Hello, and welcome to the Allergan Third 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 M. 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'd like to remind you that certain statements that we'll make in this presentation are forward-looking statements. These forward-looking statements reflect Allergan's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Allergan's businesses.
Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter 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'll 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'd like to turn the call over to David Pyott.
David E.I. Pyott
Great. Thanks, Jim. Good morning, ladies and gentlemen. During the third quarter, Allergan continues to enjoy double-digit earnings and sales growth, driven by a wide range of products and franchises and across many countries around the world.
Growth in the quarter outside the U.S. continued at an impressive rate with year-over-year growth of 20% in dollars in overall international markets, with Asia-Pacific growing 27%, Latin America by 22% and Europe, Africa, and Middle East by 17%.
The latter is particularly encouraging given macroeconomic growth concerns in Europe and as the direct markets of Turkey and Poland are now included in the baseline of the prior year.
With only a small new contribution to growth, being made by the new direct market of South Africa.
Even with general concerns about economics and consumer spending, our cash pay markets around the world generally enjoyed good growth, although there are some signs of a moderation in North America since August.
Western Europe provided surprisingly good growth rates in most product markets in most countries despite some stark external economic reports.
Clearly, we're monetary trends very carefully. Overall, we're benefiting from the many regulatory approvals secured both in 2010 and so far in 2011. Regarding our reimbursed pharmaceutical product lines, we're now receiving notifications of several new rounds of price cuts by governments in Europe, as well as in South Korea, which we're factoring into our operating plan for 2012.
During the course of 2011, we have absorbed costs of U.S. healthcare reform and overseas price cuts, initially estimated in January at $100 million for the year, which we subsequently increased to $110 million on the second quarter earnings call and now estimate at $112 million for this year. Looking ahead, we're pleased that we'll be direct in Russia in 2012 for our medical aesthetics, neurosciences and ophthalmology businesses.
Reviewing the results for the third quarter. Sales increased versus the third quarter of 2010 by 10.0%, boosted slightly by the weak dollar in most of the quarter and with local currency growth at 7.2%.
Operating performance continued on a strong trajectory with non-GAAP diluted earnings per share of $0.92, marking an increase of 17.9% versus the third quarter of 2010 and above the range of expectations provided at the time of the last earnings call.
Year-to-date, non-GAAP diluted EPS has grown 15.8% versus prior year, benefiting from strong gross margins, and even as we invested both in overseas expansion and in launching our recently approved products and new BOTOX indications.
Year-to-date SG&A has been just over 40% of sales on a non-GAAP basis, and we've increased R&D expenditure by 12.5% versus 2010, as we reload our R&D pipeline with new exciting programs. We look forward to sharing new clinical data and insights at our R&D Day at the end of March 2012.
Now commenting on the performance of the individual businesses. BOTOX growth picked up across the year, as we benefited from the launches of BOTOX for chronic migraine and upper limb spasticity in the U.S.
Third quarter year-over-year BOTOX global growth was 16.1% in dollars and 13.1% in local currencies with good growth stemming from both the global therapeutic and aesthetic franchises.
We estimate that the global neuromodulator market encompassing all therapeutic and aesthetic uses grew in excess of 20% in the second quarter year-over-year.
At the margin, Allergan lost a limited share in Q2, the last period for which we can assemble worldwide data, given the launches of Azzalure by Galderma and Bocouture by Merz in Europe and more limited regional competitive activity in Latin America and Asia-Pacific.
In the U.S. for Q2, BOTOX Cosmetics still have some minor share loss year-over-year to Dysport in the anesthetic market. Nevertheless, we estimate that our global share in Q2 was 77%, down from just under 80% in Q2 of 2010.
Going forward, we anticipate that share will be broadly stable, as we grow share on the therapeutic side further to developing our new market indications, offset on the other hand, by some share loss in the expanding aesthetic market.
We're very pleased with the progress of chronic migraine launch in the United States. Also, since the receipt of the license for chronic migraine from the Irish Medicines Board of the lead country under the Mutual Recognition Procedure, we've received additional national licenses in Germany and Belgium.
For clarification, the U.K. issued a national license in 2010 followed by several markets in Eastern Europe who are not included in the Mutual Recognition Procedure.
Additionally, we received approval for chronic migraine in Malaysia and Ecuador. In the U.S., physician interest and adoption is progressing very well. We have conducted over 4,500 trainings of physicians with about 3,800 individual physicians trained either by the web or in live injector training sessions.
Over 80% of commercial lives now have policy coverage, with the commercial market accounting for about 2/3 of migraine prescriptions of other migraine products.
For the Medicare Part B side, we enjoy 100% policy coverage. Patient and physician satisfaction with BOTOX is positive and on a steadily improving trend.
Actual number of units used by physicians continues to move towards the FDA indicated dose of 155 units, given access to reimbursement and a low rate of insurance denials.
Given this good access and the sufficient number of physicians trained and also willing to refer patients to colleagues, we initiated an unbranded direct-to-consumer advertising campaign at the end of September. We're sensing good traffic of patients searching for headache specialists on the website.
In addition, we're conducting a patient education and awareness campaign through which patients could submit their stories, and when the opportunity to recreate a lost moment due to chronic migraine.
This campaign featuring celebrity event planner Mindy Weiss, is receiving a lot of attention in the media. Regarding upper limb spasticity in the U.S., we continue to experience double-digit growth in focused hospital accounts. In the U.S. therapeutic market, Dysport and Xeomin have remained low market shares.
During the quarter, we received approvals both in the U.S. and Europe for BOTOX, for urinary incontinence in adults with neurological conditions, such as spinal cord injury and multiple sclerosis.
Since Ireland issued the first national license, we also received the German and Danish licenses and we expect others will follow shortly. France issued a national license in this area in Q2 and we recently launched the indication in France. The U.S. launch will occur imminently.
Good reimbursement coverage is already in place under existing injection codes. Given the U.S. approval, we split the combined neurology and medical dermatology sales force and created 2 focused and expanded sales forces.
Regarding BOTOX Cosmetics, we are pleased that the U.S. market continues to grow strongly at a rate estimated to be close to 10% in Q2.
In August, our survey data showed Dysport at 19% procedure share, which is scarcely higher than August 2010. Since the FDA approval of Xeomin in July, Merz recently announced their pricing, which for 100-unit vial is discounted almost 20% of the price of a BOTOX 100-unit vial.
FDA labeling emphasizes that botulinum toxins are non-interchangeable. The Xeomin label states that the duration of effect is up to 3 months, while the effect may last significantly longer or shorter in individual patients.
The BOTOX label states the duration is up to 4 months, which clearly offers greater patient convenience. Merz continues to communicate that full national availability will not take place until the spring of 2012.
In Europe, we have a new syndicated industry survey showing that the ex-factory market for all users of neuromodulators in the European Union increased over 13% in value year-over-year in Q2, which is very encouraging given poor general reports on consumer spending.
Market conditions for aesthetic procedures in BOTOX sales in Latin America and Asia remain buoyant. We're also pleased that we have received the first approval beyond the U.S. and Canada for the use of our cell-based assay for BOTOX in Switzerland.
We continue to work with agencies across Europe and other parts of the world for use of this breakthrough assay.
Turning to ophthalmic pharmaceuticals, Q3 sales increased 7.5% in dollars and 4.8% to local currencies versus the third quarter of 2010, with year-to-date growth of 12.2% in dollars and 9.5% in local currencies.
In Q3, U.S. sales were flat, which had an impact to the numbers for our key brands. Outside the U.S., sales grew strongly at over 19% in dollars with Latin America, Europe, Africa, Middle East and Asia growing double digits.
Regarding real demand in the U.S., SDI Health and IRI shows year-to-date acquisition dollars growth for our combined ophthalmic prescription eye drops businesses increasing 8.8% year-over-year.
On a U.S. demand basis, both LUMIGAN and RESTASIS grew double digit. The difference is attributable to some changes in inventory of wholesale and to increased rebates necessary to secure favorable formulary positions both with commercial and part D [ph] plans.
We're pleased that for the 2012 plan year for managed care, LUMIGAN has preferred status in the 12 most important plans in the U.S. Given the lower rates of hyperemia for LUMIGAN, 0.01% compared to the original 0.03% LUMIGAN, and physician's perceptions of the efficacy of LUMIGAN, our overall prescription share and volume has not been impacted by the genericization of Xalatan, with 47% of new prescriptions now being written for 0.01%.
Our patient outreach efforts for RESTASIS continue to be successful, as we now have more than 500,000 who've opted into our database. Regarding further data on end market performance, now worldwide, IMS Global shows that Xalatan grew end market year-to-date June versus 2010 at 9% in an overall ophthalmic pharmaceutical market increasing at a robust 12% in value, driven majorly by the rapid uptake of retinal therapeutics.
In our focus areas of glaucoma and dry eye and artificial tears, Allergan gained modest market share. In Europe, OZURDEX is performing strongly in the important markets of France, Germany and Italy. Spain is in the early launch phase.
In the top 5 European markets, OZURDEX has now surpassed Vicodin in sales. In the U.K., we should benefit from the recent NICE recommendation.
In Asia, with high market growth rates, we're performing well across a wide range of countries and are gaining share particularly in India, Korea, and off the small base in China and the Philippines. In Latin America, we are the fastest-growing multinational ophthalmic company across a wide range of countries driven by our corporate products such as LUMIGAN, GANFORT, COMBIGAN and OPTIVE, but also by regional products such as Relestat for allergy and Zypred, a combination of ZYMAR and prednisolone.
Regarding Euro [ph] logics, sales decreased 13.8% in Q3 year-over-year due to the genericization of the regional SANCTURA products. Year-to-date sales have decreased by 9.4% with a 20% growth of the new generation SANCTURA XR product being insufficient to offset the impact of generics.
Truly now a focus for the neurology sales and marketing team is the launch of BOTOX for the indicated neurologic conditions.
Regarding facial aesthetics, growth continued in Q3 at a brisk pace of 29.1% in dollars and 24.5% in local currencies, maintaining the strong trend across the year. Year-to-date, the JUVÉDERM franchise grew 34.0% in dollars and 29.4% in local currencies. The market has grown strongly in all regions around the world, as new consumers enter the market, thanks to the reduction in pain associated with the introduction of lidocaine containing products and existing consumers using greater volumes.
Outside the U.S., the introduction of JUVÉDERM VOLUMA created a new volumizing segment and added considerable growth to the overall market growth.
Hence, we're delighted that VOLUMAs with lidocaine was filed with the FDA to make this innovation available to American patients. JUVÉDERM XC containing lidocaine was recently launched in Mexico and Thailand.
Returning to the theme of surprisingly strong growth in Europe, mentioned in my earlier comments in BOTOX, filler sales in all Western European countries continued on a very strong growth trend.
In the U.S., the third quarter sales benefited from a duet dividends promotion covering JUVÉDERM and both BOTOX Cosmetics. Our skin care franchise grew in the third quarter year-over-year of 8.1% in dollars and 7.8% in local currencies, broadly in line with year-to-date performance of 11.2% in dollars and 10.8% to local currencies.
ACZONE increased year-over-year a strong 34% in the quarter and is now the second-most prescribed branded anti-inflammatory acne drug.
TAZORAC was flat at 1.0% growth. With the above-mentioned split the medical dermatology and neurology sales force into a focused unit, TAZORAC will, going forward again, receive promotional support,after we learned from an FDA guidance document that FDA has established high hurdles for tazarotene generics.
And therefore, we conclude that there are unlikely to be any generics for several years. LATISSE sales were flat year-over-year on Q3, with 0.4% growth. And year-to-date, they increased 7.1% in dollars and 6.3% in local currencies. The bulk of the sales are in the U.S., with contribution to growth being made also by Canada, Mexico, Brazil and various markets in East Asia.
Our consumer market research shows that our repositioning of LATISSE as an antiaging treatment along with the other products in our portfolio and targeted to women 35 years-plus is being well received.
Equally, our new TV commercial with noncelebrity women and including a testimonial from a physician user scores very well.
In Q3, some demand in the U.S. was curtailed, as customers awaited a trade promotion which began in October. Breast aesthetics sales increased in the third quarter year-over-year by 11.2% in dollars and by 7.5% in local currencies, broadly in line with the year-to-date growth performance of 12.2% in dollars and 8.9% in local currencies.
U.S. sales have benefited from the continuing trend of market preference for higher-priced silicone implants and new tissue expansion products. At a recent plastic surgery convention, we launched an innovative technology for breast, face and body imaging in partnership with Canfield, the leading imaging company.
Allergan contributed some recently purchased software technology to the partnership, and Canfield has incorporated this technology into their VECTRA XT hardware platform and is also responsible for providing equipment service.
Overseas breast aesthetics sales were strong, across our markets in Latin America and Asia. However, in the U.S., we've seen softening implant sales since August.
In Europe, sales of breast aesthetics have increased in 2011 even in economically challenged markets in Southern Europe. It is our belief that we have gained market share worldwide, as we leverage the presence of our direct selling capabilities in many markets and the benefits of our full range of products and services.
Regarding the obesity intervention line, Q3 sales continued their downward track, declining 16.2% in dollars and 18.5% in local currencies. The core of the issue lies in the U.S. and to a lesser extent in Australia. And we believe centers on access to reimbursement, unemployment rates and out-of-pocket costs to the patient.
Notably, overall bariatric procedures have declined in the U.S. year-to-date through August by 9%, while the South Bay market financed by credit card debt has virtually disappeared.
Within bariatric procedures, the share of bands has declined from 52% in August 2010 to 44% in August 2011, with sleeve gastrectomy increasing for the same time points from 10% to 21%.
A bright spot with the increase in LAP-BAND share of bands from 70% to 82% in August of this year. Our key goal in the U.S. will be to increase patient access to reimbursement, utilizing recently published health economics data.
In type 2 diabetes patients with a greater than 35 Body Mass Index, this data shows a 2.3-year payback on the total procedure costs.
We recently created a dedicated reimbursement group within the Allergan managing markets team, the same team who for years has secured great formulary positions for our pharmaceutical brands as recently evidenced by BOTOX for chronic migraine and ophthalmics.
Beyond managed care organizations, the issue of obesity is also clearly a government policy issue both federally and for states, with large low turnover employment [ph] populations.
I'll now pass over to Jeff Edwards to comment on our financial.
Jeffrey L. Edwards
Thanks, David, and good morning to all of you on the call.
During the third quarter of 2011, Allergan generated strong operating results as we experienced good performance across each of our geographic regions. These quality results continue to be achieved in spite of costs related to U.S. Health Care Reform and ongoing Europe pricing pressures.
Non-GAAP diluted earnings per share for the third quarter was $0.92, marking a 17.9% increase over 2010 results for the same quarter. This strong third quarter earnings performance was produced even as we continue to fulfill our internal commitment to progressive investing in the current and future growth drivers of our business across the commercial portfolio and research and development 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 in amortization of acquired intangibles, Allergan's Q3 2011 gross margin of 85.7% increased 60 basis points when compared to Q3 2010. This increase in gross margins was driven primarily by improved year-over-year standard costs, favorable product mix, positive manufacturing variances and positive royalty dynamics.
The non-GAAP selling, general and administrative expenses to product net sales ratio for the third quarter was 39.4%, totaling $517 million. The comparable ratio and expense value for the same period in 2010 were 39.5% and $470 million, respectively.
We continue to implement targeted investments to further support our current and future growth and support the launch of the many products approved in 2010 and 2011.
As mentioned in the past, we are continuing to invest in the planned expansion into certain higher growth emerging markets, and x distributor markets.
Non-GAAP research and development expenses were 16.9% of product net sales for the quarter, totaling $221 million, an increase in spend of approximately $27 million over the third quarter of 2010. As we continue to make significant commitments to spending across both our medical device and pharmaceutical technology portfolios.
With respect to our balance sheet, consolidated Allergan days sales outstanding was 49 days, while consolidated Allergan inventory days on hand was 118 days.
In the third quarter, operating cash flow after CapEx was approximately $291 million. At the end of the third quarter, Allergan's cash and short-term investments in cash and short-term investments net of debt positions total approximately $2.3 billion and $684 million, respectively.
For the fourth quarter of 2011, Allergan estimates product net sales in the range of $1,330,000,000 to $1,405,000,000 and non-GAAP diluted earnings per share to be in the range of $0.97 to $0.99.
As a reminder, when looking at year-over-year quarterly EPS growth rate for the quarter, it is important to remember that in 2010, the fourth quarter EPS was positively impacted by approximately $0.04 due to the retroactive benefit cost by renewal of the U.S. R&D tax credit, as the full-year benefit of the credit for 2010 was recorded in the fourth quarter.
Adjusting the fourth quarter 2010 EPS to account for this $0.04 catch-up will provide a more comparable base to calculate fourth quarter 2011 earnings growth.
Regarding full-year expectations for 2011, Allergan estimates product net sales in the range of $5,295,000,000 and $5,370,000,000, and our full year non-GAAP diluted earnings per share between $3.62 and $3.64, which represents growth of approximately 15%.
For your information, expectations for all 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.
David E.I. Pyott
I just like to make one correction in my statement that the cost of U.S. healthcare reform and overseas price cuts, we've now increased by $10 million to $120 million. I misread that as $112 million. So $120 million is the current estimate. Thanks.
And now, I'll pass it back to the operator.
[Operator Instructions] Your first question comes from Seamus Fernandez, Leerink Swann.
Seamus Fernandez - Leerink Swann LLC, Research Division
Just actually I wanted to get some of your commentary, David, on the opportunity in neurogenic -- in the neurogenic indication for BOTOX as well as the idiopathic. How should we think about the rollout of the product relative to training of physicians, both in the U.S. and internationally?
David E.I. Pyott
Okay. So clearly, the first important launches in the U.S., which will occur -- literally, I use the world imminently because it's days away. I'll be at that session very shortly. And then it will very much follow the model that you've heard us talk about for chronic migraine. Obviously, a different part of the body but same procedure in terms of teaching physicians, surgeons how to use BOTOX. They're very used to deploying cystoscopes, so it's really down to the details of what individual cystoscope and needles does the individual neurologist like. And then, walking them through the normal process so how do you get access to reimbursement. So I think that's looking fine in terms of the set up. In Europe, we're just beginning to get the licenses. As I stated, the big one really is Germany, both in terms of its investments and its healthcare system and overall population. And I've also stated that France we've already got going. The launch was roughly 4 weeks ago. After that, the even bigger market will be for idiopathic overactive bladder, but that's still at the order of magnitude roughly plus/minus 2 years away, just to keep things in the right context.
Your next question comes from Marc Goodman, UBS.
Marc Goodman - UBS Investment Bank, Research Division
David, I was hoping you could just expand a little bit on your comment about softening since August. I think you were specifically talking about a U.S. issue. So maybe you can just expand a little bit just on that in all that kind of cash pay areas. And then, and you specifically said that Latin America and Asia remain strong, and obviously everyone is focused on Europe. So have you seen a change in Europe over the past 3 months? And how are you thinking about kind of things for the cash pay businesses for the next year, as you guys are probably doing your budgeting process right now?
David E.I. Pyott
Yes, absolutely. So I think when you get to read the transcript and you know that I put a lot of effort into choosing the words so that I depict very accurately what's going on. It's always a case if I start with the U.S. So I don't want to lament or complain too much because the growth is still pretty good. But I think there are signs that it's moderated a little bit and we just watch that very carefully. Now on the offset, when I look at a lot of our European numbers and even the ones in southern Europe, where reading the newspaper, you'd think that business would have to be terrible. We have product markets growing double digit, which to me tells me that a -- those societies place high value upon appearance, which means not only how their faces look but what kind of clothes they wear. And that's just deeply embedded in those cultures. I think it also is reflective of the fact that we are catering to probably, let's call it, the more economically-favored population segment, middle and upper classes. So I've been very favorably surprised and you'll see that very clearly in my remarks. Also in terms of trend, no signs of weakening despite all the stories of calamity coming out of Europe. And then of course, when you move down to Latin America and across to Asia, things are really humming. And we're very well positioned for a lot of growth.
Your next question comes from Gary Nachman, Susquehanna Financial Group.
Gary Nachman - Susquehanna Financial Group, LLLP, Research Division
David, regarding some of your comments on Eye Care Pharma, you said lower inventories and rebates contributed to some weakness in 3Q. How much of that carries forward into the 4Q and into next year? And is that only a U.S. dynamic, just talk about ex U.S. if any of those factors might contribute over the next year or so?
David E.I. Pyott
Yes. I think to really put it in a nutshell, I think you should see Q3 as somewhat of an aberration. When you take a look carefully at our guidance for Q4, you'll see things pop back rather nicely. I also, in my remarks, stated that when you look at non-U.S. sales in their conglomeration, they grew 19% in dollars. So very nice overseas growth. I talked about flat sales in the U.S. So clearly, it's here. And basically, answering the second part of your question looking forward to 2012, I think the way to think about it is, this year, I referred to rebates. Clearly, we had to get prepared for the genericization of latanoprost and protecting our formulated positions. We've done that very capably. Naturally it costs the money and also the doughnut hole which was a government mandate that costs money for rebates. And basically, as we come around the block in Q1 of 2012, all that stuff broadly has anniversaried. So the drag of 2011,barring stuff at the very margin, doesn't really repeat itself in 2012.
Your next question comes from Ronny Gal of Sanford Bernstein.
Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division
Russia, since you'll start reporting in a consolidated basis in 2012, what would roughly be the delta between Russia today and Russia in 2012?
David E.I. Pyott
Well, I can't really give you a number, but the way to think about it, of course, is currently for the medical aesthetics business, we're selling it to a distributor at a much lower price than that distributor sells to market. And of course, going forward, recapture the higher number sales to market, and of course then absorb all the costs of the sales force and other marketing efforts that, that distributor deploys. In addition, for lots of reasons based on focus, we have never sold a single eye drop in Russia and that will change. The R&D team has done a great job getting a lot of approvals in place and we're just, at the moment, assembling the ophthalmic management team and very shortly, we'll start hiring the reps, and that will be quite a considerable force given the size of the country. And that, of course, is from 0 moving up, another nice opportunity. There's nothing to be brought back. It's just brand-new creation. And the Russian ophthalmologists that I've spoken to are very aware of our strong product positions, both in Western Europe as well as in the United States.
Your next question comes from Annabel Samimy, Stifel Nicolaus.
Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division
Just on the pressures that you're seeing right now in the U.S. market for aesthetics. What are some of the tools that you have in place that potentially offset some weakening of demand over there? And I guess the same for ophthalmology, as you move into a higher rebate environment, do you have specific tools that you can use to offset some of the pressures that you're seeing in the U.S. business?
David E.I. Pyott
Okay. I'll take the first part of your question regarding some moderation of growth in the aesthetics market. What we learned the last time and certainly, we're not seeing the kind of dramatic drop-offs that we saw in the recession of late -- well, let's call it early 2009. And we learned that consumer promotions really work. That's why I refer to things like duet dividends. Coupons to patients bring patients through the doctor's door and also encourages them to shorten the gap between the first procedure and the subsequent one. So that's working very well. Also, we've now established a gigantic CRM database where patients have opted in to receive information from us. And of course, we also assist, as requested, physicians how they build their own databases because we have plenty of advice that we can offer when they request it. I think the second sort of part of your question was rebates in terms of really managed care and reimbursed pharmaceuticals. And I think when I answered the question earlier, I think this was the year of the big increase in rebates because of protecting our primary physicians against latanoprost generics, government mandated programs like the doughnut hole and pretty much we've got that under control for 2012. The increases will be pretty much in line with growth in net sales. So the gross to net delta will be pretty much the same in 2012 as it is in 2011.
Your next question comes from Larry Biegelsen, Wells Fargo.
Larry Biegelsen - Wells Fargo Securities, LLC, Research Division
On volume, could you tell us what allowed you to move the filing forward? I think it was a 2013-plus filing in the past. And can you help us size the opportunity. For example, what impact did the launch overseas have on your filler business tax?
Scott M. Whitcup
This is Scott. We -- as we've seen, a lot of our aesthetics clinical trials recruitment often goes more quickly than you plan. So I think the team just did a great job getting the patients and getting the data put together. We also on the R&D side have a lot of systems. We do electronic data capture for a lot of our trials now. So our turnaround time has gone up, and that just allowed us to get the data filed. I think the European launch gives us a couple of things. One, some additional data. So that if we do go to a panel, we have more clinical experience to share at those panels, so that helps us. And clearly on the sales force commercial side, we've been pleased with how physicians are using the product, the results that they're seeing. It's really a new use. It's volumizing as opposed to what JUVÉDERM XC has been used for. So I think it allows us to understand better how to use the product and to instruct physicians what they can expect to see in terms of a new indication and a new results.
David E.I. Pyott
I think maybe an additional comment in terms of impacts in the market. When you see a world market growing almost 30% in local currency terms year-to-date, that's pretty dramatic. And in those markets where, outside Europe, where there are limited number of products available, the introduction of VOLUMA has really had quite a dramatic effect on not just our business, but total market growth. And within Europe, I remarked several times in my comments, who would guess that the European market is growing really, really fast for fillers. And I think part of the explanation is VOLUMA.
Your next question comes from Greg Gilbert, Bank of America Merrill Lynch.
Gregory B. Gilbert - BofA Merrill Lynch, Research Division
Maybe the story on fillers in Europe is that Europeans are getting more worry lines than Americans are feeling better for some reason. But my question is for David and maybe Scott can weigh in. Do you think the new form of LUMIGAN is getting any traction as a first-line treatment given the improved side effect profile? We're trying to assess whether the product can be much more than just a cannibalization story over time.
David E.I. Pyott
Okay. Maybe, I'll take that one first. And then, I'll see if my ophthalmology physician expert will catch me out for anything I've missed. So literally, this weekend, we have been to Orlando, Florida, the convention with 25,000 of our best friends in ophthalmology and that was the overall attendee number for the American Academy of Ophthalmology with many, many physicians, of course, also coming from overseas. And I spoke to many glaucoma specialists to ask them precisely your question, where I really knew the answer but I wanted confirmation. I think you're absolutely right in your sort of insinuation that 0.01 is much more than just a replacement for 0.03. Given the very low rates of hyperemia, yet the physicians belief in the fact that it still has virtually or maybe even the same efficacy profile as the original 0.03. It has been very much put in the position of being first-line therapy. Very important in terms of timing with the genericization of Xalatan in the summer. You can see that when you look at the script track that we have virtually been unaffected in terms both of anorex share up to the first couple of weeks, where there was a lot of turmoil in the data, as well as overall volume, where some of our competitors clearly are being affected, and their numbers are starting to go down. This is also in correlation with physicians' view that the quality of latanoprost generics, and there's probably 7 or 8 of them, are not all the same. And so for newly diagnosed patients, I heard from many ophthalmologists that they will, in fact, go to LUMIGAN 0.01 as their treatment of choice and not run the risk of writing a latanoprost prescription not knowing which one, which quality might be filled. Anything I miss, Scott.
Scott M. Whitcup
Nothing. David nicely elucidated the key points. I think that for a while now, LUMIGAN, even as it was launched, 0.03 had the position of being in physicians' minds the most effective. But because of the hyperemia, some of them hesitated to use it right off the start. Now with the 0.01 with similar IOP lowering but lower rate of hyperemia, they're going to that as their initial choice for many patients.
Next question comes from Catherine Arnold, Credit Suisse.
Catherine J. Arnold - Crédit Suisse AG, Research Division
David, I just wanted to ask you directionally if you could comment. As you think about the company's aspirations out to sort of 2015 timeframe and you think about the sources of growth, is it fair to say that the large majority of the growth is really coming from your therapeutic really a franchise versus your aesthetics franchise. So you'll become less and less economically sensitive as we continue to listen to your results?
David E.I. Pyott
Yes. Well, I'd certainly say in terms of certainty, major growth drivers for the company in the coming 5 years are the BOTOX therapeutic franchises. And primarily, of course, chronic migraine and over that time period, the 2 indications for the bladder, i.e. neurogenic and later on idiopathic. And continued growth in the movement disorders field as well. Now of course, when you step back and look at the aesthetic market, it's, to me, quite astounding that when we look at the 2011 market, it's substantially bigger than the markets were prerecession even in the glory year of 2008. So that shows you the mega trends of aesthetic growth notwithstanding economic ups and downs. So I think in your overall conclusion, you're probably directionally right that the share of the aesthetic franchise in this coming 5-year time period will be a little bit less. But of course, I do very much predict the continued growth of these aesthetic markets and the filler numbers are particularly astounding. But we're still seeing easily double-digit growth of BOTOX for the cosmetic and neuromodulators market worldwide.
Your next question comes from Frank Pinkerton, SunTrust.
Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division
I just want to know if you could maybe position the $120 million in price cuts in 2011 for me. From a standpoint of what actually is Allergan growing aggregate on the company level in volume. Other product price increases that aren't seeing the cut on the $120 million side and then maybe another bucket for new product launches. Just to give us a better picture of what actually that's doing as a headwind for the company?
David E.I. Pyott
Okay. That one is quite a difficult one to answer precisely. Well first of all, if you look at the BOTOX side, now happily, thinking of anesthetics, there we don't have any rebates for governments or managed care. Now we do have promotions, which affect gross to net but we know they really work. If we then go to BOTOX therapeutics, that is also an area where there are very low or no rebates. So the numbers you see in terms of local currency growth are pretty close to volume growth. Now if we go over to the largest and most difficult to comment business, which is the ophthalmic pharmaceuticals, there you've got various things going on. On the one side, you've got a larger delta between growth sales to net as the rebates have moved up. So then the other side, you also have makeshift, where I'm sure this is typical of many pharmaceutical companies that you follow, where older products are lower-priced, new ones in the mix are higher price. And so we got great pickup in terms of currency versus actual number of bottles produced in our plants. And then of course, also at least in this country, we are able to post some price increases where we have strong product positioning and strong market shares.
Your next question comes from David Amsellem, Piper Jaffray.
David Amsellem - Piper Jaffray Companies, Research Division
I wanted to get more color on your DTC campaign for BOTOX and chronic migraine. I guess, I'm a little surprised you're running a campaign in this setting and surprised that you think patient awareness can improve. So give me a sense of what's your rationale here? What you're looking to accomplish? And perhaps, what the cost of the campaign will look like.
David E.I. Pyott
Okay. First of all, this is, once again, Allergan in a position where we can create a market that didn't exist before. And fortunately, if we look at the environment in the products for treatment of migraine, there's very little competition these days because if we take the big products of the past Imitrex from GlaxoSmithKline, the product is now generic. So this is a fairly low-noise market where we're one of the few promoted products and the only product indicated for the prophylaxis of chronic migraine. And that's the very powerful part of being able to run an unbranded DTC campaign talking to that indication. And we knew from our market research that this should work. Of course, it's a big group of patients, 3.2 million sufferers from 15 days and more, and it's all about driving people into work and they be treated to the specialists. And that's exactly what we can do through that TV campaign, where people can log on to a website to look for a physician. And there you see the commonalities of what we did years and years ago. Totally unconnected with migraine, BOTOX for leveler, for aesthetic, in terms of the "find a physician tool", which these days seems pretty normal when one thinks of a Google type world, right? How do I find my outlet, my store, my physician. And we've certainly learned lots of lessons and have optimized that over the last 7 to 10 years.
Your next question comes from Greg Waterman, Goldman Sachs.
Gregory Waterman - Goldman Sachs Group Inc., Research Division
A question for Scott. It looks like we have a number of Phase II trials for the EP agonists and Novador, [indiscernible] products wrapping up in 2011. And I guess, I'm wondering when we might be able to see some data on those products?
Scott M. Whitcup
You're right. We have a number of trials both in the glaucoma space and in the retina space. A lot of those -- like you said, the [indiscernible] clinic trials.gov will have data, and an update for the majority of those at R&D Day, which, as David said, will be the end of March of 2012.
Your next question comes from David Risinger, Morgan Stanley.
David Risinger - Morgan Stanley, Research Division
My question relates to the ophthalmics franchise. David, I didn't quite understand your comments about the impact of rebates. I think on the one hand, rebates are rising, which is impacting sales. But then, you said the rebates won't be any different for '12 than they were for '11. So if you could just reconcile that because the ophthalmic sales were slightly below what most observers were predicting for the third quarter. And within that question, if you could also comment specifically on RESTASIS since it's such a unique product for dry eye. It's the only dry eye product of its kind. Why isn't it growing in scripts anymore? It seems to be flat year-over-year in scripts?
David E.I. Pyott
Okay. So let me have another go at explaining what happened. When you look at the quarter, clearly on all our key brands, we were lower than what most analysts, outside analysts, were looking for. I think at the margin, there was probably some currency involved. Certainly if you look at our guidance back on the last earnings call, the dollar was weaker than it was at the end of the quarter. But I think that's the third reason. I think the other 2 reasons, one is inventory change. Clearly,if inventory in wholesale were reduced, that would reduce our ex-factory sales in Q3. And then going back to the rebate question. If you imagine that all of the formulary positions we negotiated for 2012 led to an increase in rebates and primarily due to the need to protect LUMIGAN in a preferred status position knowing that Xalatan's patent was expiring in the summer 2011, and we've done that. And I commented how well LUMIGAN is doing in its entirety, but also how well 0.01 is doing and how that franchise will grow. Imagine we're looking at formularies for 2012. The months of rebates we're paying in 2012 are very similar to those being paid in 2011. So the increase of 2012 versus 2011 is pretty mild. And hence, that's not one of my concerns looking forward. How do I put together an operating plan for 2012 to secure both top line and bottom line growth? On RESTASIS, we watch that very carefully. One of the things that's difficult for you to follow and understand is the switch from 30 trade count to 60 trade count. So a trailing prescription is a trailing prescription or a new prescription is a new prescription. But we're still getting pickup in volume as we move more and more to 60 on a prescription unit versus 30. So that was notwithstanding, of course, I'm looking for growth. And in most weeks when I look, it is positive. Numbers jump around week year-over-year. But we have a lot of effort behind RESTASIS and we believe that both the acceptance by physicians, the detailing volume and also the acceptance of patients looking at the TV campaign and the print campaign we run is very positive.
Your next question comes from Ken Cacciatore, Cowen and Company.
Ken Cacciatore - Cowen and Company, LLC, Research Division
David, I just wanted to get a sense on the physician trains you're giving us some good details. Can you talk about maybe where this goes into 2012 and maybe does this expand to ever be on specialist, and what are your thoughts there maybe going to a broader market beyond the specialist and the educational migraine?
David E.I. Pyott
Well, clearly, all of our effort, speaking of neurology and chronic migraine, is getting more neurologists trained. We've always stated that of the universe of roughly 10,000 neurologists, there will be certainly a subset that do not want to be injectors themselves. They just don't like picking up needles and conducting the procedure. There will be physicians who are happy to refer the patients in their practice to a colleague, or maybe a different colleague in the same multi-physician group practice. So we've still got some more work to do. There are still physicians left who have not yet gone through live injector training, and we will continue doing that. And that's very much in line with the experience for the last 10 or even 20 years on the roll-out of all BOTOX indications. So time will come where we then say, okay, we've done most of the urologists and then we'll start looking at general practitioners. When we look at their prescribing habits, really look like neurologists, although they're not board-certified neurologists. They just have huge volumes of headache patients in their practices. That will be the next stage.
That will come from Corey Davis, Jefferies.
Corey B. Davis - Jefferies & Company, Inc., Research Division
Scott, you already touched on this a little bit and is at the risk of getting a plain no to answer this question. Can you elaborate a little bit more on the types of programs, the specific products that you have an update for in March at the R&D Day or what things should we start to get excited about seeing there?
Scott M. Whitcup
So we have a lot planned for reasons. We'd like to get an update on all of our major programs. I think that the emphasis will be on the key areas for the company. So you'll see on the ophthalmology side updates, predominantly on glaucoma and retina, people are always interested in BOTOX. We'll update you on the neurology programs. People are interested in our targeted toxin programs. So clearly, we'll have some data there. On the aesthetics side, we've said we'll try to give you some indication on bimatoprost for scalp growth. Although those trials really won't -- that proof of concept won't be done until, sorry, after R&D day, but we'll update you on the program there and some other dermatology assets and then a little bit on the Allergan medical side as well. So it will be a fair bit of updates going on. But again, emphasizing probably BOTOX, the targeted toxin and ophthalmology will be a fair bit of it.
James M. Hindman
Thank you. We'd like to thank you for your participation today. If you have any further questions, Joann Bradley, David and I will be available immediately following the call. Joann will now take 5 minutes to give you market share data.
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 June, 2011, except where noted as year-to-date through June of 2011.
The market for ophthalmics is approximately $17.9 billion, growing at a rate of 11% and Allergan's market share is 15%. Year-to-date, the market growth is 12% and year-to-date Allergan's market share is 15%.
The market for glaucoma approximates $5.9 billion, growing at a rate of 2%, Allergan's market share approximates 19%. Year-to-date, the market is flat and year-to-date, Allergan's share is 20%. The market for ocular allergy approximates $1.6 billion, growing at a rate of 13%.
Allergan's market share approximates 3%. Year-to-date, that market is growing 18% and year-to-date, Allergan's share is 3%. The plain ocular anti-infective market is roughly $1.5 billion, growing at a rate of 12%.
Allergan's share is 9%. Year-to-date that market is growing 9% and year-to-date Allergan's share is 9%. The market for ophthalmic nonsteroidal anti-inflammatory is about $480 million, declining at a rate of around 1%. Allergan's share is 11%. Year-to-date, that market is growing 4% and year-to-date, Allergan's share is 10%.
The artificial tears market, inclusive of ointments, is approximately $1.7 billion, growing at a rate of 8%, Allergan's shares is 21%. Year-to-date, that market is growing 9% and year-to-date, Allergan's share is 21%. The U.S. topical market for acne and psoriasis is roughly $2.2 billion, with an annual growth rate of 5% and Allergan's share is roughly 9%. Year-to-date, that market is growing 6% and year-to-date, Allergan's share is 9%.
The top 10 markets for neuromodulators is roughly $1.6 billion, growing at a rate of roughly 13% and BOTOX has approximately an 85% market share.
Year-to-date, that market is growing 14% and year-to-date BOTOX's share is 84%. The worldwide market for neuromodulators is roughly $2 billion, growing at a rate of roughly 14%, BOTOX has approximately a 77% market share. Year-to-date that market is growing around 18% and year-to-date, BOTOX's share is 77%.
The worldwide market for dermal facial fillers is roughly $910 million, growing at a rate of roughly 21%. Allergan has approximately has a 36% market share. Year-to-date, that market is growing around 29% and year-to-date, Allergan's share is around 37%. The worldwide breast aesthetics market for aesthetic and reconstructive is roughly $830 million, growing at a rate of roughly 5%. Allergan has approximately a 42% market share.
Year-to-date, that market is growing 8% and year-to-date, Allergan's share is around 43%.
The worldwide bariatric surgery market for the band and balloon segments only is roughly $320 million, that is declining at a rate of roughly 16%. Allergan has approximately a 59% market share. Year-to-date, that market is declining 20% and year-to-date Allergan's share is around 71%.
And that concludes our call today. Thank you.
Once again, that does conclude the conference call for today. Please disconnect all remaining lines.
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