortunately is a little bit slow, so you have to wait and that will be probably end of next year that we'll get a readout, end of this year, early next year before we start getting a readout on hair growth.


Our next question comes from Marc Goodman, UBS.

Marc Goodman - UBS Investment Bank

David, I was curious, if you didn't have this $100 million headwind, like kind of going forward, you probably would have spent 16% R&D ratio anyway, but I'm curious how much SG&A leverage you would have worked on to drive to the bottom line. And I guess the real question is, would EPS growth instead of being 12% to 14% been 13% to 15% or 14% to 16%? Or how should we be thinking about what would have happened?

David Pyott

Of course, it's always nice to dream, although I suppose California dreaming does kind of fit where we live. Clearly, the cost of U.S. healthcare reform and the European actions, that's worth some $0.20 to $0.23, so pretty substantial. And we clearly would have given investors a higher return than the one we're indicating currently. Of course, I think a lot of you who know us very well over a long period of time know that we strive to run the company efficiently, and if the company does well, we share some of that upside back with investors in terms of EPS growth. Whilst, of course, always our goal is to make sure we're going to be successful over the long haul, and hence why I've said so much about long-term commitment to R&D call after call. And at the same time, we want to continue to invest really they're not that expensive, but in the emerging markets where we're making tremendous progress and being very careful with spend in the developed markets, as I stated in my opening remarks.


Your next question comes from David Risinger, Morgan Stanley.

David Risinger

My question relates to the number of injectors. And David, you had mentioned that you wished to double the number of injectors this year off the baseline, and I hadn't really contemplated a number, but I guess I would have thought that maybe it would have been up fourfold or something. And so with that backdrop, maybe you could frame for us the number of neurologists in the country and how many of those you expect to regularly administer BOTOX for migraine. Are we talking about something like 10% of them administering it previously going to 20%? Or is there any way to frame the numbers so that we understand what percentage of experts will actually be using BOTOX for migraine?

David Pyott

Well, obviously, I can't answer the first question because then you just need to do straight multiplication. I've given you the answer exactly. But let me come the other way. Clearly, within the neurology community, there are people who specialize in headaches or migraine, others say in epilepsy, it's the same as ophthalmology. There's people who do a little bit of everything and then there's sub-specialists. So the way we think about this is probably overall a neurology community of the order of 10,000 and down the road a subset of that may be half or 2/3 could become highly regular users of BOTOX. As I also stated, and I really wanted to get that information out, somewhat differently than what we thought when we started, we were more concerned about getting reimbursement in place and then worrying about training secondly. I would now reverse that order in terms of reimbursement has gone really well with many of the leading plans that others look to adopting policy quite quickly. And now, as I stated in my opening remarks, it's all about getting hands-on training organized. I think earlier, one of the other questioners asked about neurologists versus others, and I admitted inadvertently to answer the question, all our training is focused on neurologists. We want them to get it really right and be successful.


Your next question comes from Larry Biegelsen, Wells Fargo.

Larry Biegelsen - Wells Fargo Securities, LLC

Your LUMIGAN guidance is encouraging given the patent expiration of Xalatan this year. Is there anything you can offer that would just give us confidence or why you're confident you can grow through the patent expiration of Xalatan and just a simple answer on BOTOX for OAB, did you get a priority review?

David Pyott

First of all, I think really the performance of LUMIGAN and of course overseas is coupled with GANFORT, where GANFORT is available, it's regarded really as maximal medical therapy. This is clearly LUMIGAN combined in one drop with timolol. And then coming to LUMIGAN 0.01, you could probably hear from my remarks, we're really excited about that product. It has a really differentiated clinical profile. The way I've kind of thought about it more and more is stepping back almost 10 years ago when we launched the original LUMIGAN, some of the Allergan enthusiasts thought that we were going to kind of move out Xalatan and become rapidly the world market leader. We like that idea. Of course, now with the benefit of history, we did well but we didn't become number one. And really our weak point was hyperemia, and hence why this product I think is what we'd hope for, if you like, first time around. And with this differentiated profile, we're in a very good spot and that's reflected already in managed care formulary positions for this year and we're already beginning to start conversations for formularies in 2012, and based on the commentaries we received, clearly there's no contracts yet signed. Things are going very well and hence why we feel rather confident that we will work our way through the arrival of latanoprost or Xalatan generics. On the other question, priority review, what should we say? No comment, yes.


Your next question comes from Shibani Malhotra, RBC Capital.

Shibani Malhotra - RBC Capital Markets, LLC

Just one on long-term growth for Allergan. Just following on, on Marc's question about the growth rate x the healthcare reform this year, it was closer to probably 19% to 21%. I guess, how should we be thinking about reform going forward? Is this something that you're going to absorb in 2011 and then it's back to fundamentals, or do you see incremental costs for 2012 and '13 and beyond? How should we be thinking about that?

David Pyott

Yes. Well, I think the only sort of one thing one has got to keep in mind is the initiation of the Medical Device tax. Now that's assuming, of course, that U.S. healthcare reform remains the way it is, because obviously we've all been reading about news in Florida this week and that's 2013. So 2012 would seem to be more business as usual in terms of the lapping effect. Of course, I hope that my friends and colleagues in Europe don't discover that they need to save even more money. They normally do, and we plan some of that, but this year has been clearly worse than ever. So we've handled it. I think the other factor, of course is, if you like, the benefits of all the new product flow coming on. Something you're clearly all trying to model is what is the shape of the launch curve for BOTOX for chronic migraine. And obviously, we internally have a view on that. Although we too are not, what I call, complete soothsayers. We can't predict with complete accuracy, but the real point there is as all these products pass their first year of launch, this is where you should really see the power coming on. And of course, that's where you also have the ability normally to if you contain spending to benefit in terms of net margin generation.


Your next question comes from David Amsellem, Piper Jaffray.

David Amsellem - Piper Jaffray Companies

Question on RESTASIS, can you remind us where you are in trials in Europe? When do you expect to be in a position to file with the EMEA? And what other overseas filings are on tap for the product?

Scott Whitcup

We do have a program for RESTASIS. Those trials have recruited, but I don't believe that we've given any specific dates in terms of when we file or approve. Maybe there will be an update at R&D day of fixed that programs, but we haven't announced that to date. In terms of the other major filings and programs, clearly, the biggest one is BOTOX for chronic migraine, where we've received approval in the U.K. but clearly through regulatory rollout, have plans to get that approved throughout Europe, I believe, later this year. So that's probably the biggest one. OAB was filed almost -- neurogenic OAB was filed I think within two days both in the U.S. and in Europe. And so timing in Europe usually takes a little bit longer, but hopefully that will come soon after the U.S.

David Amsellem - Piper Jaffray Companies

I was talking more about the RESTASIS filings x U.S., outside of Europe, any others on tap that you can call out?

David Pyott

Well, some of the markets actually follow, whilst they have their own review, the precedence of the United States. And so you can say RESTASIS is available in many Latin American countries, parts of East Asia and places around the periphery of Europe. Turkey is one that I would think of. So if we look at overseas sales, countries like Turkey and Korea have quite decent numbers for RESTASIS.

Scott Whitcup

And Canada of recent.

David Pyott

And of course, thank you, Scott, and Canada was just launched and it was actually the largest single special access product administered by Health Canada. So I think that the prospects for Canadian sales are excellent and there's huge excitement in the Canadian, particularly the cornea circles, but broader than that, across Canadian ophthalmology.


Your next question comes from David Maris, CLSA.

David Maris - Credit Agricole Securities (USA) Inc.

You've two new major approvals at hand, you have the BOTOX headache and the potential for LAP-BAND's new guidelines, but your guidance for the two products really don't show any change in trajectory for either product. The BOTOX sales grew at 8% in 2010 and your new guidance is 8%. So I know you're not going to break out the sales by area and how much headache will be, but it implies that either the therapeutic area non-headache or the cosmetic do worse than they did this year and headache takes up some of the slack or that headache just doesn't show up. So can you address that and for LAP-BAND as well, why if you get the new guidelines would it be down year-over-year?

David Pyott

First thing on BOTOX. Clearly, there's a law of large numbers here. Certainly, if I address -- first of all, let me go to the aesthetic side, the markets are performing quite nicely. You can see it from our press release where we stated year-over-year our sales were up 11%, and I thought somebody would ask me the question, so as you haven't yet, I'll answer my own. Clearly, U.S. market growth and procedures is well into the double digits, so very healthy situation. So I think then coming back on the therapeutic side, as we've always pointed out, therapeutic moves much slower. This is kind of a large ship moving because just with the time it takes for training and so it's very clear there's huge interest in the market, there's an unmet medical need, and I've always indicated that the shape of the launch curve will be flatter one versus a very steep one, just because of the time it takes to learn how to do it, and then they incorporate BOTOX into a regular clinic on a regular basis. So I remain extremely excited about all aspects of BOTOX. Then on LAP-BAND, I think the way to think about a potential FDA approval because, of course, they have a number of months to follow through on guidance and hopefully they normally do. So in round numbers, that is roughly half a year. And I think, again, the effect of an approval will be quite slow and I think, if anything, it will be very useful for us in our conversations with managed care not only to get coverage of greater than 30 body mass index with one comorbidity, but especially to get better conditions for greater than 35 body mass index because, of course, where policy is poor for that, yet we have even greater coverage from the FDA. That becomes a rather tough place to just put in insurance blocks. So I think that is the real benefit in the first couple of years of our dramatically larger eligible population.


Your next question comes from John Boris, Citi.

John Boris - Citigroup Inc

On BOTOX migraine, just has to do with physician training and can you just maybe give us some quantitative commentary around of the physicians that have been trained already, what percent of them have actually purchased a vial of BOTOX? Are you offering any incentives for physicians such as offering them dating potentially to purchase that initial vial or set of vials? And then DTC, thanks for the color on the 185 and 171 that you spent in '09 and '10. Can you just give some color on what you intend to spend on DTC in '11?

David Pyott

First of all, one of the things that we monitor very carefully is what happens post training, but let's say the way I'll try and answer the question is that we wish to make sure that people follow through with real patients really quickly, because if they don't it's like New Year's resolutions that we just don't get around to. The spirit is strong but sometimes action is weak. So we know that from really almost 20 years of experience across all of our different indications. In terms of, let's call it reimbursement, we have a separate group of people who assist with reimbursement. We also have a third-party that assists with reimbursement. And in fact, some of these physicians, of course, are used to using BOTOX in their institutions and thanks to movement disorders. So there is some experience of protocol, how to order, how to mix and so on. And in terms of dating, we haven't changed anything because for years we've had extended dating very well understanding that it takes time for managed care organizations actually to cut the checks and therefore, we need to try and broadly match that period so that we're not expecting the physicians to be funding, if you like, Allergan. Our job is to make that neutral as far as we can.


Your next question comes from Steve Willoughby, Cleveland Research.

Stephen Willoughby - Cleveland Research Company

I was just wondering if you could talk a little bit about breast implant demand U.S. versus o U.S. and the different growth rates you're seeing there, just want to see where the growth is coming from.

David Pyott

Just having a quick look here. If I look across various periods, I would say that x U.S. we're growing a little bit faster than the United States. Obviously, we have some great markets around the world. I think of Latin America where I made remarks in general that we'd enjoyed a very strong quarter and a very strong year. I made the comment that we're probably marginally gaining some market share, but it also points to the fact that the U.S. market is also very healthy. So actually, we're pretty pleased with the way things are going. Maybe one other comment, we were just discussing regarding the question on neurogenic detrusor overactivity for BOTOX, in fact we have not received priority review. We expect a regular review cycle on that, just so we can get that in the public domain.


Your next question comes from Frank Pinkerton, SunTrust.

Frank Pinkerton - SunTrust Robinson Humphrey Capital Markets

I think the operating margins, and I'm thinking more about over the last decade this is a company that's gone from an operating margin around 18% and this is the first time I think you've guided to an operating margin above 30%. From a standpoint of what you need to reinvest both in sales and marketing and in R&D in the longer term, is this the peak or can things like expansion of BOTOX drive that significantly higher to the 35% range when you think of the overall business model for Allergan?

David Pyott

Well, clearly, consistent with quarter-after-quarter remarks, we're extremely committed to R&D growth because, of course, we're also very pleased that when we spend money in R&D, we get great results. And Scott Whitcup and his team have done a fantastic job. Last year was just tremendous and, of course, you could hear from Scott's remarks, we're kind of loading the cannon up again with lots of exciting things. So I think the other side of the divide, of course, is then SG&A. And we're doing our best always to control G&A spend on the right things. Clearly, this year we're having to spend more on compliance, which is in line with all companies in this industry. But given our new obligations, we really have to step it up in terms of spend beyond just attention. And then I made remarks about having built out some very substantial sales structures over the last 10 years in the developed countries, and we're reaching a point where we can now not completely stop that, but increases will be pretty marginal and therefore we'll start seeing leverage. And them, of course, when we look at emerging markets to put it in context, of course, 100 reps in Eastern Europe or Asia don't cost what a 100 reps cost in Germany or the United States or Canada, right? So I would say things are good and you've seen also over the years we've had a very good track record on gross margin. Again, throughput through a very small number of plants really works, and we plan to make it go that way. So you should expect an upward trend, but if we go all the way to net, not in some huge steps, gradual.


Your next question comes from Annabel Samimy, Stifel, Nicolaus.

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

I guess I was most impressed with your Med Device performance and guidance, which is well above expectations. Can you discuss what dynamics you're seeing going forward and what gives you that confidence given the still precarious nature of the economy and your past cautious stance? What gives you confidence and the consistency that this is going to continue to perform, I guess, mostly in the breast aesthetics and facial aesthetics?

David Pyott

Yes, I think generally, if I look at the cash pay market's correlation with economies around the world, one of the great advantages of our business model is that we ship so many of those products direct to doctors' offices where they should really be no principal stocking changes up and down. So we get a very quick readout of what goes out is used in patients. And so that gives us a lot of confidence when I look through piles and piles of trend lines, and I think we understand our business pretty well.

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

Are you saying that it's mostly x U.S. growth? Is it volume growth, or is it market share gains?

David Pyott

I think when you read my comments at the transcript very carefully I give you pretty good indications of what is share change and what is market.


Your next question comes from Amit Hazan with Gleacher & Company.

Amit Hazan - Gleacher & Company, Inc.

I wanted to return to BOTOX for chronic migraine and ask a question more from the patient side of the equation. I'm wondering your thoughts on, that kind of the fragmented nature of the chronic migraine patients. Industry studies in recent years, have kind of shown that only about 40% or so actually see specialists, the majority of them end up going to GPs and even the specialists that they see tend to be very fragmented in nature. So it seems like there's going to need to be a better referral pattern that had to be established. And I'm wondering, number one, if you agree with that? And number two, what you might be doing to improve that referral pattern?

David Pyott

Yes, I think I'll kind of answer the medical question from a strategy point of view. And the way we look at it, of course, is many migrainers reside outside of the care of the neurologist. And so earlier on, again, another question I had that I failed to answer that subpart was DTC, which we are thinking about. I've signaled that we may well do something in probably think about 2012. And the goal of that would be to drive the patients into neurologists' offices. I think even further behind that because we got to build this large franchise in steps and blocks and not get ahead of ourselves, at some point then we have to think how do we access the top end of the general practitioners, and fortunately, there was accumulation there. So they are a subset of general practitioners that do a lot, which is a much better answer than many tens of thousands doing very little, which would be almost impossible for a company like Allergan to address. And so that's something we can do. And then, of course, another thing we've done in the past is working with patient advocacy groups to make them aware of this new treatment option.

Scott Whitcup

This is Scott. I would just add that a lot of the patients being sort of fractionated is that there was no effective treatment for that subset, so I think this will help. I mean, before there wasn't a drive to refer because the same therapies that were available to the skilled GP were also available to the neurologist. Now there's something specific, so I think that will help.


Your next question comes from Gary Nachman, Susquehanna.

Gary Nachman - Susquehanna Financial Group, LLLP

For BOTOX OAB, do you have the full infrastructure in place to launch that indication later this year if you get the approval? I'm assuming nothing is really in the guidance for BOTOX OAB this year. And similar to what you did with the licensing of MAP's LEVADEX, is it a top priority to bring another urology asset in to better leverage that franchise over time?

David Pyott

Okay. Let me answer those questions. So first of all, clearly, with the timing where we assume full cycle for an OAB, any sales effect will be the very margin for the whole company. So that's clear. Of course, the second thing is we already have a sales force because of SANCTURA. So at the margin we'd I'm sure expand that, but this is something that even if you had a perfect radar in the sky, you would scarcely be able to find it or notice it, because it's so marginal. And of course, happily given the other things we did in the last few years in terms of co-operations, we have the partnership with Spectrum Pharmaceuticals for apaziquone, we have the partnership with Serenity for the nocturia product. So actually, Allergan already has one of the most interesting urology pipelines, including large pharma companies. So this is one of the next major things we're going to get done in the next, call it, three, four, five years.


That will come from Seamus Fernandez, Leerink Swann.

Seamus Fernandez - Leerink Swann LLC

So just really a simple question, didn't know if volumes and procedures at least in the short term could actually be affected by the lovely weather that we're having here on the East Coast and across the country. Just as we think about the first quarter, didn't know what the consumer impact might be just in the short term.

David Pyott

In general my attitude is, I'm fairly sort of benign to weather, maybe because I lived in Minnesota at one time and I love minus 35 degrees, which is more or less the same in Fahrenheit and Celsius. Now clearly, if you have freezing conditions people go out less, but my view is there's a catch-up effect. So I don't want anybody to think that I would ever make an excuse about the weather. I've never done that. I used to work for a company that had lots of weather reports at one time. I don't ascribe to that, and we have too diversified an international business to be talking weather.

James Hindman

We'd like to thank you for your participation today. If you have any further questions, Joann Bradley 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 size, share, and growth-rate information is a moving annual total or trailing 12 months as of the end of September 2010, except where noted as year-to-date through September 2010.

The market for ophthalmics is approximately $15.7 billion, growing at a rate of 11% and Allergan's market share is about 15%. Year-to-date, market growth is 11% and year-to-date, Allergan’s market share is about 15%. The market for glaucoma approximates $5.5 billion, growing at a rate of 6%. Allergan's market share approximates 19%. The year-to-date market growth is 5% and year-to-date Allergan market share is 19%.

The market for ocular allergy approximates $1.3 billion, growing at a rate of 1%. Allergan's market share approximates 4%. Year-to-date, the market is flat. Year-to-date, Allergan’s market share is 4%. The plain ocular anti-infective market is roughly $1.3 billion, growing at a rate of 13%. Allergan’s share is about 10%. Year-to-date, the market is growing 13% and year-to-date, Allergan’s share is about 10%. The market for ophthalmic non-steroidal anti-inflammatories is about $450 million, declining at a rate of 1%. Allergan's market share is 19%. Year-to-date, the market is declining 6% and year-to-date, Allergan share is 15%. The Artificial Tears market inclusive of ointments is approximately $1.5 billion, growing at a rate of 8%. Allergan's share is 21%. Year-to-date, that market is growing 7% and year-to-date, Allergan’s share is 21%.

The U.S. topical market for acne and psoriasis is roughly $2.1 billion, with an annual growth rate of 10%. Allergan's share is 8%. Year-to-date, that market is growing 7%. Year-to-date, Allergan's share is 8%. The top 10 markets for neuromodulators is roughly $1.4 billion, growing at a rate of 9%. BOTOX has approximately an 86% market share. Year-to-date, that market is growing 11% and year-to-date, BOTOX share is 86%. The worldwide market for neuromodulators is roughly $1.8 billion, growing at a rate of 11%. BOTOX has approximately a 79% market share. Year-to-date, that market is growing 10% and year-to-date, BOTOX share is 79%. The worldwide market for dermal facial fillers is roughly $760 million, growing at a rate of roughly 19%. Allergan has approximately a 35% market share. Year-to-date, that market is growing 22% and year-to-date, Allergan’s share is about 35%.

The worldwide breast aesthetics market for aesthetic and reconstruction is roughly $820 million, growing at a rate of roughly 9%. Allergan has approximately a 38% market share. Year-to-date, that market is growing roughly 10% and year-to-date, Allergan’s share is about 38%. The worldwide bariatric surgery market for the Band and Balloon segments only is approaching $370 million, the annual, the market is flat and Allergan has approximately a 66% market share. Year-to-date, that market is declining 1% and year-to-date, Allergan’s share is about 66%. And that concludes our call for today. Thank you.


Thank you. Once again, that does conclude the conference for today. Please disconnect all remaining lines.

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