Allergan Q3 2009 Earnings Call Transcript

| About: Allergan plc (AGN)

Allergan, Inc. (NYSE:AGN)

Q3 2009 Earnings Call

October 29, 2009 11:00 AM ET


Jim Hindman - Investor Relations

David E.I. Pyott - Chairman and Chief Executive Officer

Jeffrey L. Edwards - Executive Vice President, Finance and Business Development and Chief Financial Officer

Scott M. Whitcup, M.D. - Executive Vice President, Research and Development

Joann Bradley - Investor Relations


Frank Pinkerton - SunTrust Robinson Humphrey

Marc Goodman - UBS Securities LLC

Annabel Samimy - Thomas Weisel Partners LLC

David Buck - Buckingham Research Group

Gregg Gilbert - BAS-ML

John Boris - Citigroup

Peter J. Bye - Jefferies and Company

Aaron Ronny Gal - Bernstein Research

Larry Biegelsen - Wells Fargo Securities LLC


Hello and welcome to the Allergan Third Quarter 2009 Earnings Call. Following today's presentation, there will be a formal question-and-answer session. (Operator Instructions). Until then, all lines will remain on listen-only mode. As a request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would like to introduce today's conference host, Mr. Jim Hindman, Senior Vice President, Treasury Risk and Investor Relation. Sir, you may begin.

Jim Hindman

Thank you, Jerry. Good morning.

With me for today's conference call is David Pyott, Chairman of the Board and Chief Executive Officer, Jeff Edwards, Executive Vice President, Finance and Business Development, Chief Financial Officer, Dr. Scott Whitcup, Executive Vice President, Research and Development, Chief Scientific Officer, and Jim Barlow, Senior Vice President and Corporate Controller.

Before we move ahead, I would like to remind you that certain statements that we will make in this presentation are forward-looking statements. These forward-looking statements reflect Allergan's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Allergan's businesses.

Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our third quarter 2009 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 simultaneous broadcast over the Internet with replays available for one week. You can access this information on our website at

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

David E.I. Pyott

Great. Thank you, Jim. Good morning, ladies and gentleman.

Overall sales have progressed in an arising trend of growth across 2009. In the third quarter, sales increased year-over-year by 4.2% from dollars by 7.0% to local currencies, driven by a strong quarter in ophthalmic pharmaceuticals and BOTOX, as well as improvements in all the Allergan medical businesses, with the exception of LAP-BAND.

As most of our product markets are showing signs were emerging from a downturn in consumers spending. Given recent volumes here in sales from several businesses which was stronger than we had foreseen earlier in the year, we made the strategic decision to invest an increased direct-to-consumer advertising programs for JUVÉDERM, LAP-BAND, LATTISSE, RESTASIS. As we wish to anticipate the recovery in our markets and to boost the sales trajectory of these consumer-facing products.

Almost all of the increase of non-GAAP SG&A expenditures of $36 million, Q3 2009 versus Q3 of 2008 is attributable to this increase and targeted DTC advertising with clear return metrics. With virtually no increase in base SG&A spending, this demonstrates that we're continuing to strictly control expenditure across all spending areas and that we have focused expenditure in DTC, which by its nature is all variable spend and can be turned on and off rapidly depending on business conditions.

As a results of all of these factors also weighted by the weakening of the U.S. dollar relative to most well currencies. We have raised sales guidance for the full year by $150 million from the bottom-end of the range and $100 million on the top-end of the range.

A lot of management potential is being directed to correctly forecasting the shape of the economic recovery in 2010, modeling the impact of a full year of competition for BOTOX Cosmetic and BOTOX Therapeutic in the U.S. and containing the impact of generics to our U.S. ophthalmology business.

For the third quarter, we recorded non-GAAP earnings per share of $0.70 with strong operational controls in place, we're able to increase non-GAAP earnings per share by 7.7% over the results of Q3 of 2008 and year-to-date by 10.5% well in excess of sales growth.

In terms of R&D, we spent a $167 million on a non-GAAP basis, only marginally up on the expenditure in Q2 of 2009. And under the adjusted a 180 million spent in Q3 of 2008. This is a consequence of the completion of many expensive Phase III trials, such as BOTOX for chronic migraine, OZURDEX for both, RVO and TRIVARIS, ACUVAIL and ZYMAR X, earlier this year.

Also given the appropriate caution in ramping up expenditure at the start for the year, when we were still in the midst of recession and the longer reaction cycle of R&D, we're now stepping up many new projects.

In terms of our strategic intent, we would have liked to spend more on R&D and we'll both initiate and execute more programs during the remainder of 2009 continuing into 2010.

However on a positive note, for the long-term efficiency of our business, R&D at Allergan is able to conduct clinical trials at much lower expense than in the past. As we have enforced certain trials, successfully contracted lower rates from CROs and have moved to a greater proportion of our trials to lower cost locations overseas.

Of course, R&D is not about the expenditure but it is about results. To this end, we're pleased that we continue to demonstrate strong R&D productivity. Since the last earnings call, we have filled with U.S. FDA the following products, BOTOX for chronic migraine and also for adult spasticity, as well as OZURDEX with additional indication of uveitis and adolescent use of LAP-BAND.

Regarding publication of scientific data on the use of BOTOX in chronic migraine, Phase III data were presented at the International Headache conference in September. However, our article submission after several review cycles was finally not accepted for publication by the lawsuit and will shortly be submitted to another well respected medical journal.

Positive Uveitis Phase III data were presented at the Retinal sub-special today at AAL last week. Regarding product approvals we've been trying a string of successes. LUMIGAN in Japan which launched on October, LUMIGAN 0.1% in Europe indicated for First-Line Treatment to Glaucoma has been recommended for approval by the committee for medicinal products for marketing authorization. And LUMIGAN 0.1% has also been approved in Brazil.

ACUVAIL has been approved and launched in U.S. and LATISSE in Korea. In France, we received approval for BOTOX for upper and lower limbs spasticity in children.

Turning to the performance of the businesses, I'll commence with BOTOX, which has performed much stronger than we had anticipated. Sales in the quarter grew 3.0% year-over-year on dollars and 5.8% to local currencies, but the pickup in growth relative to Q2 year-over-year in both the Cosmetic and Therapeutic businesses.

Sales of BOTOX both Cosmetic and Therapeutic were particularly strong in Asia-Pacific and Latin America. We're pleased with BOTOX Therapeutic is growing worldwide, more strongly than early in the year. Therapeutic have caused at the other half of the business are very few Wall Street customer surveys are conducted. So far, impact from competition both in the U.S. and Europe have been less than we'd expected.

In the U.S. aesthetic business, the overall market has expanded as Dysport came onto the scene. Due to the obligations amended by the FDA to carry out REMS programs for both Dysport and BOTOX, provision customers are constantly reminded that there is a lack of interchangeability between botulinum toxin units and there are no valid dose conversion ratios between the products.

In addition, BOTOX benefits from 20 years of experience in the U.S. for the BOTOX brand. And seven years of experience, since the FDA approval of BOTOX Cosmetic. And also benefits from high levels of customer and physician satisfaction.

Based in customer surveys, it seems that BOTOX has only lost a limited amount to market share and a significant amount to Dysport use stands from free samples, as physicians experiment and how to incorporate this product into their practices.

Based on accounts analysis, it seems that no major BOTOX customers have completely switched to Dysport. Dysport Therapeutic has just been introduced since the U.S. by Epson. It appears only to be at the stage of something versus actually selling the product to end customers.

In Europe, sales with macular edema -- Dysport have been limited. Regarding market shares in Q2, the last quarter for which we have end market sales, dates are available. We estimate that we've maintained 82% share being at the same level as in Q2 of 2008. With small market share gains on the Therapeutic side being offset by a small share losses from the Cosmetic side to XEOMIN in Europe and China Toxin in Asia.

Turning to eye care pharmaceuticals, we report a strong third quarter performance with sales increasing 4.8% in dollars and 8.0% from local currencies.

For IMS Global, for the first half of 2009, the last period for which date was available, the global market for ophthalmic grew 10% and at 8% if one excludes the fast growing segment of retinal therapeutics.

Allergan grew in market year-to-date Q2, a 13% and was the fastest growing global player. Regarding third quarter X-factory performance, RESTASIS supported by a strong DTC advertising posted outstanding growth, the 20.2% in local currencies. This corresponds to end market growth in the U.S. reported by various plan and sales at the margin were also affected by overseas markets such as Korea, Turkey and parts of Latin America.

As dry eye is increasingly understood as a progressive disease by ophthalmologists, increased in numbers of physicians are incorporating RESTASIS into their practices.

In the third quarter, sales of LUMIGAN, including GANFORT increased 11.4% in local currencies, as we experienced very strong growth for GANFORT in all markets where it is available, in Europe, Latin America and parts of Asia.

In Canada, LUMIGAN 0.1% is off to a strong start. In Europe, ALPHAGAN has been affected by the launch of generics in the main market but it is being offset by strong COMBIGAN growth. OPTIVE was launched in the quarter in Poland and COMBIGAN in Turkey.

Looking at the overall U.S. business, Verispan and IRI report Allergan growing year-to-date September a 12.0%. In the prescription pharmaceutical market, Allergan is growing year-to-date a 13.5% in acquisition dollars. In a market growing at 9.1% thus making Allergan the faster growing major company.

In the artificial tears market, which has been impacted by declines in consumer spending, IRI reports our tears business declining 10.8% and loosing share, as we have consciously resources behind RESTASIS relative to our REFRESH brands. Although we have recently increased our efforts behind both REFRESH and OPTIVE.

In the U.S., we launched two important products OZURDEX and ACUVAIL. Customer reaction to OZURDEX in our clinical data has been very favorable. If we note it with the adoption reimbursements cycle, it longer than for prescription of pharmaceuticals.

ACUVAIL has proceed to the real product improvements relative to ACULAR with the convenience of two versus four times a day dosing with additional comfort due to its formulation and unit dose non-preserved format.

In the sixth week post-launch, Verispan shows ACUVAIL already at 19% of overall new prescriptions of the key to NATRELLE Sunshine (ph). In addition to product advantages, ACUVAIL enjoys a good tier 2 position of most managed -- most major managed care formularies.

Regarding ALPHAGAN, we have long prepared for the launch of the generic brimonidine 0.15% by Alcon, pursue into a royalty bearing license granted by Allergan.

In a ruling accounted down last week by the U.S. District Court in Delaware, the judge upheld the validity of all five of the patents covering ALPHAGAN P. Now we can concentrate all our efforts on ALPHAGAN P 0.1% being assured subject to any appeal, but our patent to state extends until 2022.

As of the week ending October 16 for Verispan, sales of new prescriptions of ALPHAGAN 0.15% were down to 32% of the ALFAGAN product line. As physicians have moved from older versions of ALPHAGAN to the newest generation of 0.1 with lower drug exposure for their patients.

Fracturing in the prescriptions of COMBIGAN, the proportion of ALPHAGAN 0.15% with it exposed to generic impact is down to 21% of the overall commodity in franchise.

With ALPHAGAN 0.1% holding strong tier 2 positions on most managed care formularies both in 2009 and already secured for 2010. We're being diligent in our efforts to contain the impact to our ALPHAGAN and COMBIGAN franchise in 2010.

Skin care. Skin care sales of $62.9 million more than doubled versus Q3 of 2008 propelled by the ramp in sales the both LATISSE and ACZONE offset by a minor decline in X-factory sales with TAZORAC.

LATISSE sales of $22.3 were substantially higher than the $13.1 million reported in Q2. All the metrics for this brand were very strong. With increases in consumer brand awareness, consumer aptitudes for the product, physician prescriptions and reordering rates, as well as wholesale demand and start replenishing orders.

Since the beginning of our PR campaign, we have scored over 750 million media impressions, since approval at the end -- FDA approval towards the end of 2008.

Simplifying of our DTC advertisement to late May, we have seen a substantial pickup in all brand metrics and also consumer demand. LATTISSE was recently launched in Korea.

Regarding ACZONE, we're experiencing some of the drilling track of scripts inline with other recently launched new drugs.

In urology business, Q3 sales decreased by 12.9% to $14.8 million in just sequentially lower than the 16.1 million in Q2. This is refraction of the pattern of wholesale orders.

The more reliable measure performance is the growth of SANCTURA XR in that acquisition dollars for Verispan, which reports an increase in the third quarter of 10.9% year-over-year and a 25.5% year-to-date.

Further to our decision to reduce the size of our sales organization in February, with Allergan concentrating our sales forces on the urology specialty. We're pleased that we entered into a partnership with Quintiles for the coverage of the general practioner channel. Quintiles will be detailing SANCTURA XR from the beginning of November. Allergan will continue to record all sales and will provide royalty payment to Quintiles. Regarding

Regarding facial aesthetics, we reported Q3 sales decrease of 7.9% in U.S. dollars and decrease to 5.0% in local currencies is misleading in terms of real performance in term of fillers.

Shortly before we closed our Fremont California Collagen facility, we made last shipments of Collagen products in Q3 2008, the several third parties that use an orthopedic and other non-dermal uses.

Stripping out the $6.1 million in sales of these industrial products. Sales of core dermal fillers actually increased in dollars by 2.9%, by 6.1% to local currencies. Based on analysis of competitor sales and in market research, it seems that we're gaining market share in dermal fillers worldwide.

Outside the U.S., sales increased very strongly both in U.S. dollars and in local currencies, with strong growth in Asia-Pacific, Latin America and in Europe. We even recorded strong double-digit growth.

JUVÉDERM was launched in Taiwan and India and VOLUMA was introduced in the additional markets of Argentina, Colombia and Chile in Latin America. In the U.S, the market continues to decline, but our tracking data shows continue in market share gains for JUVÉDERM in the hydronic segment.

With our investment to DTC advertising in the U.S in Q3, we are hoping that this will stimulate market growth.

Turning to breast aesthetics, sales decreased 4.3% in dollars and 1.8% to local currencies versus Q3 of 2008. A marked improvement from earlier quarters in the year. As with dermal fillers, local currency growth is recurring in Q3 in all operating regions outside the U.S, however with this continuing market contraction in the U.S.

In Europe, we're profiting from the financial difficulties to some of the small competitors and most of the major markets turned from year-over-year declines to grow in the third quarter.

The line of resterilizable sizers was launched in Europe. We are pleased with our strong performance in Australia, Brazil and Canada. In the U.S., the drop in volume of breast augmentation procedures is slightly offset by the pickup in value as the market continues to slowly move to higher priced gel products.

Relative to Q2, we estimate in the U.S. that we've lost approximately 1% volumes share in Q3 versus Q2, and approximately 1.5% share points relative to Q3 of 2008. As we've consciously adopted the premium price position for on the trail gel products.

Obesity intervention is the one business where we're seeing more improvement in sales performance to local currencies. In Q3, sales declined to 18.4% in dollars and 16.7% to local currencies. The deterioration in performance versus earlier in the year was driven by Q3 year-over-year sales declines in several of the key overseas markets. Canada, UK and Australia which have been drilling strongly in the first half of this year.

Double digit declines continued in the U.S. but we're at least pleased that we're holding market share at above 70% of virtually flat in terms of share from Q3 from Q2. But, of course have suffered approximately 5% share loss versus Q3 of 2008 that the realize BAND entered the market.

We attributed the stability in our share to be designed features and product quality of LAP-BAND AP and our partnership with Covedien. With all of our business, it is clear that this is the one that has been most impacted by reductions in consumer spending and also cutbacks in government spending in some countries in Southern Europe. In Canada, LAP-BAND received a diabetes indication in the label.

ORBERA formerly known as BIB was launched in Q3 in Australia. Worldwide ORBERA is growing strongly on the small self-based.

I'll now pass over to Jeff Edwards to comment on financial results.

Jeffrey L. Edwards

Thanks, David and good morning to all of you on the call.

During third quarter of 2009, Allergan continue to illustrate the strength of its business model by producing strong earnings, performance despite continuing headwinds in the economy. The currency market versus prior year and new competition in the botulinum and toxin market.

Being able to over achieve our sales and earnings per share guidance for the quarter is a true reflection of the depth and breadth of Allergan's business in a strong competitive position within each of our specialty areas of focus. Our broad commitment to expense controls and targeted approach to investments into the areas of our business for the most promising financial returns enabled the company to deliver non-GAAP diluted EPS results above the top end of our guidance range.

Non-GAAP diluted earnings per share for the third quarter were $0.70 marking a 7.7% increase over 2008 results for the same quarter. The reconciliation of all of the adjustments to GAAP earnings are set out in our earnings release. Excluding the effects of non-GAAP adjustments and amortization of acquired intangibles, Allergan's Q3, 2009 gross margin of 83.4% increased by 100 basis points, when compared to Q3 of the prior year, driven principally by favorable product mix with our filler and health business and both favorable product mix and increasing manufacturing efficiencies within the breast implant business. These efficiencies and a result of lower costs are an outcome of the closer of our Arklow, Ireland plant and the transition of this manufacturing process to our state-of-the-art Costa Rica facility.

Non-GAAP selling, general and administrative expenses were 41.7% of products mix sales for the quarter, totaling $470 million. Despite of the company's focus on cost controls throughout 2009, during the third quarter Allergan began increasing its investments in certain of our businesses and anticipation of an emerging economic turnaround, as these segments have started to show some signs of improving market conditions. These incremental investments continue to be directed towards select high return projects and we're almost exclusively directed towards variable DTC spent.

Allergan will continue to focus on making meaningful value-based investments in both the sales and marketing and research and development areas with an objective of creating positive momentum behind important current and future revenue drivers. As a result of the emerging improvement in market conditions and increased investment levels in the third quarter, we now anticipate full year 2009 non-GAAP selling, general and administrative expenses to be between 40 and 41% of product net sales.

Non-GAAP research and development expenses were 14.8% of product net sales for the quarter totaling $166.7 million. Allergan continues to make substantial commitments to spending across both our medical device and pharmaceutical technology portfolios, while driving cost reductions through efficiency programs and R&D. We expect a sequential ramp in R&D investment in the fourth quarter as we begin to fund new projects and are now projecting full year 2009 non-GAAP R&D ratio to product net sales to be between 15 and 16%.

Allergan's effective tax rate, a non-GAAP earnings for the third quarter were 26.2% an improvement of 260 basis points when compared to Q3 of the prior year. This improvement was primarily driven by two items. The U.S. federal R&D tax credit expired at the end of 2007 and was not reinstated by Congress until Q4 of last year. As a result, we're not able incorporate the impact of the tax credit into our annual effective rate in Q3 2008.

Assertively we have been the beneficiary of this credit throughout 2009. Secondly, the change in the product mix between Q3 and Q2 of 2009 resulted in a favorable impact on the quarterly effective tax rate in Q3 '09 over the same period last year. A component of this improvement is attributable to the full year GAAP catch up requirement. We now anticipate the full year 2009 effective tax rate, a non-GAAP earnings to be between 28 and 29%.

Excluding the effects of non-GAAP adjustments, Allergan's operating income ratio increased by an access of 100 basis points when compared to Q3 of the prior year. Allergan discipline and selective approach centered a maximizing investment return and our commitment to cost moderation has enabled the company to generate this improvement to the operating income performance.

During the third quarter of 2009, Allergan recognized a net investment gain from the sale of third party stock investments including stock held in Stifel, which was own for several decades. This one-time net gain has allowed Allergan to make an $18 million contribution to the Allergan foundation during the quarter. The net impact of these transactions effectively neutral.

With respect to our balance sheet, consolidated Allergan days sales outstanding was 47 days, while consolidated Allergan inventory days on hand was 110 days. It is worth noting that that 110 day DOH level represent a 16 day reduction from the DOH level produced during the same period in 2008.

At the end of the third quarter, Allergan's cash and cash net of debt positions totaled approximately $1.7 billion and $190 million respectively. Operating cash flow after CapEx was approximately $320 million for the quarter, an increase of approximately $142 million over the $170 million reported in Q3 2008, as Allergan continues to sustain strong cash generating capabilities.

We entered 2009 with an internal objective to focus with great diligence on our use of cash across our working capital accounts and capital projects. As the years progressed, we had exceeded our expectations as it relates to both the management of our working capital accounts and the overset of our capital spend resulting in projected cash flow generation for the full year that we'll be higher than the original 2009 operating cash flow after cash CapEx estimate of $650 million.

Turning to our sales and EPS guidance, what we have provided today accounts for Allergan's current perspective on the state of the economic conditions and foreign currency markets for the remainder of 2009. For the full year of 2009, Allergan expects total product net sales in the range of between 4.350 billion and 4.400 billion and non-GAAP diluted earnings per share to be between $2.75 and $2.77.

For your information, specific product net sales guidance is included in our earning release. For the fourth quarter of 2009, including the estimated impact of currency, Allergan estimates product net sales in the range of 1.110 billion to 1.160 billion and non-GAAP diluted earning per shares to be in the range of $0.75 to $0.77.

As a reminder, we're looking at year-over-year quarterly EPS growth rate for the fourth quarter, it's important to remember the 2008, the fourth quarter EPS was positively impacted by approximately $0.04 due to the retroactive benefit caused by the renewal of the U.S. R&D tax credit, as the full year benefit of the credit for 2008 was recorded in the fourth quarter.

Adjusting the fourth quarter 2008 EPS to account for the source of benefit will provide a more comparable base to calculate fourth quarter 2009 EPS growth. Despite of the challenges evident in the business environment this year, the first nine months of 2009 has been quite solid for Allergan. Moreover, we are pleased with quality of our third quarter results as it reflect the value of the depth and breadth of our diversified lines of business as well as Allergan's ability to effectively maneuver through difficult markets.

We are encouraged by the early signs of market improvement. We observed and some of our cash paid businesses during the third quarter and believe that Allergan is well-positioned to perform from a position of strength when we fully emerge from the economic downturn.

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

Question-and-Answer Session


Thank you. (Operator Instructions). Our first question comes from Frank Pinkerton, SunTrust.

Frank Pinkerton - SunTrust Robinson Humphrey

Hey. First of all, Dave I believe you made a comment around Dysport expanding the market versus cannibalizing it. Do you have any data point that Jim gave us there, what was the reason behind those comments?

David Pyott

Well of course, it's always a matter of trying to define what's going on. Clearly, we've done a lot better done than we'd expected. So I suppose the real question is, is it just the market would have recovered anyway or was it because the market was stimulated by the entry of the competitor? Really I can't tell you definitively what the answer is.

Clearly another factor maybe a market leader like ourselves is challenged. Its kind of good for pulling off our socks. And everybody kind of leads to attention and starts moving quickly, maybe that stimulated the market. I think also its clear that so far that the market share intrusion has been quite limited, I made that remark, but even within that share, a major part of it is based on a three examples.

Frank Pinkerton - SunTrust Robinson Humphrey

Okay, great. And then as a follow-up, I think you crossed the Board this quarter. Glaucoma has been surprisingly strong for most of the companies, but maybe Scott, can you just speak to longer-term, what's Allergan's proposition for novel new molecules there as we look kind over of the next three to four years, potentially it could be generic competition and Allergan's ability to remain one of the leading players in glaucoma? Thank you.

Scott Whitcup, M.D.

Sure. That's a great question. Glaucoma remains one of our core R&D investment areas. What we're looking for are new chemical entities that provide patient value and tradition value. So we're looking for greater IOP decreases that are currently available, we think if that's possible. That activity is something that's important, so there's still a fair number of patient to our controls as a single available medication that are looking for novel mechanisms, so the action that would combine with existing therapy.

And then finally, drug delivery is a key area for innovation and one where with products like OZURDEX, we think we're the leader and hope to expand that to other product lines.


Our next question comes from Marc Goodman, UBS. Mr. Goodman, your line is open.

Marc Goodman - UBS Securities LLC

I'm sorry. Thanks. Scott also just can you update us on some of the other pipeline stuff what's going on with some of the retina products that you were going to...

Scott Whitcup, M.D.

Sure. We had dividend announced on the call, OZURDEX for uveitis was filed to the FDA, we think that'll be a nice indication to OZURDEX Diabetic Macular Edema, we're still in a clinical trials.

Marc Goodman - UBS Securities LLC

And can you talk about the timing of that?

Scott Whitcup, M.D.

Uveitis, we don't know whether -- what the review time is, but we're assuming approval next year. Diabetes as you know are three year trial, so that's going to be several years out. We also have brimonidine in our sustained release implant. We think from the animal data that we're actually getting visual enhancement. So that's in four Phase II, age-related macular degeneration which is probably the biggest market, we should have data read out next year. So that's a very exciting program.

Then a further backend in the pipeline we signed a -- in likely seeing opportunity with peers company in Germany which has large molecule expertise and so we think that technology will be able target some of the major disease areas like age-related macular degeneration.

Marc Goodman - UBS Securities LLC

And David just in the breast aesthetic market. What penetration are we right now for some of those necessarily?

David Pyott

Well I think looking all the surveys with when Dysport for us and meant for. It's just over the 60% mark and that's pretty reliable in terms of net X-factory sales.

To be noted of course in the Europe it's in a mid 90s and also if we look at Canada that's substantially ahead of United States. So, I think we'll see this continued slow switch over to gel products.

Marc Goodman - UBS Securities LLC

And then just LUMIGAN in Japan. Can you help find the opportunity how you see it -- how that's going to impact your numbers?

David Pyott

Well, Jeff literally launched, I recollect two weekends ago in Japan, so very early days. Our partner Senju is the second largest domestic ophthalmic company. Given the performance characteristics of LUMIGAN worldwide and of course they haven't accessed to all data from us. One would expect LUMIGAN to be one of the -- let's call it three, maybe four max key newest generation products available on the Japanese market. In terms of economics to us, we record no sales but we get the benefit of royalty payments from Senju to ourselves.

Marc Goodman - UBS Securities LLC

How big is the Japanese glaucoma working right now?

David Pyott

That one I need to get back to you. I don't want to guess the number not for long. So, I will get -- to get back to you with that number.

Jeffrey Edwards

And that was based on IMS number of course.

Marc Goodman - UBS Securities LLC

And then last question you had mentioned the migraine data was not going to be in the asset. Can you talk about what is the asset sales, what was the reason?

David Pyott

Well, I would get into maybe some of the details, but of course, I think one of the challenges so far, the world we live in is of course for the company we can't keep that data for too long. Otherwise we get accused to things, and when we release data, which you in this case occurred of the International Headache Society that been somewhat the tracks from lets call it the attractiveness, the kind of -- I'll use the words scoop although that's a bit of an exaggeration if you like where the volume effect are being the first known journal to publish and so, we were still in those review cycles when we appropriately have to present the data of the International Headache Society. Maybe Scott, being closer to it might have some other thoughts.

Scott Whitcup, M.D.

Marc, I think the other things we requested all of the data to be published together in that respect maybe that was asking a bit too much as you know. If you have the meeting in Philadelphia is too huge studies of a large amount of data -- be more focused and something less amount of data, single study, more approval for the general practitioner and sellers. There is a huge amount of data and one could suggest more neurologist or a headache special and there are couple of -- since we didn't quite fit with the land set (ph) and although going to the review cycles I thought it was going to get in but you can just never predict what finally goes into a decision lots of good papers, don't make it into one journal make it into another journal. So we'(Operator Instructions) get it turned around and hopefully publish soon.

But as David said, a huge number of presentations and the data are in the public demand in which was important for us to do.

Marc Goodman - UBS Securities LLC



Our next question comes from Annabel Samimy, Thomas Weisel.

Annabel Samimy - Thomas Weisel Partners LLC

Hi. Thanks for taking my question. Just a question about the guidance you had mentioned, you had some more favorable foreign currency. So is the guidance on the top-line more related to the favorable foreign currency and maybe expense in the international markets. Or is it driven by some increases in demand that you're seeing?

David Pyott

It really is both. Obviously Q4 is the wrap around quarter for currency. So, this represents the -- I think the middle watermark for dollar strength last year, so now we have the benefit of a weaker dollar this year, so that's driving some benefit. But we're also seeing very nice top-line performance as a consequence of real performance outside of currency.

Annabel Samimy - Thomas Weisel Partners LLC

Okay. And in terms of SG&A investment that you had mentioned, you said you're investing more targeted and very high return initiatives. Can you just -- I might have missed it earlier. Can you just review those really quickly?

Jeffrey Edwards

Yeah, let me give you sort of a print here. If you look at the numbers in the tables in our press release, you'll see on the non-GAAP Q3 versus Q3 SG&A increased some $36 million year-over-year and virtually all of that was DTC in terms of this increase. So that's what I was trying to say in my opening remarks but, this wasn't a case of just spreading some money in lots of different places, it was very, very targeted and of course when you turn on that DTC. We had views on when it should come back in terms of stimulation of sales and of course those are metrics that one can actually drill into.

Annabel Samimy - Thomas Weisel Partners LLC

Okay. So that was more LATISSE and RESTASIS and those products you're talking about?

David Pyott

Yeah, the ones that we added to our budgets were RESTASIS, LATISSE. We also invested in JUVÉDERM and we also have a campaign in September for LAP-BAND, you may recollect that we had full page newspaper adverts in USA Today and a couple of other newspapers, leading ones in the United States. And we got a really good echo from our customers for that resumed advertising.

Annabel Samimy - Thomas Weisel Partners LLC

Okay. And if I may one more question, on the ALPHAGAN franchise. Alcon obviously is able to enter after September 9th did the ruling on pattern has any impact on the agreement that you have with Alcon and have you seen them come in to the marketplace?

David Pyott

No. First of all the ruling was occurred last Friday, so not less than a week ago. When we settled with Alcon, our thinking of course was you never know what would be the outcome of litigation, if you got really good notes, you kind of go all the way and see if the gun is loaded or not. So that was a way of somewhat hedging our debts. And of course as I've stated in my opening remarks, given the upholding of the patents subject to appeal this means that Alcon will be the only company with the generics brimonidine for very long period of time.

So far Alcon has priced the product, it would appear to about a 30% discount which is normal and very important we also receive a royalty stream although as in the case of all of our royalties patent received -- we haven't given you the exact rate. But presumably you'll see that showing up, there's lots of moving pieces on the other revenue line. But there will be something showing up there.

Annabel Samimy - Thomas Weisel Partners LLC

Okay, great. Thank you very much.


Our next question comes from David Buck, Buckingham Research.

David Buck - Buckingham Research Group

Yeah, thanks. First question is on the LUMIGAN or the glaucoma franchise in Europe. The LUMIGAN 0.1, can you remind us when the standard formulation of LUMIGAN does loose patent protection over there and would you be expecting to get reference when that happens for the new formulation?

And then secondly can you give a sense of more look to 2010, what you're expecting for glaucoma overall or for the ALPHAGAN franchise when we have a full year of generics? And then more broadly as we look at the economic recovery, how close were to getting back to more of a normal growth trend for Allergan in terms of overall company revenue and EPS growth? Thanks.

David Pyott

Okay. Lets take them one by one, I'll go to the U.S. market first. Clearly, we have to factor in some impact on the sales line from the 0.15% generic from Alcon or authorized generic division of Alcon.

Given, how far we are along with converting based ALPHAGAN over to the 0.1% and also the success of COMBIGAN. I was just looking at that, we're now up to 34% of drilling prescriptions of co-swapped branded and generic which is pretty good performance in COMBIGAN. We think that the impact is not large, its something we can detect, but it doesn't -- it certainly abides the infamous falling of the cliff, when one would either loose patent or authorize the generic.

Also, kind of speaking to glaucoma in the U.S. We have a very good formulary positions, both for 0.1% ALPHAGAN and LUMIGAN and COMBIGAN. So we see a good position for us as we go into 2010.

Going back to Europe, first point is we just received this recommendation from the committee for medicinal product which still takes a couple of months, until the licenses and prices many believe investments are granted in all the individual member countries. So not a very good caution but just don't expect to see it show up, next month. There's always a delay in Europe. Really the thought was, how do we bring product with very comparable IOP lowering qualities. However, with lower drug concentration the benefits of lower high premium which of course we all know is the one inconvenient factor of LUMIGAN relative to some other cross -- so across the minds.

In terms of your question on patent in Europe based LUMIGAN goes all the way out to 2017, so that's a long way away. Then on your last question on overall top-line performance for 2010. I can't give you any detail guidance because that will occur at the end of January but, of course one of the things we've spent a lot of time on is trying to model out that is the shape of the -- and with various consumer-facing franchises and we're literally going into our operating plan discussions later today over the next week. I think we've taken a little as the roads approach in terms of not too cautious but not too aggressive. And as they say all be revealed at the end of January.

David Buck - Buckingham Research Group

Yes. Thank you.


Our next question comes from Gregg Gilbert, Bank of America.

Gregg Gilbert - BAS-ML

Thanks. First question, obviously the pattern victory was great for the ALPHAGAN family and I didn't examine the overlap yet but does that victory help bolster the IP around COMBIGAN well?

David Pyott

The patents on COMBIGAN are different. So I would regard that to the separate matter. As you know in patent, he get into the real details.

Gregg Gilbert - BAS-ML

Right. And then for Scott, couple housekeeping items, can you give us some submission date for BOTOX Headache and what sort of clock was triggered on the spasticity answers. And then maybe bigger pictures Scott, there was a time when we thought that there be some big go, no go decision on the upper Agnes program at the end of this year. Can you just put into context where you stand on that program or programs for us. Thanks.

Scott Whitcup, M.D.

Sure. I'll take one at a time. On headache, we usually don't give you the exact filing date in other than one in the quarter we haven't heard back yet in terms of review cycle. Spasticity one in, we did here so it was class two has to be a class two response which triggers roughly six month review times, that will -- that purchase into first half of next year for there has to be a positive response to our submission.

And then on the Alphas, as we've talked about we have three major programs repaying. We have the Alphas, we have a compound in collaboration with ExonHit and we have our targeted Tuscan (ph) program. And so by the end of the year, we'll have all the data that we need to make a decision on what we go forward our self then what we might want a partner and we'll probably announced that fairly next year.

Gregg Gilbert - BAS-ML

Thank you very much.


Our next question comes from John Boris, Citigroup.

John Boris - Citigroup

Thanks for taking the questions. On LATISSE David, the patients that -- patient fall that's coming in, can you just comment on percent of new patients that are Allergan patients in the percent that are existing patients. And then, can you comment on the overall patient population what percent of BOTOX users and what you're seeing a shortening on the timeline for BOTOX users to come back into, get their BOTOX for their static aesthetic applications with dollar lines. And then just another follow-up on BOTOX?

David Pyott

Okay. First of all on LATISSE. As we'd kind of communicated earlier in the year, we really have the feeling that LATISSE was going to be a new gateway product for medical aesthetics because of course it's kind of obvious that it appears to an even broader age group, than BOTOX Cosmetic. And it certainly very clear that my conversations and when I'm out in the fields, that women actually like to talk about LATISSE even more than they like to talk about BOTOX retinal dermal filers or other procedures.

Based on a recent survey we did, this is market research. It would seem that around about a quarter of LATISSE users, our first time users of any medical aesthetic treatment. So there is the kind of a data point to here is the new gateway in the way that BOTOX in the past was the gateway to medical aesthetics.

Also it's very encouraging but of all LATISSE users about a third are a users of under procedures. So you can see a nice cross use and of course you can imagine once you have a patient or a consumer in the office, they see in other sales material around the office they have the chance to ask the physician or the physician staff. What about this or that, with the next thing you can get informed inappropriately -- in an appropriate manner that were the benefits versus any risks.

In terms of BOTOX cycle, we don't have such recent data that I could give you a definitive answer. Generally earlier questions was all around why is the market appearing to be getting stronger again.

One would assume that it's people actually slightly shortening the space between treatments as a way of stimulating demand. We also note from other surveys that the number of patients that Dysport seems to be picking up. If there is a percentage but it's not an overwhelming percentage. I recollect it's a pretty low number in terms of brand new patients for Dysport.

Lots of different phenomena going on simultaneously here and I think over the next couple of months, we'll start seeing a date history and to try and interpret, it's a bit like I suppose an economist looking at what's going on the economy. You have to exercise judgment trend.

John Boris - Citigroup

On BOTOX use, we saw BOTOX reported in the quarter. What percent is coming from aesthetics and what percent is coming therapeutics? Can you help us out there?

David Pyott

No as we've -- I'm afraid with the years now, we've said we'll give you the split, once per year and that will occur at the end of January. I however gave you some I would say, encouraging remarks about therapeutic and with that but year-over-year, we as a company within therapeutics gained some marginal share.

So obviously that has to do with Europe and other continents, given we virtually have a 100% of therapeutic in North America. As I remarked Dysport is really a very much in some point in stage at the moment, first is actually selling the product.

John Boris - Citigroup



Our next question comes from Peter Bye, Jefferies & Company.

Peter Bye - Jefferies and Company

Hey guys. Thanks. And just, in fact of the question (ph) about going back in 2010. There maybe a little on return, where do you view that sort of your long-term top-line growth profile, coming back after you on a normalized economic environment, I mean are you a high single-digit grow or you back to double-digits or what's the thought process there?

David Pyott

I think the biggest part of the thought process is how many new products we got approved. To really model Allergan you have to model every single franchise to understand it, you've got the slope of recovery in the consumer-facing ones, but over the next couple of years, I would say even more important is trying to estimate what should the sales be that's 10 from BOTOX for chronic migraine growth in the movement to saw it is franchised, including spasticity, approval of overactive bladder, so the urology franchise.

And then also of course you have the fun of trying to model out, LATISSE is going to be big, but whether it's the shape of the launch curve. So I think I would point you more at product approvals, product flow then is it even more important factor then trying to work out of the shape of the line for growth or a recovery of growth in the existing products.

Peter Bye - Jefferies and Company

Okay. And then just an update on the DOJ for headache -- are you starting to talk to or any feedback from insurers on headache now that the Phase III data has been published, I know at least the few of those insurers were that were sort of potentially a tipping point for them to do a new review on potentially reimbursing forward?

David Pyott

Okay, first of all on DOJ all that I can say is this is a very long process, we have cemented many millions of sheets of paper to the Attorney General's office in Atlanta obviously we're very fully cooperating with debt to request. And I really wouldn't want to predict how long will that take to resolve. We're just in the normal kind of slipway that one is in this kind of investigation.

In terms of headache and reimbursement, I've heard no significant reports of changed amount of activity by managed care and I think many of them will be looking to see what they chose publish in a course the real triggering event is hopefully and approval along the timeline that Scott setout in his response to another question.

Peter Bye - Jefferies and Company

Great. Just one last follow-up. Scott, was Atlanta the first journal or the second journal that you submitted to?

Scott Whitcup, M.D.

We didn't really commented -- exactly where -- we commented on the ramps that was set for a lot of people found out where it was submitted, but the journals want to keep confidential and we tried on that as well.

Peter Bye - Jefferies and Company

Okay, great. Thanks.


Our next question comes from Ronny Gal, Bernstein.

Aaron Gal - Bernstein Research

Hey. Good morning and thank you for taking my question. First David, I look at the rate of growth here and projecting forward. I kind of back the question about the possibility of catch up here I know you want to spend more against SG&A. But even thinking it will grow up couple of percentage points. Is the room at least theoretically just think about a catch up here next year and I've got a follow up?

David Pyott

Well I think -- as I've even made the remark in my quote in the press release. I think as we've seen from other companies that are involved in consumer-facing industries. There's certainly a benefit to being an early mover in terms of spending into a recovery to stimulate not only demand for our products but given where the market leader and almost all of these -- in fact I think all of these product areas to simulate demand for our product. So that time when he was making to pointed out, we can turn this on and we can turn it off. It is a very fast cycle.

It also gives us the way currently of getting ahead for next year. Because obviously we're looking at what kind of media weights do you want to throw at each of those franchisers in 2010. So, that's the kind of the way we think about that. And clearly DTC accepted, I was going out in my way to make the point, but we're getting more and more efficient in terms of our spending in sales and marketing and I'm pleased also with the great progress made in R&D which is a different question. We're basically getting more for the same amount of money spent, which is a great answer.

Aaron Gal - Bernstein Research

Okay. And Scott, two things first. Let me quote a case of eye collagen that you've received with going LATISSE. You talked as you still as excited about the new target at both of the derivatives as you were in the last call?

Scott Whitcup, M.D.

The first question, we don't comment on specific spontaneously reports. We have a safety group that goes through a data as a whole on and there is really no new safety signal that we have seen based on those reviews. In terms of the targeted toxin, remain as enthusiastic about but I think it's not only for our initial foray which is a pain calculated compound, but for the concept as a platform. Since we can put in basically any receptor we want, we can target as to a number of disease areas which is exciting. This initial one will be our test case and so far we remain excited.

Aaron Gal - Bernstein Research

You've mentioned last time you might submit that for cancer, for a major science, does that still apply?

Scott Whitcup, M.D.

Well, we're not sure what the next lead compound will be but clearly you could go any thing from cancer to endocrine disease as a very important way to cellular function, we're looking at a number of options.

Aaron Gal - Bernstein Research

Okay. Thank you.

David Pyott

Jerry we have time for one more call.


Thank you. That will come from Larry Biegelsen, Wells Fargo.

Larry Biegelsen - Wells Fargo Securities LLC

Hi and thanks for taking my question. First, if my math is right the mid-point of your Q4 guidance implies deterioration versus Q3 in your organic growth rate, the net product sales at BOTOX and core medical devices. Can you talk about why you would expect the deterioration in those businesses if you're anticipating a recovery.

David Pyott

We were really not expecting a deterioration. We give a range for particular reason and that's the way we provide guidance and that's the way we've done it in the past and that's the way we'll do it in the future. As you know Larry, we tend to be reasonably cautious, but in these markets, we try to be as realistic as possible. So I think that is much as I can help you. I think the other comments David and I've made over the course of the call should provide you with some view or some perspective on our increasing confidence in our businesses is function of the quality of the products that we bring to bear and be as consequence of the improving economy.

Jeffrey Edwards

And I think its very important as to remind you, what I've said earlier and this isn't just about foreign exchange, it is real local currency performance as well.

Larry Biegelsen - Wells Fargo Securities LLC

Okay. And then you didn't mention in the press release, the filing for BOTOX, for chronic migraine in Europe, but in the past you've talked about it being a global filing. When do you expect to file in Europe? And then lastly, JUVÉDERM with Lidocaine and LUMIGAN acts in the U.S. The likelihood we'll see those two in 2009? Thanks.

Scott Whitcup, M.D.

So in terms of headache and yeah you're right, we tried to get the files to be coordinated, so we can sell globally and headache should go into Europe soon.

David Pyott

On LUMIGAN, this is a very irritating issue, its administrative, its not clinical issue and its kind of become a personal project for Scott and myself, to get with through the FDA. On Lidocaine, is basically is coming soon. We received a while back, a request for more CMC data. We've responded to that and now we're just processing it and we too are waiting soon.

Larry Biegelsen - Wells Fargo Securities LLC

Thank you very much.

Jim Hindman

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 for call. Joann will now takes five minutes to give you market share data.

Joann Bradley

Thanks, Jim. The following market share data we are providing is Allergan's good faith estimate based upon the best available research and data such as IMS, as well as Allergan's internal estimates. Market share and growth rate information is a moving annual total for trailing 12 months as of the end of June, 2009.

The market for ophthalmics is approximately 13 billion growing at a rate of 9% and Allergan's market share is 16%. The market for glaucoma approximates 4.9 billion growing at a rate of 6% and Allergan's market share approximates 19%. The market for ocular allergy approximates 1.1 billion growing at a rate of 6% and Allergan's market share approximates 5%. The plain ocular anti-infective market is roughly $1 billion growing at a rate of 3% and Allergan's share is 13%.

The market for ophthalmic nonsteroidal anti-inflammatories is about $420 million growing at a rate of 13% and Allergan's market share is 34%. The artificial tears market inclusive of ointments is approximately 1.3 billion growing at a rate of 9% and Allergan's share is 20%. The U.S. topical market for acne and psoriasis is roughly 1.8 billion, annual growth rate is 7% and Allergan's market share is roughly 7%.

The top ten markets for neuromodulators are roughly 1.3 billion growing at a rate of roughly 4%. BOTOX has approximately a 91% market share. The worldwide market for neuromodulators is roughly 1.6 billion declining at a rate of roughly 1% and BOTOX has approximately an 83% market share. The worldwide market for dermal facial fillers is roughly 630 million declining at a rate of roughly 12% and Allergan has approximately a 32% market share. The U.S. market for dermal facial fillers is roughly $270 million.

The worldwide breast aesthetics market for aesthetic and reconstructive is roughly $760 million, declining at a rate of roughly 8% and Allergan has approximately a 38% market share. The worldwide bariatric surgery market for the band and balloon segments only is roughly $370 million growing at a rate of roughly 4 to 5% and Allergan has approximately a 70 to 75% market share.

That concludes our call. Thank you very much.


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

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