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Allergan (NYSE:AGN)

Q1 2011 Earnings Call

May 04, 2011 11:00 am ET

Executives

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

James Hindman - Senior Vice President, Treasury, Risk and Investor Relations

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

Joann Bradley - IR

David Pyott - Chairman of the Board, Chief Executive Officer and President

Analysts

Ken Cacciatore - Cowen and Company, LLC

David Risinger - Morgan Stanley

Ronny Gal - Sanford C. Bernstein & Co., Inc.

John Boris - Citigroup Inc

Catherine Arnold - Crédit Suisse AG

Corey Davis - Jefferies & Company, Inc.

David Maris - Credit Agricole Securities (NYSE:USA) Inc.

Steve Willoughby - Cleveland Research Company

Larry Biegelsen - Wells Fargo Securities, LLC

Shibani Malhotra - RBC Capital Markets, LLC

Gregory Gilbert - BofA Merrill Lynch

Seamus Fernandez - Leerink Swann LLC

Randall Stanicky - Goldman Sachs Group Inc.

James Dawson - Buckingham Research Group, Inc.

David Amsellem - Piper Jaffray Companies

Marc Goodman - UBS Investment Bank

Frank Pinkerton - SunTrust Robinson Humphrey, Inc.

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

Amit Hazan - Gleacher & Company, Inc.

Gary Nachman - Susquehanna Financial Group, LLLP

Operator

Hello, and welcome to the Allergan First Quarter 2011 Earnings Call. [Operator Instructions] At the request of the company, today's conference is being recorded. [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 first quarter 2011 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 this information on our website at www.allergan.com.

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

David Pyott

Great. Thanks, Jim. Good morning, ladies and gentlemen.

Allergan is off to a strong start for 2011, with growth driven by a wide range of products and franchises across many countries around the world. Our cash pay markets appear to be in an upswing. And for our reimbursed pharmaceuticals, we have good initial sales contributions from the many products approved in 2010. Finally, sales are benefiting from the weak dollar versus almost all global currencies.

Reviewing the results for the first quarter. Sales increased versus the first quarter of 2010 by 13.3% in dollars and by 12.2% in local currencies. Operating performance was strong with non-GAAP diluted earnings per share of $0.77, marking an increase of 18.5% versus the first quarter of 2010 and well above expectations provided at the time of the last earnings call. All of our operating regions, North America, Europe and Asia-Pacific, enjoyed double-digit sales growth in local currencies, with Latin America growing 32% in U.S. dollars.

Regarding regulatory approvals, we continued to make strong progress in many countries around the world. BOTOX for chronic migraine was approved during the quarter in Australia, Brazil, Chile, Hong Kong and Korea and is awaiting action at the European Medicines Agency. Several of those markets now await government pricing approval regarding their public programs.

OZURDEX received a positive opinion in the European Union for the additional indication of uveitis. OZURDEX was further approved for various indications in Switzerland, Canada, Argentina, Colombia, Korea, Hong Kong and New Zealand. Other products approvals will be commented in my reports on the individual businesses. Additionally, we'll be taking our businesses direct in South Africa from July 1 of this year.

Now commenting the performance of the individual businesses. BOTOX enjoyed good growth in the first quarter, increasing 10.1% in dollars and 8.7% in local currencies versus prior year, with good growth stemming from both the therapeutic and aesthetic businesses. In the U.S., we continued to make good progress with the launch of the chronic migraine indication. There was considerable physician interest in the neurology community and about 2,000 physicians have been trained since approval, both through web-based and live injection training. About 2/3 of commercial lines now have policy coverage for BOTOX, with the commercial market accounting for about 2/3 of migraine prescriptions. I would, however, wish to remind you that our experience of the last 20 years with BOTOX and the adoption of therapeutic uses of BOTOX is always a long cycle.

Assuming future FDA approval of LEVADEX, the product partnered with MAP Pharmaceuticals, it is clear that Allergan will be in a strong strategic position with the ideal combination of products with prophylaxis of chronic migraine on the one hand and an abortive medication on the other hand for migraine. Regarding upper limb spasticity in the U.S., we are now experiencing double-digit year-over-year growth in focused accounts in academic medical centers. In the U.S. therapeutic market, Dysport and Xeomin have only gained marginal share even with sampling and Xeomin has captured little share in Canada.

Regarding BOTOX Cosmetic, we are pleased that the U.S. market seems to be growing around the mid-teens in units. With the flattening of Dysport procedure share around 17%, we are poised from April and May onwards, when we cross the anniversary of our market share loss last year, to start fully enjoying the rewards of an expanding market, that is, prior to the potential U.S. entry of Xeomin cosmetic. The European market, despite economic challenges, seems also a bit to be enjoying low double-digit growth. Market conditions in Latin America and Asia Pacific are buoyant. Even with limited market share loss in Europe with the entry of new neuromodulator competitors, we estimate that in Q4, that we enjoyed approximately worldwide 80% market share of the total neuromodulator market and 1% higher than in Q4 of 2009 despite the new competition.

Moving on to Ophthalmic Pharmaceuticals. Sales increased an encouraging 15.6% in dollars and 14.7% in local currencies, with double-digit performance in North America and Latin America and Asia Pacific, with Europe, Africa and Middle East growing in excess of 20%, thanks to the effect of direct selling operations in Turkey and Poland, a strong start to OZURDEX sales, as well as strong growth of LUMIGAN, GANFORT and our Artificial Tears line led by Optive. OZURDEX was launched in Spain with reimbursement in April. The global ophthalmic market continues to grow briskly, as also demonstrated by Alcon's report in their first quarter sales growth of 16% in constant currencies, double-digit performance in both glaucoma and artificial tears. We're pleased that Allergan U.S. has returned to growth after having suffered the effects of genericization of ALPHAGAN P 0.15% and also ACULAR. This is reflected in much improved growth of the ALPHAGAN and COMBIGAN franchise of 5.8% in local currencies, with COMBIGAN growing strongly, especially in the U.S., and ALPHAGAN being broadly flat around the world.

The LUMIGAN and GANFORT franchise grew 18% in local currencies. Wherever launched outside the U.S., GANFORT is performing strongly against its category competitors. It is considered by many ophthalmologists as maximum medical therapy in one convenient drop. In the U.S., LUMIGAN 0.1% is enjoying rapid uptake, especially by thought leaders and high-prescribing glaucoma specialists, enjoying an NRx share in the latest week of 35% of overall LUMIGAN prescriptions.

In the 5 weeks since the launch of generic Xalatan, we have observed an 88% genericization rate of latanoprost. Given the excellent formulary coverage for both LUMIGAN 0.01% and original LUMIGAN, we've seen very little impact on the LUMIGAN franchise. Many ophthalmologists expressed concern about the quality of ophthalmic generics. As has been the early experience in Canada and Europe, U.S. ophthalmologists appreciate the comparable efficacy of LUMIGAN 0.1% to the original, but with dramatically lower hyperemia and discontinuation rates. LUMIGAN 0.1% was launched during the quarter in Italy and Austria and in April in Brazil, Argentina, Colombia, Chile and Belgium.

RESTASIS continues to expand strongly, with 21% growth in dollars and local currencies. And with the genericization of Xalatan, it's about to become the largest single-prescription ophthalmic pharmaceutical in the United States.

Regarding facial aesthetics, Q1 was a spectacular quarter with 48.5% growth in dollars and 47.0% in local currencies with extremely high growth in every operating region. It would seem that the dermal filler market is growing very strongly worldwide with more consumers entering the market given the comfort of the latest generation of lidocaine-containing hyaluronic acid products and more syringes being used per face. At the leading medical conventions around the world, there are increasing numbers of papers and symposia on the use of dermal fillers, especially for volumizing, which is addressed by JUVÉDERM VOLUMA where available. Additionally, we believe that Allergan is steadily gaining share given our innovative range of products across our facial portfolio and our distribution strength in almost all markets around the globe.

In the quarter, strong growth in the U.S. was boosted by the sell-in to physician offices of a consumer-directed promotion, combining purchases of BOTOX Cosmetic and JUVÉDERM. In Europe, we have benefited not only from VOLUMA, but also the launches of JUVÉDERM Hydrate and JUVÉDERM Smile, as well as DTC advertising in the U.K., France and Germany. Of the margin, European region sales were boosted by new launches in the Middle East and the Balkans as well as direct selling in Turkey and Poland. Additionally, JUVÉDERM XC and VOLUMA were launched in the Philippines.

Regarding skin care, sales enjoyed good growth at 16.0% in dollars and 15.8% in local currencies. LATISSE sales enjoyed a rebound, growing 34% in dollars, as well as in local currencies. Part of the strong performance is attributable to the sell-in of promotional offers to physicians, as well as a bonus program for consumers that is in the U.S. Consumer research conducted at the end of last year pointed to the need, strong need, to stimulate initial purchase as consumer satisfaction, having used the product, is high. Our investment in DTC with Claire Danes as a spokesperson for LATISSE is producing strong brand awareness. Outside the U.S., we have experienced good uptake of LATISSE in Canada. In Brazil, we heavily sampled the product in the quarter, pre-full commercialization and initiated sales in April. In Mexico, the Ministry Of Health approved DTC. In Asia, LATISSE was launched in April in Hong Kong and Singapore. In the U.S., we were encouraged that the FDA recently addressed the first warning letter to a company commercializing a supposed lash growth product containing active pharmaceutical ingredient.

Regarding sales of other skin care products, ACZONE increased strongly with acquisition dollars to support sales reported by SDI VONA accelerating at 43%. ACZONE is today one of the principal acne products in the U.S. market. In Q1, we outlicensed ACZONE to Valeant Pharmaceuticals in Canada, as we have many other priorities in the Canadian market and given Valeant's strong presence in Canadian dermatology.

Ex-factory sales of TAZORAC declined in the quarter due to higher rebates and channel inventory change, but in-market sales and acquisition dollars increased double-digit. For breast aesthetics, Q1 sales increased 8.0% in dollars and 7.1% in local currencies, with particularly strong growth in Latin America and Asia Pacific. In the U.S., we benefited from the continuing trend of the market to higher-priced silicone gel implants, as well as good uptake for our latest range of tissue expanders with suture tabs.

Regarding the obesity intervention line, Q1 sales decreased 14.9% in dollars and 16.0% in local currencies. Overall, bariatric procedures in the U.S. market per our market research declined 12% in the first quarter year-over-year, with the reimbursed market declining less severely than the cash pay market, which now accounts for less than 6% of procedures, much of this attributable to unemployment rates. In March, it appears that the market may have recovered after a really poor January and February, but we're cautious of course regarding short-term data points.

Within bariatrics, sleeve gastrectomy increased its share of the market from 6% a year ago to 15% in Q1, with share being taken almost equally from bands and bypass. In Q1, bands accounted for about 48% of the total market. And within the band category, LAP-BAND share increased by 5 basis points versus a year ago to about 73%. Overseas, we also had a very poor quarter for LAP-BAND in our key Australian market. Sales of our ORBERA Balloons increased modestly overseas, with strong gains in Brazil offset by a decline in Spain given the local weak economy. In the U.S., we continue to suffer from lack of access for patients to LAP-BAND even if coverage in principle is available to members of commercial insurance plans. High co-pays and necessity to demonstrate failure and medically supervised diet and exercise programs are real barriers, which we're addressing through our managed markets organization.

We also intend to leverage our recent FDA approval for lower body mass index with payers. Furthermore, we also announced the discontinuation of the Easy Band system acquired in the EndoArt acquisition in Switzerland and closed our facility over there. Very high barriers established by the FDA for all new bariatric devices since the time of the acquisition in 2007 of Endoart have led to a considerable delay in timing of U.S. product approval, which of course accounted for a major part of global sales in our plan. That development, coupled with engineering challenges, contributed to a poor economic result and hence, the need for a tough decision to terminate this program. We, however, remain committed to bring the ORBERA product to market in the U.S.

Commenting urology. Sales decreased 2.9% as we absorbed the impact in generics of our overall -- of our original SANCTURA product. In terms of acquisition dollars as reported by SDI for the first quarter, overall SANCTURA sales declined 5.4% given the impact of generics on the original SANCTURA product, offset by strong gains for SANCTURA XR, which is slowly gaining market share in the urology channel. The next catalyst for the urology business is the anticipated approval of BOTOX for neurogenic detrusor overactivity by the FDA later this year.

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

Jeffrey Edwards

Thanks, David. The first quarter of 2011 represented a very nice start to the year for Allergan despite previously discussed headwinds relating to U.S. healthcare reform and Europe pricing pressures. Allergan was able to overachieve our sales and EPS expectations due to quality and line execution by strong, competitive positions in diversified business. Non-GAAP diluted earnings per share for the first quarter were $0.77, marking an 18.5% increase over 2010 results for the same quarter. Allergan was able to deliver this strong first-line quarter earnings performance even as we continued to reinvest into the future growth drivers of the business across the commercial portfolio and our R&D pipeline. A reconciliation of all of the adjustments to GAAP earnings is set out in our earnings release.

Excluding the effects of non-GAAP adjustments and amortization of acquired intangibles, Allergan's Q1 2011 gross margin of 85.4% increased 80 basis points when compared to Q1 2010, driven by improved year-over-year standard costs, favorable product mix and better net royalty dynamics. As we have previously communicated, we expect gross margins to be relatively constant throughout 2011.

The non-GAAP selling, general and administrative expenses to product net sales ratio for the first quarter was 42.6%, totaling $534 million. The comparable ratio and expense value for the same period in 2010 were 42.3% and $468 million, respectively. We continued to implement targeted investments to further support our future growth and support the launch of many products approved in 2010.

Non-GAAP research and development expenses were 15.8% of product net sales for the quarter, totaling $198 million, an increase in spend of approximately $18 million over the first quarter of 2010 and sequentially similar to the level of spend for the fourth quarter of 2010. We continue to fund new projects and increase funding of projects advancing through the pipeline.

With respect to our balance sheet, consolidated Allergan days sales outstanding was 49 days while consolidated Allergan inventory days on hand was 119 days. In the first quarter, operating cash flow after capital expenditure was approximately $121 million. It is worth noting that the cash flow was affected by the $60 million up-front payment to MAP Pharmaceuticals relating to our collaboration within the United States for LEVADEX. At the end of our first quarter, Allergan's cash and short-term investments and cash and short-term investments net of debt positions totaled approximately $2.8 billion and $566 million, respectively. As a reminder, we have recently called our convertible note, which resulted in the use of approximately $750 million to $800 million of our cash in the second quarter of 2011.

For the second quarter of 2011, Allergan estimates product net sales in the range of $1.310 billion to $1.360 billion and non-GAAP diluted earnings per share to be in the range of $0.93 to $0.95. Regarding full year expectations for 2011, Allergan estimates net sales in the range of $5.050 billion and $5.250 billion and our full year non-GAAP diluted earnings per share of between $3.56 and $3.62, which represents growth of between 13% and 15%.

As we have previously communicated, our 2011 expectations include approximately $100 million of pretax equivalent headwinds relating primarily to U.S. healthcare reform and pricing pressures. For your information, expectations for other lines of the income statement and specific product sales expectations are included in our earnings release. So with that, operator, I'd like now to open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gary Nachman, Susquehanna Financial Group.

Gary Nachman - Susquehanna Financial Group, LLLP

On the uptake of BOTOX migraine in terms of reimbursement, what are plans [healthcare plans] typically requiring before patients could get BOTOX? How many other products do they have to take? And the target was initially to double the number of injectors in 2011. Now that you guys are farther along in the training, is that still a good target, David, or could it be more than that?

David Pyott

Okay, first of all, very typical with the plans is that they want to see the failure on the other medications, as you insinuated. Most typical would be 2 or 3. I think that's highly appropriate given the label that we have. I'm not sure where you heard that our plan was to double the number of injectors. I'd like to think we're much better than that despite we don't want to really complain about where we started. So I gave you the number in terms of -- since approval, about 2,000 physicians have been trained either on the web or through live training. And I thought -- I would say I'm always looking for where's the bottleneck or where's the narrowest point in the pipe. And I think it is training. And there, we have the ability to really step that up, and we've been doing so. And of course, there, we can use a lot of the people who have used BOTOX for years in movement disorders where they're very comfortable with the preparation of the product as well as intradermal injections. And for them, 31 injections around the top of the head, they kind of just smile and say, "That easy."

Operator

Next question comes from Seamus Fernandez, Leerink Swann.

Seamus Fernandez - Leerink Swann LLC

So my question actually is just on the VOLUMA and the opportunities for growth, both outside the U.S. and inside the U.S. -- or outside the U.S. and then ultimately when you would anticipate approval of the VOLUMA filler in the United States.

David Pyott

Yes, good. Thank you very much for the question. As I kind of set up in my opening remarks, this is a product that is really enjoying great uptake. Both physicians as well as patients really love the product. This is typically used in the mid-face area. It has great lift capacity. Obviously, there -- as always with fillers, things tend to start in Europe with the CE Mark. And then rapidly, we try and bring the product to market in Canada, Australia, across Latin America and Asia. And VOLUMA is doing very, very well, as you can almost guess when you look at the very, very high growth rates. Obviously in the U.S., we are engaged in a clinical trial and it's one of those products that fits into the 2013-plus category. And so you kind of know once you can see something posted on clintrials.gov (sic) [clinicaltrials.gov]. It just takes time to do the trials and then go through the FDA approval process.

Seamus Fernandez - Leerink Swann LLC

And just anything on -- would you perceive that as a premium-priced product? Is it premium priced internationally and is that the same expectation for the U.S.?

David Pyott

On a 4 ml basis, small premium.

Operator

Your next question comes from Amit Hazan, Gleacher & Co.

Amit Hazan - Gleacher & Company, Inc.

My question would be on LAP-BAND and obesity in general. I think as I kind of looked at last year, LAP-BAND really didn't improve much sequentially throughout the year in 2010. And then of course, now it's down year-over-year. So what I'm trying to figure out is why there should be what would have to amount to somewhat rather positive and drastic change in trend over the next 3 quarters during 2011 for your guidance range to be met for this product. What is it that you're expecting is going to drive that new trend?

David Pyott

Well, clearly, when you look through all the results of the company, you can imagine if you were sitting on my chair, this is an area that's getting a lot of attention because it's the only thing where I can be less than satisfied. I think the real choke point I'm trying to address is what is the real difference between what I'd call coverage in principle and then actual access and availability in practice. And given that we have a very strong managed market group here in the company where if we have less than 85% coverage of managed care lines, I'm not at all happy. And that is always the case with our products. We have dedicated special resources to this area, not only at the management level but also at the field account level. So I think that's going to be Step 1. And I'm going to be spending, as well as the person who runs that business, a lot of time on how we're going to bring this around. I think the second part of your question was really looking at guidance. I would agree with you that we haven't changed it yet. We will do so at the next call. We just don't like moving lots of numbers around this early in the year. But that one, clearly, has a red dot beside it, and it's getting a lot of attention.

Operator

Your next question comes from Annabel Samimy. [Stifel, Nicolaus & Co.]

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

Just to carry the thought on LAP-BAND. Knowing the challenges that we're facing on the consumer side with LAP-BAND given the high co-pays, is there anything more fundamental going on with the use of obesity intervention procedures overall, given some of the negative press that's been going on with that?

David Pyott

Well, my view is if you think about all the numbers I gave you, the biggest thing was in the overall bariatrics market, is the pick-up of sleeve gastrectomy from initially a very small number to still a pretty small number, we currently estimate 15% of all procedures with its source of business, if you like, coming roughly equally from both bands and bypass. So that's one thing. If you then sort of step back and say there's something that doesn't make sense here because, of course, obesity is an epidemic that isn't going away and so this has to be addressed. And clearly, getting the lower BMI is another tool to putting greater pressure for access at the level of managed care plans. I also think there's going to need to be initiatives to work with major employers, because now we have good clinical health outcomes data to show with those patients with comorbid diabetes, which is extremely frequent, the payback is really short. So I'm not asking for a CFO of a major employer for a favor at a 2.3-year payback. I'm looking for them to do a favor to their employees and improve lives.

Operator

Your next question comes from Steve Willoughby, Cleveland Research.

Steve Willoughby - Cleveland Research Company

A question on BOTOX for migraine, David. Of the 2,000 doctors that you've trained so far, I was wondering, I guess 2 things. One, where do you think that potential can go in terms of doctors? And also, how does the medical specialty break down among those 2,000 doctors? They're mostly obviously neurologists, but where else are you training doctors?

David Pyott

To be really clear, we are only training neurologists. This is the core group. Obviously, we also did extensive research. And of course, we had also extensive knowledge because you'll recollect that we were the copromotion partner for GlaxoSmithKline for AMERGE and STATdose for some 5 years, and that copromotion agreement ended in September of last year, almost perfectly from a timing [indiscernible] and a month later, we've got the approval. So clearly, when we look within the overall neurology community, we are convinced not all people will want to do the injections themselves. And therefore, there will be some that will refer to their colleagues. I don't think at this stage I want to tell you exactly what our end stage number is, but this is already a good stepping stone given that things take time. And I always refer you back to the fact that the adoption cycle of BOTOX therapeutic is always long-haul, and this is not new with migraine. It was that way years ago with all of the movement disorders, whether it was cervical dystonia or later on, where we have greater experience really is upper limb spasticity, if I look at Europe in particular. So always long cycle. And when we laid out these plans, we had very clear building blocks of what we wanted to do 6 months in, 12 months in, the end of year 2, end of year 3, end of year 4, and we're very much on that curve of training.

Operator

.

Your next question comes from Frank Pinkerton, SunTrust.

Frank Pinkerton - SunTrust Robinson Humphrey, Inc.

With calling the convertible in next quarter, do you see the balance sheet as appropriately leveraged? Can management better serve investors by maybe being more aggressive with cash deployment and maybe even taking advantage of some of these lower rates near term?

Jeffrey Edwards

Sure. I'll take that. Okay, yes. We do focus a lot on our balance sheet, Frank. And we spend a lot of time benchmarking our position versus other components of the healthcare sector, large cap, smaller cap, biotech, medical device, just to make sure that we understand what acceptable ranges are. We believe we're well situated. We have a rating. We have, as a consequence of that rating, capacity and access to markets where we want them to be. We have sufficient liquidity on our balance sheet that enables us to be proactive with respect to business development activities. Finding smaller opportunities that are very focused, you've noted, I'm sure, that we've been fairly active and aggressive in those areas. Finding that larger opportunity is a bit tougher and we're very disciplined how we go about it. We try very hard to make sure there's logic both strategically and tactically. So the answer is yes, but we're going to be smart about it.

David Pyott

Good. I mean, obviously, from my overall remarks, and I'm both on calls as well as conferences, my strategic goal is after the tremendous year we had for R&D approvals in 2010 reloading the pipeline and that can be through in-licensing. You probably saw today the announcement that we had the cooperation with a Swiss company called Molecular Partners for a new retinal compound. The prior quarter, we announced our partnership with MAP Pharmaceuticals for LEVADEX and of course then, we just look for later-stage things as well, all the way up to companies, and we're actually rather pleased that there's lots of good things that one can look at carefully.

Operator

Your next question comes from David Maris, Credit Agricole.

David Maris - Credit Agricole Securities (USA) Inc.

David and Jeff, what else does Allergan want to do? And so if you look out a few years, is Allergan essentially what you have now plus the execution of the pipeline and some smaller tuck-in deals here and there such as the ones you announced today? Or do you think that you need anything more than just tweaks to the current business model? If so, what would be the goals of that? What are you looking for, what's on your shopping list?

David Pyott

Right. Well, first of all, clearly, our overall arching goal is growth, which we've had for a long time. We want to continue this. My view is that it's always best to act when things are really good and you're feeling strong. And clearly, we have some really great prospects for growth. Given the risks of R&D, you never know, of course, what will finally make it. I think Scott Whitcup and his team have done a fantastic job in terms of risk assessment. Clearly, we adjust all our strategic plans. If everything were to happen,it'd be pie in the sky, but we appropriately adjust. And therefore, my view is just keep piling it on and we will continue to be very aggressively looking for new technologies from the outside, despite the fact how satisfied I am with the strength of the internal pipeline.

David Maris - Credit Agricole Securities (USA) Inc.

This is just as a follow-up, you're not looking for a large, another leg to the business? An oncology division or something, a merger of equals to kind of offset what you have now? If I hear it correctly.

David Pyott

No. The Pfizer is absolutely safe, don't worry. So the comment -- the only comment I'd make is very much stick to our specialties. And then we do occasionally look and see if there could be another adjacency. But we look critically at that as well, whether that could be a sustained strong position with differentiated technology.

Operator

Your next question comes from Greg Gilbert, Merrill Lynch.

Gregory Gilbert - BofA Merrill Lynch

Some other companies are pursuing a strategy in neurology that includes drug and devices and potentially even financial interests with -- that align with the physicians themselves. So my question is do you expect your urology strategy to focus solely on drugs and biologics, David? And how would that answer differ or be the same for your other therapeutic areas?

David Pyott

Yes. Well, whether the urology, where clearly, we're getting to understand that space better and better. Now that we not only have our BOTOX platforms, SANCTURA, we have Serenity. We have our collaboration apaziquone with Spectrum Pharmaceuticals. And I think that's one of the things we like about our history and our knowledge that we're really quite agnostic whether something is pure drug or whether it's a drug delivered in a device, OZURDEX would be an example there, or whether it's a pure device. And so that is the case in urology and of course it could be applied to [indiscernible] as well. Whether it's how do you inject something better or indeed, I think there is some interesting developments even in ophthalmology in terms of medical device. Although clearly, we don't want to be in mainline, things like interocular lenses. We've been there, done that, and are very happy about what we did almost 10 years ago.

Scott Whitcup

And Greg, this is Scott. Having device R&D and regulatory within the company helps us not only assess those opportunities to make sure that we're rigorous in making sure that they tend to land but then executing should we find something we want.

Operator

Our next question comes from Larry Biegelsen, Wells Fargo.

Larry Biegelsen - Wells Fargo Securities, LLC

Scott, maybe it would be helpful to get an update from you on the Molecular Partner front. How's that different from the current landscape and has it ended up [ph] in the regulatory timeline?

Scott Whitcup

Sure. So we just completed the deal. The compound that Molecular Partners has is an anti-VEGF-A compound. We do realize that there's competition in this area, so as we looked for something in the area, it had to be better than existing therapies. And that means both Avastin and Lucentis. And so what we're looking is for something that potentially had better efficacy and more importantly would last substantially longer than existing therapies. We know that the healthcare system is being impacted by the number of injections and patients as well, being impacted by needing at least 7 or 8 injections and oftentimes 12 injections a year. So we believe that this compound could be given dramatically less frequently and have better efficacy. In terms of the time line, it's still early stage, it's a Phase II compound, so clearly, latter part of the decade for approval.

Operator

Your next question comes from Marc Goodman, UBS.

Marc Goodman - UBS Investment Bank

David, you clearly beat the numbers and there was less-than-significant upside as the quarter was playing out there. Can you give us a sense, where was the upsides? What were the key upsides on the top line and where did you choose to spend it so we know where that investment is that will drive the top line for the rest of the year?

David Pyott

Well, these days of course, we're in a very great position when you look at the breadth of growth drivers that we have. Also a great point of strength is the fact that we have created so much commercial infrastructure in Europe and North America. And so now, very selectively, we're adding two emerging markets and the latest foray being South Africa, a business we know well because many of the people down there used to work for us a long time ago, and it shows you how things change. When I came 13 years ago, we divested South Africa. At that time, it didn't have critical mass, now it does. And we're able to repurchase it for a fairly reasonable sum. So when I look at increases, I'm really looking at qualitative improvements. An area that we're spending more and more effort is medical affairs, so that we prepare for the launches of products that we expect out of the R&D pipeline. And we will also continue to invest in a DTC. Although as I said to you, once you get to kind of cruising altitude with your established brands, you can keep it or even reduce it. And another thing that I pointed to for later on, maybe it's the very end of this year, maybe the beginning of next, would be to study the use of direct-to-consumer advertising for BOTOX for chronic migraine.

Operator

Your next question comes from David Buck, Buckingham Research group.

James Dawson - Buckingham Research Group, Inc.

Talking about the contribution that BOTOX migraine is making to the therapeutic side of the BOTOX franchise, can you get into that a little more?

David Pyott

Okay. I'm afraid I can't really be very helpful with that. As you know, we give the split between aesthetic and therapeutic once a year. And I think when you read the transcript of what I said very carefully, I give you lots of clues in terms of what are the growth rates of both the individual therapeutic and aesthetic franchises and also the build and also contribution in various geographies.

James Dawson - Buckingham Research Group, Inc.

Thanks and then just one follow-up if I may, what are you pleased with and what needs more work on that front?

David Pyott

I think if we are talking about chronic migraine, the biggest emphasis in terms of where can we improve the traffic flow, this is it like even here in Southern California where you have 10 lanes on a freeway, how can we improve capacity? It's training, and a lot of emphasis is being placed on that, particularly live injector training.

Operator

Your next question comes from Corey Davis, Jefferies.

Corey Davis - Jefferies & Company, Inc.

My one question would be, given this strong quarter and your raised guidance for the year, David, can you perhaps opine on whether you're feeling better about your longer-term prospects for growth to reaccelerate to the high-teens?

David Pyott

Well, I think if you consider the very opening remarks I made, we are in a rather nice spot right now given all the near approvals, and those products all have different takeoff trajectories, particularly migraine, more of the 747 takeoff. Some of the fillers are, I don't want to call them fighter jets, but certainly, some kind of lighter aircraft for getting into the air. Clearly when you think about all the data I gave you, our aesthetic markets are in rather good shape, they are growing. Clearly, the one thing that I've got to spend more time on is the LAP-BAND. How do we actually solve the problem of obesity around the world in practice versus just thinking about it and talking about it. So we have really an excellent position to address growth. And clearly, if you're referring to growth and you're probably thinking of earnings per share, it's really there's an aspiration to mid to high-teens, and that's something we think about a lot.

Operator

.

Your next question comes from Shibani Malhotra, RBC Capital Markets.

Shibani Malhotra - RBC Capital Markets, LLC

Just on outside U.S. growth and performance. Indeed you've talked to learn about certain kind of countries and areas as being drivers of Allergan's performance, near term and longer term, so can you comment about which area do you think are going to be the drivers? And then within that which franchises, or therapeutic areas that you're most excited about?

David Pyott

Well, I suppose I should really start with places like, say India or Korea or Brazil. If you look at ophthalmology, those markets are growing very, very strongly. Somewhere in -- each of them is different numbers, but if I did an average of those 3, probably about 20% for market growth. Clearly we're very well positioned in each of those markets being either number 1 or number 2 player. In the short swing, when I think of new opportunities, I think a lot about the periphery of Europe because whether that be the new Europe, i.e. Eastern Europe or Russia or Ukraine, or I referred to the Balkans once in my commentary, or parts of Africa, those are places where we can utilize either U.S. FDA files or European Medicine Agency files with some very minor adaptations and get the products approved. Longer cycle, of course, we have a huge effort on getting our products to market in China as well as Japan. And whilst we've made good progress, I regard that as what I call mid-term programs that are in flight but they just take time.

Operator

Your next question comes from David Risinger, Morgan Stanley.

David Risinger - Morgan Stanley

My question relates to BOTOX for migraine x U.S. and I'm hoping that, David, you can frame for us the market opportunity x U.S. relative to the United States. Obviously, there are a heck of a lot more people x U.S. but maybe you could help frame how we should think about likely government coverage and uptake relative to the United States.

David Pyott

Yes. Clearly, we've spent a lot of time on that because we look at analogs from all the other migraine medications to get an indication of what was their experience in terms of what percentage of their overall sales once the products were up and running, because of course short-term, you got to be careful. But you'd say 3 or 4, 5 years post-launch, how big were those geographies? So I'd certainly agree with you, the opportunity x U.S. is also substantial. Clearly, when you think about the list of countries I mentioned, where we've got approval during the quarter, Australia, Brazil, Chile, Hong Kong and Korea, that's all great. Now of course the next thing I did try and point out is, from approval date to reimbursement date is a difference. If you think of, say, Australia with the PBS system, it depends on exactly when the book, so to speak, is done. But it can be anywhere between 6 to 12 months, depending on just where you fall into the cycle. Obviously, a country that we continue to pursue in the list is Canada. And there too, you see, from approval to effective provincial formulary coverage can be anywhere from 3 months to 2 years. Clearly, the other big one that we're waiting for is Europe. U.K. is the only one so far, and I kind of made the comment awaiting action at the European Medicines Agency. But again, word of caution, once we get the approval, which we hope we will, then there's a delay effect until you actually have coverage in practice. And then further complicating things of course, every country has different delivery of healthcare systems and so -- the U.K. is a very restrictive system, very slow, based on referral to a very limited number of specialty headache centers. Obviously, we're selling and marketing to those. And then other countries like Germany are much broader-based. So luckily, we've been in these markets for a very long time. So it's not all new news to us. I'm sure thing there will be the odd thing, like all products will surprise us. But we're, I think, in good preparation to address these opportunities. Brazil, if I go to Latin America, clearly, there it's going to be a lot about private insurance markets initially because in practice, most of those markets are paid out-of-pocket and then the drug clearly, and the treatment is expensive.

Operator

Your next question comes from Randall Stanicky, Goldman Sachs.

Randall Stanicky - Goldman Sachs Group Inc.

Strong quarter for LATISSE and given some of the new country launches and investment in DTC, should we be thinking about this quarter as an inflection? And then how do you think about the full-year target relative to what you put up in Q1?

David Pyott

Yes. Well, obviously we are pleased with the quarter. In my remarks, I did make a comment about a sell-in effect through the promotions we've very clearly targeted. And I tried to suggest it wasn't because we are pushing in sales because we wanted sales. We wanted stimulation of treillage because we think that is the mechanism. So little word of caution there. On the other side, clearly these new markets are coming on stream. So I think the way I would then do the bottom line is to say, stick to our guidance. Don't get too enthusiastic. We're happy this quarter finally was a good one after some disappointing ones, frankly, last year. And a lot of emphasis internally from management is being placed on the trajectory of this product.

Operator

Your next question comes from Catherine Arnold, Crédit Suisse.

Catherine Arnold - Crédit Suisse AG

Following up from a comment, David, that you made earlier about the appropriate patient for label for BOTOX migraine being someone who has had 2 or 3 injections, and also keeping in mind that this market -- the patients seem to have an activist or were in a pretty high level of awareness. Can you give us any sense right now, before embarking on DTC, where we might be, as far as the percentage of the current market that has had that type of drug experience and also has awareness of the product?

David Pyott

Right. Well first of all, just to clarify, when I talked about what the insurances particularly put in place is that the demonstration that they failed on 2 or 3 other prescriptions. Typically, it would be to triptane, it could be one of the antiepileptics used off label. So there's a very clear migration treillage of other things before people would go to this. I think what's very interesting when I went to the American Academy of Neurology to hear what were the physicians talking about in practice. And of course, not everybody is an immediate responder. Some people take longer, sometimes even 2 or 3 injection cycles. So I think this is really what I call learning in practice, when you actually have a product on the market and physicians that are capable of telling you what is their real-life experience, their real live patient feedback from thousands of patients. So I think things are going fine. In terms of awareness, I would say clearly post-launch, we had hundreds of millions of media impressions by the press. But of course, people have short memories and need to be reminded. And so we're working very strongly to make sure that the plans understand all the details. Various patient advocacy groups are also well informed about what it is. And clearly, we're very anxious to point out the differences in dose between the famous cosmetic indication and this. And then, we're just going to work our way downstream until we feel we've got everything in place. When would be the appropriate time to actually go then to the consumer direct.

Operator

Your next question comes from David Amsellem, Piper Jaffray.

David Amsellem - Piper Jaffray Companies

On BOTOX and chronic migraine, can you talk about how you're framing the pharmacoeconomic benefit of the product in your discussions with managed care organizations?

David Pyott

Well, clearly, all managed care organizations understand that the margin, there's some great benefits for them in terms of avoidance of emergency room visits because those are very expensive. The number I remember is typically $2,000 is kind of like a good sort of rule of thumb. So if you can keep people out of the emergency room apart from making their lives better, that's a great thing. I think managed care has been actually quite unconcerned about this because of the blocks they've put in, the very appropriate ones, of demonstration of failure on other medications. And so they don't really see a tidal wave of costs coming their direction. And hence, why I think we've done very well not just because of good management work, getting to 2/3 coverage of commercial lives this quickly in a mere, let's call it 6 months, since approval is pretty good. And of course now, our job is how do we actually deliver smooth experiences. Because again, from a plan saying, "yes, we've got it approved" to getting it actually approved through every single insurance verification is a journey. That doesn't happen in 30 days, and you have to do hard work with the plans and the pharmacies to make sure all this works but we've done this many times before and we're just kind of more trained down that road.

Operator

Your next question comes from John Boris of CD.

John Boris - Citigroup Inc

When we looked at your K, David, you've increased your headcount, I guess, by about 900 employees of which 2/3 of that came from x U.S. markets. Certainly, the targeted investment that you've made would appear to be targeted towards the emerging markets. Of the 9% growth that's targeted for growth on the top line, what is emerging markets going to contribute to that? And then going forward, the investment that you've made in headcount, how is that going to shape your emerging markets growth?

David Pyott

Well, first of all, in terms of headcount increase, you're quite correct. Now of course, one of the things you've got to be careful of is the apples-versus-orange comparison. Because when we add Turkey and Poland, those were markets that were -- we were present but were represented through our distributor partners. And so day one, when we bring those people on, we had a load of headcount and that we also add a differential in the number of people. If we look at 2010, roughly 15% of our worldwide sales were in emerging markets. And clearly in the next 5 years or so, this could go as high as maybe 25% or 30%. What I think is really great for Allergan though, in contrast to, and I'm not trying to throw stones at others, some of the big companies that are starved for growth in the U.S. or Western Europe. We have really good growth in those markets because of the state of our markets and the state of our -- vitality, if you like, of our newness of product approvals. And so I disregard emerging markets as yet another great booster engine on what we're trying to do. Also, I should say on headcount add, very clearly adding in R&D because I always say somewhat directly, Scott Whitcup can't spend money in R&D, in my humble view, without people because we don't just go to CROs blindly. We do really good economic analysis in terms of what we want to do internally and create that internal expertise and what we want to do externally, because of the rise and fall of studies and peak loading, which is why the pharmaceutical industry has CROs as partners.

Operator

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

Ken Cacciatore - Cowen and Company, LLC

Just a question on overactive bladder. Can you give us any of the current regulatory review, any thoughts on label discussion, if you could share with us what's happening there? And then also, understanding that you would not ever off-label market, could you talk about how the clinicians may treat the neurogenic approval since these are specialists vis-à-vis idiopathic? Any thoughts on how that penetration may go just with the neurogenic approval alone?

Scott Whitcup

This is Scott. We're not able to give you really specific comments. We don't typically comment on how the regulatory reviews are going other than it's clear they're reading the files and we have a lot of data in there. We've presented some of the pivotal study data already and so the nice thing is that the efficacy of the product is easily demonstrated. We've hit all of our primary end points and we believe the product is well tolerated. So if you look at benefit-risk for these patients who failed other therapies, I would think there's compelling arguments to approve the product. Clearly, we will only talk about the neurogenic detrusor overactivity approval when we talk to physicians. There is some use in patients who failed other therapies, but that's why we've done the studies for idiopathic. Those studies are well under way, and we think that the big use in that indication will be when we get approval.

Operator

Your last question will come from Ronny Gal, Sanford Bernstein.

Ronny Gal - Sanford C. Bernstein & Co., Inc.

David, we've seen some of the other companies in the pharma sector really working on taking their tax rate down by moving certain pieces overseas? And for you, particularly with such big pieces of growth coming from emerging markets, is there an opportunity to take the tax rate below the 32%, below 30%, below 25%? So essentially, a strategy there that you guys can clue us in on.

David Pyott

Well, I think I'll see if Jeff has anything to add but of course, if you just look in terms of natural progression, U.S. analysts know that along with Japan, the U.S. has the highest corporation tax in the world. So as we go to other geographies and mix changes with the U.S. being a lower part of the total, there will be a natural trend to move down the tax rate. Then of course, you all know that from history, that we have BOTOX manufacturing in Ireland and we've historically made some sound decisions in terms of what BOTOX programs are funded by our Irish entity. So that will also help things. Anything to add, Jeff?

Jeffrey Edwards

No. I think David nailed it. We are year-over-year, about 2 points lower Q1 2011 versus Q1 2010. So I think David's comments are spot on and it's going to be mix of sales and it's going to be manufacturing location and ownership of intellectual property. And these are strategies that we, within the tax function, are always looking at. Very progressive with respect to where we place our profits and where we generate our profits.

Ronny Gal - Sanford C. Bernstein & Co., Inc.

So we should stay on the same trajectory, kind of thing?

Jeffrey Edwards

Sure.

James Hindman

We'd like to thank you for your participation today. If you have any 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

Thanks, 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 for trailing 12 months as of the end of December 2010.

The market for ophthalmics is approximately $16.5 billion, growing at a rate of 11% and Allergan's market share is about 15%. The market for glaucoma approximates $5.7 billion, growing at a rate of 5% and Allergan's market share approximates 19%. The market for ocular allergy approximates $1.4 billion, growing at a rate of 1% and Allergan's market share approximates 4%. For plain ocular anti-infective market, it's roughly $1.4 billion, growing at a rate of 13% and Allergan's share is about 10%. The market for ophthalmic nonsteroidal anti-inflammatories is about $460 million, declining at a rate of 5% and Allergan's share is 14%.

The artificial tears market, inclusive of ointments, is approximately $1.6 billion, growing at a rate of 7% and Allergan's share is 21%. The U.S. topical market for acne and psoriasis is roughly $2.1 billion. The annual growth rate is 7% and Allergan's share is about 8%.

The top 10 markets for neuromodulators is roughly $1.5 billion, growing at a rate of roughly 13% and BOTOX has approximately an 86% market share. The worldwide market for neuromodulators is roughly $1.9 billion, growing at a rate of around 10% and BOTOX has approximately a 79% market share.

The worldwide market for dermal facial fillers is roughly $800 million, growing at a rate of about 20% and Allergan has about a 35% market share. The worldwide breast aesthetics market, aesthetic and reconstructive, is roughly $820 million, growing at a rate of around 5% and Allergan has around a 39% market share.

The worldwide bariatric surgery market for the band and balloon segments only is approaching $350 million declining at a rate of 3% and Allergan has approximately a 57% market share.

That concludes our call. Thanks very much.

Operator

Thank you. Once again, that does conclude the teleconference. Please disconnect all remaining lines.

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