Executives
James Hindman - Senior Vice President, Treasury, Risk and Investor Relations
David Pyott - Chairman of the Board and Chief Executive Officer
Jeffrey Edwards - Executive Vice President, Finance and Business Development, Chief Financial Officer
Dr. Scott Whitcup - Executive Vice President, Research and Development
James Barlow - Senior Vice President and Corporate Controller.
Analysts
Marc Goodman – Credit Suisse
Larry Biegelsen – Wachovia Capital
Gregg Gilbert – Merrill Lynch
Peter Bye – Jefferies and Company
James Dawson – Buckingham Research Group
Louise Chen – Morgan Stanley
Ronnie Gal – Sanford Bernstein
Rohit Vanjani - Leerink Swann
Frank Pinkerton - Banc of America Securities
Allergan Inc. (AGN) Q4 2007 Earnings Call January 30, 2008 ET
Operator
Hello and welcome to the Allergan Fourth Quarter 2007 Earnings Call. Following today’s presentation, there will be a formal question-and-answer session. (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, Laurel. Good morning. With me for today’s conference call is David Pyott, Chairman of the Board and Chief Executive Officer; Jeff Edwards, Executive Vice President – Finance and Business Development, Chief Financial Officer; Dr. Scott Whitcup, Executive Vice President – Research and Development; and Jim Barlow, Senior Vice President and Corporate Controller.
Before we move ahead, I would like remind you that certain statements that we will make in this presentation are forward-looking statements. These forward-looking statements reflect Allergan’s judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Allergan’s businesses. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter 2007 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 the 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, thank you, Jim. Good morning, ladies and gentlemen.
We're delighted to report on our first quarter ever with more than $1 billion of sales, an exceptional growth of 32%. Even after factoring in the benefit of the weak dollar, and a small first time contribution from SANCTURA in Q4, sales growth on an organic basis in local currency was an exceptional 25% over Q4 of 2006.
Pharmaceutical sales increased 24.5% in dollars, with the strongest growth rate for any quarter in 2007 for ophthalmics and continued strength in BOTOX. Sales of core medical devices continued on a spectacular growth trend with an increase of 70% in dollars year-over-year.
For the full year, 2007, Allergan's pharmaceutical businesses grew 18% in dollars and 15% in local currency, far exceeding any industry growth benchmarks. The core medical device businesses on a pro forma basis, i.e. including the historical sales of the predecessor companies Inamed and Corneal in the base for a full comparative year to 2006, grew with an exceptional 49% in 2007 on a local currency basis.
Regarding earnings, adjusted diluted earnings per share for the fourth quarter were $0.60 marking a 17.6% increase over Q4, 2006, as we boosted R&D expenditures by 50% or $64 million year-over-year. For the full year, adjusted diluted earnings per share at $2.18 increased 19.1%. The reconciliation of these adjustments to GAAP numbers are fully laid out in our press release.
It is apparent that our investments to grow our newest markets have paid off handsomely as we ride the waves of satisfying consumer and patient needs in the aesthetic markets, contributing a solution to the global obesity epidemic. For the third quarter of 2007, the last period for which we have reliable data on a global basis, we actually see an acceleration of worldwide market growth rates. In Q3, we estimate the markets grew at the following rates: Bariatric obesity intervention products at 59%, dermal fillers at 40%, neuromodulators at 20%, and breast aesthetics at 24%.
Only ophthalmic pharmaceutical products slightly slowed to a 10% growth rate. Furthermore, we are growing our global market share in all of these markets. While we obviously cannot fully predict future economic trends and their impact on our markets, up to today we have not detected any impacts on our sales of any slowdown in consumer spending in the US or other major markets in the world.
Regarding memantine, we are obviously disappointed that the second trial failed to meet its primary endpoint of delaying progression of glaucoma. During the course of the last 12 months however, we have recommended you to remove any sales from memantine from your models, and reminded you that this was a high risk with high reward program, as it was in a pioneering field.
Regarding our own internal strategic plans we have always excluded memantine from our operating planned projections given the low probability of success. Therefore, we remain confident about our ability to achieve our sales and earnings aspirations.
Returning to our operations, as you can analyze from our press release, strong growth is occurring across a broad range of businesses and products. In addition, this is occurring across all operating regions of the world. In fact, for the full year, our non-US businesses, even on a local currency basis, grew slightly faster than our combined US businesses, reflecting our ability to execute successful strategies, developed in the US or Europe, across the world.
For the full year we grew every business on a pro forma basis in local currency at least a double-digit rate with only a few exceptions; US skincare, where we suffered from the impact of new competition to TAZORAC, breast aesthetics, where we had some minor operating issues in Australia and Japan, and dermal fillers in Latin America where we were negotiating the return of distribution rights from local distributors appointed by Corneal which led to the re-launch of our line in the course of Q4.
Regarding improvements in performance for skin care, we are delighted that we have established a co-promotion agreement for TAZORAC with Stiefel Laboratories, which is a major player in the acne market. Our US skin care organization has also been responsible for considerable growth in sales of BOTOX for hyperhidrosis in 2007.
Furthermore, we were pleased to enter into a strategic collaboration with Clinique Laboratories which is the number one prestige cosmetics brand in the US, and look forward to launching a premium skin care line, exclusive to our physician channels under a Clinique banner in the fall of this year. As in the past, our objective is to expand an already growing market and achieve a market leading position.
Turning to a commentary on the performance of the individual business, I'll start with BOTOX. Continuing strong growth in the fourth quarter of 24% in dollars and 20% in local currency, points to the long-term potential of both the therapeutic and aesthetic markets. As well as the sustainability of these franchises, for the full year, the therapeutic franchise accelerated from its recent historical path of mid double-digit growth, to 19% versus 2006. BOTOX cosmetic expanded 29% with all operating regions growing at over 20% versus 2006. Benefiting from the synergies of Allergan's full range of products, for 2007 the split between the two franchises was 50:50.
In the fourth quarter, we enjoyed even stronger sales growth outside the US, precisely in those markets where we already successfully face competition. In the top ten global markets, we estimate that we maintained share in 91% despite the entry of new competitors. In Europe, Galderma announced that they do not expect the approval of Reloxin in France until 2009. France acting as the reference member state, therefore the first EU market, would then allow for rollouts to the other member states in Europe. This marks a considerable delay from our historical expectations. In Japan, we look forward to the approval of BOTOX cosmetic and launch via our partner GSK at the end of this year. Clearly, Japan is a high potential market for facial aesthetic treatments.
Dermal fillers. Q4 sales of dermal fillers strongly expanded to 61 million, more than doubling the sales recorded by Corneal as an independent company as we build momentum for the continued expansion of this market in the US and Canada. In the market surveys in North America it would appear that JUVEDERM sales are approaching those of RESTYLANE. We attribute this to the quality of the JUVEDERM products, the breadth of our product range with BOTOX acting as the gateway product, investments in DTC, and the power of Allergan's distribution network. JUVEDERM was recently launched in Southeast Asia. In Europe in January we launched a new range of dermal fillers, JUVEDERM ULTRA incorporating lidocaine for patient comfort.
In terms of breast aesthetics sales, we reached a new record of $81 million in the quarter and an increase of 38% in dollars and 33% in local currency over the prior year even though Q4 of 2006 was a very high sales growth quarter, based on historical trends. Regarding the market outside the United States where there is little to no benefit of the value pickup from saline to silicon, our best estimate is that the value of the market in Q3 increased to 26% with Allergan gaining some market share, particularly at the expense of Medicore which is in bankruptcy proceedings. I reiterate that this was a Q3 in market estimate, not a Q4 number.
In the United States in Q4, Allergan enjoyed very strong growth which we estimate stemmed roughly half from the value of the saline to silicon conversion and roughly half from volume and increase in procedures. In fact Allergan's unit growth in augmentation procedures versus the same period in 2006 was at the strongest rate for any quarter in the year. How much is attributable to market growth versus share gain is quite difficult to estimate.
Regarding the obesity intervention business, sales were $74 million, increasing year-over-year 50% in dollars, and 47% in local currency. We are pleased that sales ex-US grew even faster in Q4 than in the United States. Here in the US, we’ve already transitioned the lion’s share of the product sales to the next generation, AP Band, which is at least one generation ahead of Ethicon’s REALIZE Band. We’re very pleased with the strong start to our collaboration with Covidien, and that Ethicon is still only proctoring their band, versus engaging in full commercialization activities. We believe through the marketing efforts of three companies, Allergan, Covidien and Ethicon, in the field of gastric bands, will lead to considerable market expansion, given enormous needs for solutions to obesity.
Commenting on ophthalmic pharmaceuticals, sales increased sharply, at 25.5% in dollars, and 21% in local currency, versus the fourth quarter of 2006, with an accelerating trend in growth across a large number of countries around the world, buoyed by the introductions of COMBIGAN, GANFORT, OPTIVE, as well as continuing strong performance of the ALPHAGAN family, and also LUMIGAN and RESTASIS. The pickup in growth is attributable to the pipelining of COMBIGAN in the US in the fourth quarter.
For the sixth consecutive year, Allergan has been the fastest growing global ophthalmic pharmaceutical company, gaining market share in glaucoma, external diseases and artificial tears, also garnering share in almost every world market, with only minor exceptions.
Given the strong data that was already available from Canada, Europe and Latin American, COMBIGAN is enjoying a strong lift in prescriptions in the US, and is moving to establish a strong position as an alternative and replacement to Cosopt, as well as a favorite adjunctive treatment to first-line use of prostaglandins and prostamenes.
Building on the strong heritage of ALPHAGAN, which continued to grow in the fourth quarter, RESTASIS enjoyed its first $100 million quarter, as the product has responded to our investments in DTC and detailing efforts. A new TV commercial, featuring an ophthalmologist, has aired this year. Also in the US, the strong uptake of OPTIVE, on top of the REFRESH TEARS line, has led to record market share in artificial tears for Allergan. In Europe, OPTIVE has further strengthened Allergan’s market leadership. OPTIVE was introduced in Australia and India and in January in Brazil. Additionally, COMBIGAN was approved in Thailand.
Regarding urologics, we are pleased with position reaction to a flawless January launch of SANCTURA XR, and to its unique mechanism of action as the only quaternary amine. It’s best in class incidence of dry mouth, and its overall efficacy, tolerability and safety profile.
Relative to the proton pump inhibitor project, consistent with prior comments, we attempted to out-license the program, but have not been satisfied with the terms. Therefore we have returned the license and all remaining rights to Winston Pharmaceuticals. Allergan will receive monetary benefit, should Winston Pharmaceuticals successfully bring this product to the market.
For R&D, 2008 will be a monster year, with many approvals and filings, approval of LUMIGAN-X in the US, approval of LUMIGAN in Japan, approval of BOTOX Cosmetic in Japan, FDA filings of BOTOX for chronic daily headache, [inaudible].
Now from the midpoints of our guidance in our press release, you can calculate that we have planned another major increase in R&D spending to over $760 million, an increase of almost 120 million. At the R&D day in early June in New York, we look forward to unveiling previously undisclosed projects, including our early-stage programs.
I would now like to pass to Jeff, who will comment on financials.
Jeff Edwards
Thanks David and good morning to all of you on the call. Since David has already addressed our sales performance, I’ll move directly into discussion of other components of our financial performance.
For the fourth quarter, adjusted diluted earnings per share were $0.60, marking a strong 17.6% increase over 2006 results for the same quarter. This superb performance was produced in the face of significant launch-related expenses for both SANCTURA XR and COMBIGAN. For full year 2007, adjusted earnings per share were $2.18, representing a 19.1% growth over 2006. 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 Q4 2007 gross margin of 83.5% increased 0.9% when compared to prior year. While the Allergan’s pharma Q4 gross profit margin was consistent with the prior year, the medical device Q4 gross profit margin increased substantially versus Q4 2006. The improvement in gross margin within the medical device business was a function of an ongoing increase in the mix of newer, higher margin products, as well as greater manufacturing throughput of these products, which resulted in an improved absorption yield and improved cost of goods.
For the full year 2007, and excluding the effects of non-GAAP adjustments and amortizations of acquired intangibles, Allergan’s gross margin of 82.7% improved by 0.2% when compared to prior year. Both the pharma and medical device businesses contributed to this improvement, with the drivers being consistent with the description I just provided for the medical device businesses.
As I said in prior quarters, the strong results in the quarter and year-to-date were generated while we continued to invest heavily into the long-term growth of the company. Adjusted selling, general and administrative expenses were 42.9% of product net sales for the quarter, and 42.7% of product net sales year-to-date. Allergan’s adjusted selling, general and administrative spend for the year totaled $1.657 billion, a $377 million increase over 2006.
It is important to note that these investments have continued to generate a very favorable return with respect to Allergan’s performance. In fact, for every incremental dollar Allergan invested in SG&A during 2007, we were able to produce an incremental $2.3 in revenue. This ratio represents an improvement over both 2005 and 2006 ratios of 2.1 times and 2.2 times, respectively. Moreover, it is our expectation that we will further improve upon the ratio during 2008.
With respect to the R&D area, our adjusted R&D investment ratio was 17.6% for the quarter, and 16.7% year-to-date, as Allergan continued to make a more significant commitment to R&D spending in both the pharma and medical device businesses. Allergan's adjusted R&D spend for the quarter totaled $190 million, a $64 million increase over the fourth quarter of 2006. For the year, Allergan’s adjusted R&D spend totaled $646 million, a $171 million increase over 2006.
With respect to our balance sheet, Allergan’s consolidated net worth increased to approximately $3.74 billion at the end of December ’07, from approximately $3.143 billion at the end of 2006. Consolidated Allergan day sales outstanding was 39 days, consolidated Allergan inventory days on hand was 114 days. At the end of the fourth quarter, Allergan’s cash and cash net of debt positions, totaled approximately $1.158 billion and a negative $472 million respectively.
Allergan continues to maintain a strong cash balance, despite the effect of several acquisitions conducted throughout 2007, including Corneal, EndoArt and Esprit Pharma, which represents Allergan’s strong cash generating capabilities. 2007 operating cash flow after CapEx was approximately $651 million for the year, which compares to $616 million for the full year of 2006.
During the quarter, Allergan repurchased 1.93 million shares at a cost of $124.8 million via its approved Evergreen share repurchase program. It’s important to note the company typically enters into share repurchase activity with the primary objective of fulfilling share-based employee benefits programs.
Although we frequently focus our discussions with our shareholders on metrics and activities that are growth-related, it’s equally important that you are aware of our continuing interest on cost controls and operational leverage and efficiencies. I talked earlier about how we seek to leverage PSM dollars - promotion, selling and marketing dollars, by focusing spend on higher growth opportunities, and controlling spend on core or more established products.
We also have a proven history of seeking out efficiencies within our manufacturing network. A recent example that was announced in early 2007 was our decision to close our high-cost collagen manufacturing facility in Fremont, California, as a consequence of our perspective that the aesthetic market would focus more and more on hyaluronic acid fillers, a technology with a much lower cost of goods.
Today we announced our plan to close our Arklow, Ireland breast implant manufacturing facility, and transition its activities to our state-of-the-art manufacturing facility in Costa Rica. This action, along with the Fremont closure just mentioned, will bring to one, the number of manufacturing facilities remaining from the Inamed acquisition and create a much more efficient and cost-effective network of plants.
In addition to our focus on enhancing manufacturing network efficiencies, we announced earlier this month the outsourcing of our global data centers to a leading specialist in the area, ACS. Not only will this action yield cost benefit over time, it will also provide us with increased flexibility with the rapidly evolving software and business information needs of our company.
Within the R&D arena, we are very focused on reducing the cost of enrolling patients within clinical trials, and to do this we have moved to a global clinical development platform, and will increasingly involve sites outside of the traditional US and Western European markets. All of these actions are being planned and executed so that we may re-allocate dollars to higher value initiatives across our selling and R&D organizations.
Regarding guidance for 2008, it is clear that our commitment to well-devised and executed investments continues to pay dividends as Allergan is projecting strong, total product net sales of between $4.395 billion and $4.575 billion, a 13% to 18% growth over prior year. We are projecting specialty pharmaceutical net sales of between $3.525 billion and $3.620 billion, which represents a 14 to 17% growth over prior year; and medical device net sales of between 870 million and 955 million, which represents a 13% to 24% growth over prior year. Our individual product sales guidance is included in the earnings release.
We estimate adjusted diluted earnings per share for 2008 of between $2.54 and $2.58, which represents growth of between 17% and 18%. This strong annual EPS growth rate is consistent with the growth rate assumptions we’ve provided to you in the past.
Regarding SG&A spending, and consistent with the pattern of spend in prior years, the first half of the year will produce a higher level of spending as measured in both dollars and percent of sales, while the second half of the year should produce some moderation of these investments. This higher spending level during the first half of 2008 is reflective of the launch efforts behind SANCTURA XR and COMBIGAN, as well as the promotion, selling and marketing investments mentioned previously by David.
Allergan is very focused on leveraging the spending against our core traditional products, and focusing the benefits of leverage on our newer, higher growth, short and long term opportunities. We project a full-year SG&A ratio to product net sales to be between 41 and 42%.
With respect to R&D investment in 2008, Allergan will continue to make substantial commitments to spending across both our medical device and pharmaceutical technology portfolios as we ramp up investment in many of the more significant programs in Allergan’s R&D pipeline. We project the R&D ratio to product net sales to be approximately 17% for 2008; full-year information we have included guidance for other lines of the income statement in our earnings release.
With respect to 2008 capital expenditures, we project CapEx of approximately $200 million for the full year. For the first quarter of 2008, Allergan estimates product net sales in the range of 1.04 billion to 1.07 billion, and diluted earnings per share of $0.50 to $0.51, excluding non-GAAP adjustments. Please recall that we have initiated very significant investments in the launches of SANCTURA XR and COMBIGAN, and continue to invest strongly behind other high growth promotion-sensitive businesses, such as the NATRELLE breast implants, LAP-BAND, RESTASIS, JUVEDERM, and BOTEX Cosmetic direct to consumer advertising.
It is also important that you are reminded about the significant sales force investments, involving a sales force of approximately 200, made in the fourth quarter of 2007 as a result of the Esprit Pharma acquisition, and our newly established urologics business.
2008 is expected to be another strong performance year for Allergan, and making the appropriate investments at the appropriate points in the products cycles is part of our annual plan. As you have seen in our historic performance, these investment decisions have consistently yielded strong top and bottom line growth rates, and our objectives are keenly focused on maintaining this trend over the longer term.
With that, operator, I’d now like to open the call to questions.
Question-and-Answer Session
Operator
Certainly. (Operator Instructions) Our first question comes from Marc Goodman. Your line is open and please state your company name.
Marc Goodman – Credit Suisse
Yeah, from Credit Suisse. I guess the first question is can you update us on BOTOX Headache; when are we going to get the data, when is that officially finished? I know you mentioned you’re going to file it this year, is that an early data? And then late filing, just give us a clue on that. And then second of all, I’ve gotten this, well actually, these two questions quite a bit today and the past couple days. One is, how can you be so confident about BOTOX Cosmetic in a recessionary environment? And then the second question I get quite a bit is just the spending levels. The spending levels just seem to be quite a bit in the fourth quarter, and I understand the jump in the first quarter because of the new Esprit, but can you just talk about the spending levels in the fourth quarter, given the fact that you guys usually spend mostly in the beginning of the year, and it kind of tails off in the end of the year. Thanks.
Scott Whitcup
Marc, this is Scott, I’ll answer your first question of BOTOX headaches so, we expect data probably the first half of this year, the following clearly would be more toward the end of the year, all going well. So, our usual sense, we try to get the data presented at one of the major (neurology) headache meetings. So, we believe that there’ll be some timing with the close meeting to the time the data would be available.
David Pyott
Okay. I’ll take your second question Mark. Regarding recessionary environment, as I said consistently since October, we monitor very carefully what’s going on, in particularly the US. Everything is direct shipment so there’s no wholesale movements to mask what is true demand in the middle. I made in my opening remarks, the comment that it’s not only strong growth in the US, its strong growth across the world and it’s funny how the world tends to track each - the markets track each other. There are not huge disparities when one looks on a regional basis.
Obviously, if you go down to small country level, you get different swings and roundabouts depending where you are. I think also if we look to the last, after the post bubble years, admittedly that was just after the approval of BOTOX Cosmetic that we didn’t see any impact then. When I talked to many of our physician customers, they can’t remember really the impact of economic bound terms in the past so, we monitor things but so far we can’t see anything at all.
Secondly, when you look at your question on spending, the biggest single item is that we acquired ESPRIT Pharma, the SANCTURA business in the fourth quarter and we had very little sales but of course we bought on, as Jeff said in his comments, almost 200 people so, inevitably you bring on a lot of cost but not a lot of sales and that was all very much in our plan and our projection for ’06, and also for ’07.
Obviously then we had our COMBIGAN launch activities which also is unusual if you like, to our normal pattern as you correctly expressed it. And also we had our first payments to Covidien to get that relationship started. And finally, I think you were really directed to SG&A spend which of course is mainly sales and marketing, but I did remark in my comments that the increase of R&D was 50% Q4 of last year versus Q4 ’06. So very much planning for success and I think that you can see very strong momentum from all of our businesses as we go into the beginning of 2008.
Marc Goodman – Credit Suisse
Thank you.
Operator
Our next question comes from Larry Biegelsen, your line is open and please state your company’s name.
Larry Biegelsen – Wachovia Capital
It’s Wachovia, thanks for taking the question. David, you’ve talked about seeing no impact on Allergen sales from a consumer slow down. Have you seen any impact on the medical aesthetics market like breast implants and facial fillers and what are your assumptions for 2008?
David Pyott
Okay. Well, I think one other point that I didn’t address in the prior question from Mark Goodman was also as we look at all these medical aesthetic markets, they’re so very young, immature markets. If we were late cycle and then the economy was turning down then I think I’d be much more concerned. I’m sure you recollect what we call the triangle charts where we say we have x million consumers and this is the number of considerers. And then I’d say we’re still trying to get the door open to get into the room, let alone mingle with the people.
So, I think that’s what the real driver is and of course when you reflect upon quarter after quarter the market growth rates that I read to you – I remember in the last couple of weeks somebody said well, “how did you know there isn’t an impact on the dermal filler market of economic slow down?” and I said well, if you look at the US market there probably is going around 50%, who knows maybe it would’ve been 60% if it hadn’t been for this darned consumer down turn. But I think you see the point I’m making, maybe there is an effect at the margin but just we can’t see it because the growth rates are so high.
And I think also another real harbinger of future potential is not only consumers coming in and we do roughly a quarterly survey of consumer’s intention to have a BOTOX treatment or a JUVEDERM treatment or even consideration of breast implants as well as LAP-BAND, but we also see more and more doctors coming in to the field because they too see the opportunity for supplying market demand.
Larry Biegelsen – Wachovia Capital
Just a follow-up on breast implants. Your guidance for '08 assumes about deceleration from 2007 from 30% to about 14% using the (mid point in the guidance). Could you talk about your assumptions in that market? What kind of growth, how do you see the US market evolving? Thanks.
David Pyott
Well, first of all as I stated in my opening remarks. As I poured through all our numbers also trying to do the analysis, the inspection, can I see any slow down in Q4? What I stated in my opening remarks was that the US grew very strongly. The quarter we were looking at even on the local currency basis, 33% uptake, and when we look at the growth of sales, it looked as if roughly half was the price benefit of basically silicon being roughly twice that of saline. But the other half was procedural growth and some of the best growth we’ve seen in the whole year. Now is that market or is it us also getting market share. I really don’t know. And of course we will know a little bit better later this week when our competitor reports their numbers.
And I think also in my remarks I am sure you picked up that this isn’t only just growth in the US, this is growth doing very, very well right across the world. Now, in our guidance, as a company we tend to be conservative, I’d rather be cautious and not promise you the moon. We’ll update that as the year moves on. Finally I would agree with you from a logical perspective, one would expect higher cost surgical procedure - large ticket item, to be something that people could postpone versus the four to seven hundred million dollars for facial aesthetic procedures.
Larry Biegelsen – Wachovia Capital
Thank you.
Operator
Our next question comes from Gregg Gilbert, your line is open please state your company name.
Gregg Gilbert – Merrill Lynch
Thanks, it’s Merrill Lynch. David, follow up on implants, can you tell us what the saline/silicon split was at year end and what you factored in for next year?
David Pyott
Unfortunately, no. All I can say is that we’re well on our track, you remember when we launched the silicon breast implants we said we expected to get to 70-75% - 75-80 – thank you, in three years. And we’re very much on track having just on my own work performance for our board, and I can say I was a couple of percentage points ahead of the numbers in my management by objectives.
Gregg Gilbert – Merrill Lynch
Another SG&A question. Are you willing to tell us how much of the SG&A in ‘07 was consumer related and how that will trend in ’08 and if you won’t give us the specific numbers can you talk to that conceptually? Seems like you’re spending pretty fully already on the consumer end.
David Pyott
Well, as you know probably from the charts that we used in our investor presentations we forecast roughly $150 million in gross spending rates and you’ll see that number attenuating because on a quarterly rolling basis we think we’ve reached our maximum - well not maximum but our comfortable cruising altitude. We do very sophisticated models with our advertising agencies to see what is the projected incremental spend, if we were to up it further. We think we’re now in the zone that it’s highly efficient.
We have very high growth rating points for all of our campaigns and really the only thing we’re not doing is just completing the wrap-around effect because if you think back to JUVEDERM, we basically started advertising, from memory about May/June of last year and of course as this year starts, we will continue to spend on JUVEDERM. And then at some point we catch up on ourselves for full year spending.
Gregg Gilbert – Merrill Lynch
Thanks and one quick one for Scott and then Jeff. Scott on BOTOX Cosmetic are you in discussions with the agency about the label? Has there been any interaction of late and what drives the big bump in the CapEx guidance for ’08? Thank you.
Scott Whitcup
On the BOTOX label, we’re currently not specifically talking to the agency but across all that potential indications for BOTOX, we’re always looking at what clinical trials might expand the label for existing indications or what new indications we want to go after so, clearly our R&D efforts have crossed the gamut of indications but I wouldn’t say that we’re in specific current active discussion.
Jeff Edwards
Gregg, with respect to CapEx, new technology, as we prepare for some of our new product watches obviously we’re doing the same level of preparation within our operations functions, new filling lines etcetera. We’re also adding duplicate filling lines and increasing capacity to meet our strong sales. And we’re also looking at adding additional space here in our campus so we likely will begin construction of a new facility here on the campus. So those are the biggest single components.
Gregg Gilbert – Merrill Lynch
Thank you.
Operator
Our next question comes from Peter Bye, your line is open and please state your company name.
Peter Bye – Jefferies and Company
Jefferies and Company. Thanks guys. It seems we do this every January but on the EPS guidance and the front half spending but it also seems that you really have kind of downloaded the EPS and uploaded the revenue and then reversed it in the back half of the year. Why necessarily the drop off revenue growth Q2 through Q4, you’ve got accelerating EPS growth or is it just your annual January conservatism?
David Pyott
Well, I think it’s a mantra. We always realize the benefits of, if you spend wisely at the beginning of the year then you get sales growth and sales generation in the back half of the year so that’s basically what drives it.
Peter Bye – Jefferies and Company
That’s sort of my point. You got higher forecasted growth for Q1 than you do the remainder of the year if you could take the ranges and pack it out, I would have thought that you’d make money, might even accelerate the back half the year. I know you’ve got to account for cost but that’s what happened last year.
Jeff Edwards
Well, one of the things Peter, is we’re launching SANCTURA XR, we’re launching COMBIGAN. We’ve got lots and lots of additional sales people that are being deployed across our businesses. There’s a little bit of pipeline naturally with respect to SANCTURA XR so when you run the numbers it just comes out the way in Q1. You see lots and lots of additional spending early on and likewise we have the benefit, because of that spending of more sales in the first quarter then we would typically see.
Peter Bye – Jefferies and Company
Great. Just on POSURDEX that maybe there's a loss by year end. When will we see that and I guess it’s already been filed?
Scott Whitcup
And POSURDEX we started, we’re doing a rolling NDA and we still expect to complete the file with approval end of the year, early next year. Could be end of Q4 through Q1 we’re still getting all the data in so (inaudible) quarter play one way or the other.
Peter Bye – Jefferies and Company
How about a presentation of it?
Scott Whitcup
I expect that we might have presentation of data at probably academy of this year.
Peter Bye – Jefferies and Company
Okay, great. I appreciate. Thanks guys.
Operator
James Dawson, your line is open, and please state your company name.
James Dawson – Buckingham Research Group
Hi, it’s James Dawson for David Buck – Buckingham Research Group. With the launch of BOTOX Japan by end of this year 2008, how should we expect sales to flow into the P&L?
David Pyott
Well as you remember, we don’t record any sales. The major part of the economics is a stream that we get back from GSK and whilst we never disclose royalties individually for products you should assume it’s pretty high, given this was a product that was approved basically everywhere in the world expect Japan right?
James Dawson – Buckingham Research Group
Right. So its royalties from GSKs then?
David Pyott
I didn’t catch the question exactly.
James Dawson – Buckingham Research Group
I said it’s royalties from GSK.
David Pyott
Correct.
James Dawson – Buckingham Research Group
And then also just on the 2008, breast augmentation guidance of 10 1/2 % growth or 330 million at the low end, does that include some contraction in unit volumes? I know you discussed a little bit about this but I don’t know if hit that question specifically.
David Pyott
Well, I think first of all there's the range of numbers, if you do the math it’s somewhere between 11 and 17% is the growth over this year, and as I discussed earlier if you look in the US, there’s the pick up in value component. But the US is not all of the world, and I’m just looking roughly it’s probably 60:40 US - rest of the world in terms of sales.
Operator
Our next question comes from Louise Chen, your line is open and please state your
company name.
Louise Chen – Morgan Stanley
Of Morgan Stanley. So my first question is just on the guidance for breast and for facial fillers. What kind of market share and then growth assumptions are you assuming?
David Pyott
Well as you know the filler market continues to grow at a pretty torrid rate – and what I'm really pleased about is it's not just the US, but internationally as well. Who knows, you could say when we look at our numbers the guidance in percent is somewhere between 11 and 26%. Obviously moderation of the numbers from this year, some point of course there’s a law of large numbers, but so far things are going really, really well. And as I remarked in my opening comments, in the US it looks as if, based on some of the banks analysis as well as some of our internal analysis, it looks as if JUVEDERM is rapidly catching up with Restylane sales levels and return to Europe, I’m very pleased that we just launched JUVEDERM ULTRA.
I was at the conference when that occurred in Paris in January and very good reception to that and you could also tell from my remarks that really with almost a year’s lag effect, we’re really rolling out JUVEDERM and other products, in lots of America and Asia. And the reason for the lag was either lack of regulatory approvals, which was the case in Asia or in other markets, just buying back the rights from distributors takes time. Obviously if you’re in a hurry you can spend a lot of money, but we rather moderate how much we want to give these characters versus the value of time, right? But, the good news is we’ll have a good boost from that as well and as you know we’ll look at our guidance as the year continues
Louise Chen - Morgan Stanley
And, then also just my second question is in the past that you had said that you expect therapeutic BOTOX to pick up a larger percentage of overall sales over time and you’re now about 50/50, do you still expect that to be true? And if so, what do you ultimately expect therapeutic BOTOX to be as a percent of overall sales?
David Pyott
Well, I think it’s all about time, because I think in the very short term, when you look at the growth rates that I quoted with BOTOX therapeutic growing somewhere in the high teens across the world and then you look at the number for cosmetic last year was plus 29% in dollars, and I remarked that all of the operating regions have more than 20% growth. So clearly in the very short term I’d imagine that cosmetic will surpass therapeutic, however then looking into the years ahead whether its 2009, 10, 11, you’ll see the lift hopefully coming from BOTOX headache assuming that that program is successful and then as we come on further with more clinical data and then final approval for overactive bladder, and then we’re looking at BPH behind that and that’s why we say, if you project if you say five years out, I would imagine that therapeutic would swing back into the ascendancy again to be bigger than cosmetic. Not because cosmetic has slowed down, therapeutic will have just outgrown it.
Louise Chen - Morgan Stanley
Thank you.
Operator
Ronnie Gal, your line is open, and please state your company name.
Ronnie Gal – Sanford Bernstein
Sanford Bernstein. First question is about BOTOX, David, could you tell us a little bit more about the economics of BOTOX OUS, a little bit about the relative pricing power, particularly in markets where there is additional competitor, do we see, still see small rises in pricing there? And a little bit about the relationship between BOTOX and the growth of the economy, is there a relationship or are we pretty much [inaudible] across the board growth?
David Pyott
Well, first of all the economic question, I think just repeating what I said before, I think because these markets are so young, if there’s an impact of the economy, it could’ve been even better kind of answer with this economic situation, so at the end of the day you don’t pay me to be an economist, you pay me to develop Allergan and its franchises. So, so far as I keep on saying, things are just looking pretty good.
Coming back to pricing power from the past we’ve had in the US, price increases that are roughly in line with CPI. Overseas it depends. Europe in particular, I have to say that my European compatriots aren’t the wisest people around in terms of the way they mandate price decreases per products, particularly in southern Europe. In Europe, I’m however pleased that because the brand name is different, imposed upon on us and I'm not complaining that much, we use the name VISTABEL. That has enabled us to price premium VISTABEL because we spent money and effort to get the licenses for cosmetics. Typically VISTABEL sells in most markets at a premium to BOTOX therapeutic. And then in Latin America it really depends on the market situation and I could think of markets where we’ve had good price increases and some markets due to, particularly to on the therapeutic side we’ve had to go down a little bit in price due to government tenders. And particularly in those markets we’re very pleased that we’ve been able also to develop also private insurance markets, which is a very interesting market for us to develop. It requires effort, skills, but then in the long-term obviously a reward.
Ronnie Gal – Sanford Bernstein
And then second, regarding the obesity market, could you just talk a little bit about where you are both in terms of marketing the AP band? And I know there’s at least in Europe a discussion of the introduction of the easy band, what is that - in development?
David Pyott
What was the last part, I got the AP band?
Ronnie Gal – Sanford Bernstein
The Easy band?
David Pyott
Oh, the easy band. Okay, well as I stated in my remarks, I think to some degree we were surprised, already in post summer last year by the extreme interest for the AP band, the advanced platform band. So now I’ll use just a little bit of humor I say the lion's share has now turned to the AP band. Of course I’m thinking about our TV ad as well. That’s very good. Now why did the surgeons move to the AP band so quickly? Because it’s a better one. It’s broader. It offers less slippage and the kind of the cushion system we have, if you like, on the inside of the band, people believe has even stronger design features than the version before. Of course I like that because that means that we’re distancing ourselves from a product quality point of view even further from our competition.
I think the first version that’s available in the US when you look at it, it’s pretty clear who has the better product and even if we look at the next generation REALIZE band that is available in certain markets in Europe or Australia, I would argue if you looked at it or if you do a survey with surgeons we still have the product edge.
And then turning to easy band obviously the goal there was to offer a completely different technology and we’ll see how these two exist side by side. And the advantage there is that you can telemetrically adjust the band. So, you’re using a mechanical system basically. It's not an accident that the company is close to the center of Swiss watch making. It’s all about fine mechanical engineering. And obviously the band is a hydraulics system which has its advantages, but the disadvantage is the fact that the port fits just under the skin and you do have to break the skin when you’re making those adjustments. Not that that's a big a deal, but you have to do it to insert or take out saline to up or down regulate the circumference of the hydraulic lap band and indeed the REALIZE band from Ethicon as well.
Ronnie Gal – Sanford Bernstein
Where do we stand in terms of time of that product to market?
David Pyott
Well, for the US that’s still next decade, this is a full PMA. And when we look to Europe you can say with CE marketing much, much quicker and you’ll developments in Europe and foreign markets, not in US markets much, much quicker.
Ronnie Gal – Sanford Bernstein
Thanks, for a great quarter.
Operator
Gary Nachman your line is open, please state your company’s name.
Rohit Vanjani - Leerink Swann
Leerink Swann and this is Rohit in for Gary, so most of my questions have been answered, I just had a couple of other ones. What is, I see you mentioned DTC and maybe some focus on RESTASIS, but is that the only thing that’s driving the big acceleration in it and is that sustainable?
David Pyott
If we look at RESTASIS individually I would say always within the elements of marketing mix. It's analysis and intuition based on lots of numbers. I would say the importance of detailing is even greater than the importance of DTC. With that being said on our advertising spend level we’re very much at that point now where people that know consumer products would say this is a substantial campaign. It has high gross-rating points and we can now, kind of, keep it at that level. We don’t want to take this brand down but then on the other hand the good news is from your point of view is we don’t want to spend even more on it. I think that will still continue to drive very good sales growth. The trend lines, I’m sure you look at them just like I look at them every week and every month with the usual bumps up and down, of holidays and non-holidays there’s a pretty clear straight line through these prescriptions
Rohit Vanjani - Leerink Swann
Your detailing efforts will continue to remain as what they are?
David Pyott
Oh, absolutely this is one of our key products.
Rohit Vanjani - Leerink Swann
And I may have missed this but pricing in the breast implant market they were…
David Pyott
When I look at trends there – if we look at the United States prices are very stable particularly on the silicon side and we’ve been very clear about that, the way we manage the business. You know our company; we don’t pride ourselves on discounting.
Operator
A question from Frank Pinkerton and please state your company name.
Frank Pinkerton - Banc of America Securities
Thank you for taking the question, its Banc of American Securities. Can you speak to investments that need to be made to increase the sales of LAP BAND longer term? My understanding is that Allergan has invested in the product and the sales force to get it out there. But what are we looking at on the payer side for this procedure. What about times for physicians and nurses and of course patient willingness. This is a pretty complex procedure with follow ups. Is there some type of education or other investments that needs to be made in the channel more so than just the product and the sales?
David Pyott
Okay I think there are various elements to that question. First of all as you probably recollect during the course of the year we have the dramatic increases in our sales force. By the book quota we completely built up the sales force so in terms of overall annual spending rates of course there’ll be a lagging effect where what we spend in Q1 of sales force is a lot more than we spent Q1 of ’06, but the good news of course is you have dramatically higher sales somewhere in the order of 50 to 60% more. In terms of LAP BAND DTC, we’re now reaching the point where we’re also at this kind of cruising altitude level, substantial spending levels. We can keep it at that. On the payers side we have a dramatic, large group that handles reimbursements for all of our products and they pay attention to LAP BAND. These are the same people that deal with SANCTURA, COMBIGAN, and RESTASIS, the whole gamut.
And finally we continue to invest in training for bariatric surgery and also in terms of not only the surgery itself, but how one can optimally deliver aftercare.
Scott Whitcup
Also this is kind of on the R&D factor still a great deal of R&D spend with LAP BAND. Two major programs ongoing currently, one is obesity and so we have in adolescent, we have a major program that basically a (pivotal cell made to expand the label on adolescence which is a big health problem). That trial is fully enrolled and we are collecting data.
In addition, we’re trying to expand the labels to lower BMI to less obese patients because we believe the health benefits are in that over BMI category as well. You may have seen just this past week there was a major article in JAMA showing that patients with Type II Diabetes were treated with LAP BAND. 73% of them had remission of their diabetes compared to 13% with diet and usual care. And we will be collecting data on diabetes in that lower BMI trial. We think that expanding indications and more data will also help drive the market.
Frank Pinkerton - Banc of America Securities
Just to follow up, POSURDEX is, from what I can see, your first move into the back of the eye. But what's the plan to expand into the back of the eye going forward? Is that an internal platform I’m unaware of? Do you need to do acquisitions or end-licensing or partnerships or is back of the eye different in what you're currently involved in with your ophthalmology products and sales force? Thank you.
Scott Whitcup
That’s a great question. In addition to POSURDEX we do have our own novel formulation to try on and that’s being investigated through two national eye institutes, sponsored trials, we expect to start getting some data by the end of the year from that program. In addition, we’ve also said we’ve put a neural protective drug into the same POSURDEX drug delivery system and that’s starting – it’s already in clinical process starting phase II trials for multiple retinal indications. I think you’ll start getting some visibility of that program at R&D day in June and then we have a host of other compounds, antibodies that we can put into the drug delivery system. We have a small interfering RNA that blocks receptor 1. That's in phase II trials. And we have a host of other compounds that are actually an end model and that we hope to get in clinic. So, back of the eye-retinal diseases is a major R&D spend for us. You'll start seeing a lot of this data at R&D day.
David Pyott
That's great, also just to make it bigger, in terms of commercial activities, clearly during the course of this year we will start building a specialized retina sales force. This is a different group of ophthalmologists. So you don’t take fright that I am going to spend too much money. There aren't so many retina specialists so this is a relatively modest sized sales force relative to the hundreds that we already deploy against ophthalmology.
Frank Pinkerton - Banc of America Securities
Thank you.
James Hindman
Okay, thank you very much. We'd like to thank you for your participation today. If you have any further questions Joann Bradley, Emil Schultz and I will be available immediately following the call. Joann will now take five minutes to give you market share data.
Joann Bradley
Thank you, Jim. The following market share data we are providing is Allergan’s good faith estimate based upon the best available sources for data, such as IMS as well as Allergan’s internal estimates. The market share and growth rate information is a moving annual total or trailing 12-months as of the end of September 2007.
The market for ophthalmics is approximately 11 billion, growing at a rate of 13%, and Allergan’s market share is 16%. The market for glaucoma approximates 4.4 billion, growing at a rate of 8%, and Allergan’s market share approximates 18%.
The market for ocular allergy approximates 1 billion, growing at a rate of 6%, and Allergan’s market share approximates 6%. The plain ocular anti-infective market is roughly 980 million, growing at a rate of 7%, and Allergan’s share is 14%.
The market for ophthalmic non-steroidal anti-inflammatories is 340 million growing at a rate of 13% and Allergan's market share is 37%. The artificial tears market, inclusive of ointments, is approximately 1 billion growing at a rate of 9%, an Allergan's market share is 22%. The US topical market for acne and psoriasis is (inaudible) 7 billion and an annual growth rate of 11% and Allergan's market share is 6%.
The top ten markets for neuromodulator is roughly 1.1 billion growing, at a rate of roughly 22% and BOTOX has approximately a 91% market share. The worldwide market for neuromodulators is roughly 1.4 billion, growing at a rate of roughly 21%, and BOTOX has approximately an 85% market share. The worldwide market for facial filler substance aesthetic products is roughly 610 million, growing at a rate of roughly 35%, and Allergan Medical has approximately a 28% market share. The U.S. market for facial filler substance aesthetic products is roughly 290 million. The worldwide breast aesthetics market is roughly 720 million, growing at a rate of roughly 18%, and Allergan Medical has approximately a 38% market share. The U.S. breast aesthetics market is roughly 370 million. Allergan Medical has around a 45% market share. The worldwide bariatric surgery market, for band and balloon segments only, is roughly 290 million, growing at a rate of between 45 and 50%, and Allergan Medical has approximately an 80 to 85% market share.
The following growth rate information is year-to-date as of the end of September 2007. The worldwide market for facial fillers substance aesthetics products is growing at a rate of roughly 37% year-to-date. The worldwide breast aesthetics market is growing at a rate of roughly 20% year-to-date. The worldwide bariatric surgery market, band and balloon segments only, is growing between 50 and 55% year-to-date. The market for ophthalmics is growing at a rate of 13% year-to-date. And the top ten markets for neuromodulators are growing at a rate of roughly 19% year-to-date.
And that concludes our call.
Operator
That does conclude today's conference call. Thank you all for participating.
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