Allergan Drops Unnecessarily on FDA BOTOX Review

Shares of Allergan (AGN) plunged almost 6% on Friday following an announcement by the FDA that the agency launched a safety review of the company's flagship product, BOTOX, and Solstice Neuroscience's competing product Myobloc. Shares of Medicis (MRX), which is investigating a potential competing product through clinical trials, also dropped on Friday in sympathy.

As usual, Wall Street traders, whose majority do not know what chromosomes are, let alone the actual link between botulinism toxin and BOTOX, have over-reacted to mundane news; a common event with biotech stocks. What is even more common is the incident that spurred the over-reaction; the FDA continues to monitor drugs long after approval, especially off-label use.

BOTOX has been used since 1995 in children suffering from cerebral palsy as a muscle relaxer, since these children tend to suffer from debilitating muscle spasms. For cosmetic purposes in adults, about 20 to 50 units of BOTOX are used, while in children with cerebral palsy 700 units is not unusual.

What the FDA found was a slightly elevated risk of death in children receiving the BOTOX for such an indication. So what the agency wanted to do was force Allergan to use a warning label to describe these risks to doctors performing the procedure. That is it. The FDA does not have an issue with BOTOX as a cosmetic product, which is the bulk of Allergan's revenue. BOTOX has been cleared in many countries, including the EU and Canada for children with cerebral palsy. It is only the FDA, which is usually the case with pharmaceuticals, that has not cleared the way.

I would take that 6% discount on Allergan stock all the way to the bank. The company reported last week that sales of Botox rose 24% to $339.8 million in the fourth quarter, and estimated 2008 sales will reach $1.37 billion to $1.42 billion.

If those numbers don't sway you, then this might; I am a dentist and was certified just 3 months ago in cosmetic treatment using BOTOX. Dentists, and other medical professionals, are increasingly adopting BOTOX programs in their practices, a sign that Allergan, and traders alike, have nothing to worry about.