Allergan, Inc. Q4 2009 Earnings Call Transcript

| About: Allergan plc (AGN)

Allergan, Inc. (NYSE:AGN)

Q4 2009 Earnings Call Transcript

February 4, 2010 11:00 am ET


Jim Hindman – IR

David Pyott – Chairman and CEO

Jeff Edwards – EVP, Finance & Business Development, and CFO

Scott Whitcup – EVP, R&D

Joann Bradley – IR


Gary Nachman -- Leerink Swann

Larry Biegelsen -- Wells Fargo

Ronny Gal -- Bernstein

Greg Fraser -- Bank of America

Marc Goodman --UBS

Steve Willoughby -- Cleveland Research

Ken Cacciatore -- Cowen and Company

Chris Schott -- JP Morgan

Peter Bye -- Jefferies and Company


Hello and welcome to the Allergan fourth quarter 2009 earnings call. Following today's presentation, there will be a formal question-and-answer session. Today’s conference call is scheduled to conclude at 9:00 AM Pacific Time. To ensure that we are able to accommodate questions from as many participants as possible we ask that each of you limit to a maximum of two questions. (Operator instructions) Until then, all lines will remain in listen-only mode. At the 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 Relations. Sir, you may begin.

Jim Hindman

Thank you, Terry. Good morning. With me for today's conference call is David Pyott, Chairman of the Board and Chief Executive Officer; Jeff Edwards, Executive Vice President, Finance and Business Development, Chief Financial Officer; Dr. Scott Whitcup, Executive Vice President, Research and Development and 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 fourth quarter and year-end 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 Pyott

Great, thank you Jim. Good morning ladies and gentlemen. The fourth quarter year-over-year sales growth demonstrated the continuing trend of recovery observable across each sequential quarter of 2009 versus the corresponding quarter of 2008. Fourth quarter sales increased year-over-year by a very strong 15.9% in dollars and by 11.2% in local currencies driven by another strong quarter in ophthalmic pharmaceuticals, a return to robust growth across the facial aesthetics franchise, a strong contribution from LATISSE, and, finally, massive growth in Asia.

Only LAP-BAND continued to be weighed down by the cost of medical co-pays and the impact of the recession on the self-pay segment of the market, although the banding market too shows early signs of recovery. Obviously, fourth quarter performance was in comparison to the weakest quarter of 2008 when the world economy was plunging and real performance is also flattered by the relative weakness of the U.S. dollar compared to other leading global currencies.

Full year performance was impacted by the sales declines in the first half of the year posting growth of 2.5% in dollars and 4.9% in local currencies for the full year. Given the broad based upturn in our markets around the world and the sales acceleration of our brands, some in part as a result of our increased investments in direct-to-consumer advertising since June, we continued our strategy of spending into the recovery, also broadening our spend from DTC alone into other impactful, high-return marketing programs with a goal of boosting our sales momentum as we entered 2010.

Given management’s attention to the execution of a limited number of these programs, we are applying discipline to maintain the strong spending controls and rigor that we put in place since late 2008. For the full-year, Allergan spent $185 million on direct-to-consumer advertising, an increase of 47% over 2008 and even above the $136 million, which we spent in our record sales performance year, pre-recession, in 2007.

Also aided by strong performance regarding gross margin in the fourth quarter, we recorded non-GAAP earnings per share of $0.78, an increase of 2.6% over the results of Q4 of 2008, but exceeding the expectation range of $0.75 to $0.77 provided at the time of our third quarter results.

For the full year, non-GAAP EPS was $2.78, marking a growth of $8.2% for the full year versus 2008. This was also greater than the expectation range provided in February of last year of $2.69 to $2.75. Our decision announced in February to cut expenses and reduce payroll costs was clearly the correct action.

Now, I would like to comment on our expectations for 2010. We are estimating sales growth in the range of 2% to 7% and non-GAAP EPS of $3.9 to $3.15, marking a return to double digit non-GAAP EPS growth in the range of 11% to 13%.

In order to achieve this performance we’ll broadly leverage our selling, general, and administrative costs. During the year we have no plans to expand our sales forces in the U.S. and Europe although we do have some expansions in emerging markets. On the other hand, we have chosen to ramp up our spending in R&D, which is estimated to be in the range of 15% to 16% of sales.

There are several challenges for forecasting 2010 performance. Firstly, determining the shape of the economic recovery, where we prefer to remain somewhat cautious. Secondly, predicting the full impact of generics to our U.S. ophthalmology business. And finally, within our forecast, we are assuming that we are successful in securing some important regulatory approvals.

Regarding competition for BOTOX Cosmetic and Therapeutic in the U.S. and Europe, we are feeling much more confident about our ability to retain high market shares as we increasingly focus our efforts into market expansion versus defense of market share. Notwithstanding this, a full year of competition effect will still dent BOTOX sales growth.

In terms of R&D in the fourth quarter, we again increased R&D expenditure to $185.2 million on a non-GAAP basis, which was 11.2% over Q4 of 2008 and sequentially increased 11.1% over Q3 of 2009. Looking back on the back end of 2008 and the whole of 2009, I wish that we’d have more aggressively started some new programs earlier as we finished up many expensive Phase III trials such as for BOTOX for chronic migraine, OZURDEX for retinal vein occlusion and (inaudible) and ACUVAIL, and ZYMAR X. But this of course is the benefit of hindsight and clearly we were cautious about long term spending and commitments early in 2009 given the economic turmoil at that time.

We were also able to embark on a long term program to reduce the cost of clinical development. In 2009 we were able to enroll 8% more patients in clinical trials per Allergan clinical research associate and have set metrics in place in 2010 to reduce the average clinical trial cost per patient compared to 2009.

Since the beginning of the year we have had a string of regulatory approvals

LUMIGAN 0.1% was approved in the European Union and is about to be launched in the U.K. and Germany

This FDA-approved JUVÉDERM XC, the next generation product providing the benefits of pain control with lidocaine, which has been shipping to the markets since February the first; Health Canada approved SANCTURA XR and OZURDEX was approved in India and New Zealand.

Regarding key regulatory filings, the fourth quarter was full of activity. Regarding BOTOX for chronic migraine, files were submitted to Canada, the United Kingdom, France, and Switzerland, and RESTASIS was filed in Canada and Australia. Regarding the chronic migraine filing with the USFDA, we were not surprised that this will undergo the full standard review cycle.

Regarding new technology, we are also pleased that we further strengthened our pipeline by acquiring Serica, a private company based in Massachusetts with unique patent-protected silk mesh technology for use in tissue regeneration, especially in breast reconstruction.

Regarding the alpha agonists and gamma [ph] program, the latter partnered with ExonHit, we are in advanced negotiations with several parties regarding out-licensing. Strategically, it is prudent for Allergan to concentrate its resources in specialist markets and seek partners for programs that would be commercialized predominantly with GPs. Furthermore, we wish to concentrate our R&D efforts on our targeted toxin for pain program.

Turing now to the performance of the businesses, I will commence with ophthalmic pharmaceuticals, which had an outstanding quarter with 212% growth in dollars and 16.5% in local currencies. All of our key products enjoyed strong growth. Now, focusing on local currency growth, the numbers are as follows

RESTASIS increased by 39.6%; LUMIGAN, including GANFORT by 18.1%, then ALPHAGAN, including COMBIGAN by 8.7%.

We enjoyed strong double digit growth in local currencies both in the United States and abroad with outstanding growth in Asia due to the creation of our joint venture with Samo [ph], our longstanding business partner in Korea, and our direct sales operation in China. For the eight consecutive year, Allergan was the fastest growing global company as reported by IMS Global for the 12-month period ended September 2009.

In Europe, we continued to gain share in both glaucoma and artificial tears. In Latin America, Allergan has outgrown Alcon for the fifth consecutive year.

End market, in the U.S., RESTASIS grew 20.6% versus Q4 of 2008 in acquisition dollars and LUMIGAN 7.6% on the same basis. LUMIGAN was further boosted by double-digit growth of LUMIGAN outside the United States and major growth of GANFORT as it is introduced and ramps up around the world.

ALPHAGAN franchise growth of 8.7% in local currencies was commendable as this was the first full quarter when ALPHAGAN P 0.15% was subject to generic intrusion in the United States. This growth was driven by COMBIGAN and ALPHAGAN P 0.1%. Outside the U.S., brimonidine generics are available in many markets where there too our strategy is to emphasize the convenience of the fixed dose combination of COMBIGAN. COMBIGAN in fact enjoyed major growth in the quarter in international markets.

In the U.S. our ALPHAGAN P 0.1% product receives great interest by ophthalmologists. Coupled with COMBIGAN, Allergan has been able to retain between 73% and 75% branded share of brimonidine-containing products over the last eight weeks.

Regarding generics of ACULAR, or Ketorolac, full emphasis is being placed on the product’s advantages of our latest generation product, ACUVAIL. Due to the good initial uptake of ACUVAIL, Allergan is currently holding about the mid-50 percentage share for our branded products over the last six weeks.

RESTASIS continues on a strong growth trajectory as dry eye is increasingly understood as a progressive disease by ophthalmologists and optometrists. And increasing number of practitioners incorporate RESTASIS into their practices and patients are educated about dry eye disease and therapy by our advertisements.

Regarding OZURDEX, we are still in the early stages of the launch of the product as retinal vein occlusion is the smallest of all of the indications where we are conducting clinical development and we are proving in practice that payors will reimburse for OZURDEX.

A limited portion of the U.S. ophthalmic growth was due to a slight increase in trade inventories from the end of the third quarter to the end of the year although these remain at the very low end of our targeted range of less than eight weeks cover. In the U.S. (inaudible), the data provider, showed Allergan growing in Q4 at 8.6% in acquisition dollars versus Q4 of 2008 and for the full year at 12.3% in a prescription pharmaceutical market growing by 9.3%, thus gaining more market share than any other company.

Turning to BOTOX’ performance, sales increased in the fourth quarter by 5.6% and only 0.7% in local currencies as the overall market for neuromodulators recovers, but we are impacted by the launch of DYSPORT in the U.S. but of course there was no sales base in the prior year. Outside the U.S., sales growth of BOTOX Cosmetic or (inaudible) was very strong in all operating regions, Europe, Asia-Pacific, Latin America and Canada. Therapeutic was particularly strong in Europe and Asia-Pacific.

For the full year, BOTOX sales declined 0.1% in dollars and grew 2.5% in local currencies. Given the effect of consumer spending on BOTOX Cosmetic, we estimate that BOTOX for Aesthetic use was 48% of the mix, declining 4% year-over-year in dollars and that therapeutic uses accounted for 52% of the mix, growing 4% in dollars.

In the third quarter, the last quarter for which data is available, we estimate that the worldwide neuromodulator market grew 7% in U.S. dollars and that BOTOX enjoys approximately 83% market share. In the U.S., it seems that DYSPORT aesthetic share in recent months has leveled off at the low double digit market share even with heavy sampling with about a quarter of DYSPORT patients being first time neuromodulator users. Based on our sales and market surveys, it would also seem that the U.S. aesthetic market enjoyed an uptick in growth in Q4.

In retrospect, the various consumer promotions for BOTOX, sometimes coupled with JUVÉDERM, were very successful encouraging patients to increase the frequency of their treatments. They also led to a significant growth in our database of patients with whom we can communicate directly with new media tools.

Use of DYSPORT for therapeutic uses in the U.S. has had minimal impact so far early in the launch given reimbursement challenges. In Europe, we have marginally increased our market share in therapeutics and in aesthetics have lost some minor share to Galderma's Azzalure and to Xeomin as they enter more geographical markets.

Skin care sales of $64.5 million almost doubled versus Q4 of 2008, driven by the launch of LATISSE and strong growth versus its launch quarter a year ago for Axon. Sales of TAZORAC were flat.

Regarding LATISSE, the bulk of the business is direct to physician so analysis of prescription trends and wholesale withdrawals only tells part of the story. The number of physicians prescribing or dispensing is increasing steadily. Aided and unaided brands awareness are climbing upwards and consumer perceptions of efficacy and safety are on a positive track.

Urology. Urology sales in the fourth quarter of $17 million were absolutely flat with Q4 of 2008. We are expecting to see a pickup in prescriptions and sales following our partnership with Quintiles whereby Quintiles since November has been detailing SANCTURA XR to general practitioners. After Thanksgiving, we also merged our urology and medical dermatology sales teams – these are the Allergan teams – into one larger combined force with a reduction in the geographical area of sales territories, which of course dramatically increased by about 70% the coverage of the urology specialty whilst we maintain medical dermatology coverage.

Further to our goals of building our portfolio of urology products, we are pleased that the clinical program for Apaziquone in partnership with Spectrum Pharmaceuticals completed enrollment of the Phase III trials before the end of the year.

Regarding facial aesthetics, we enjoyed a nice rebound in sales in Q4, which grew 18.3% in dollars and a strong 10.6% in local currencies with modest growth in the U.S. supplemented by particularly strong growth in Latin America, Asia-Pacific, and also Europe. We assume that the market also stimulated by our advertising and consumer promotions must have further improved in the fourth quarter as we estimated that the world market in Q3 year-over-year still shrank by about 4%.

From Q4 of 2008 to Q2 of 2009, the market each quarter had been declining in double digit rates year-over-year. Beyond market recovery, it is also clear that the Allergan line led by JUVÉDERM is gaining market share in all of the operating regions of the world. In the third quarter, we estimate that Allergan’s global dermal filler share was roughly equal to that of Q-Med and Medicis combined.

In the U.S., we expect that the launch of JUVÉDERM XC with its pain control benefits will enhance market growth as well as garner incremental market share. In January, in Europe, we launched JUVÉDERM SMILE, a new lip product containing lidocaine. JUVÉDERM was recently introduced in the Philippines and JUVÉDERM ULTRA in Korea.

Moving on to breast aesthetics, the year-over-year sales declines in earlier quarters in the year have now given way to a good growth quarter. In Q4, sales grew 9.7% in dollars and still a commendable 5.4% in local currencies. The U.S. returned to growth and certain European markets posted more than double digit growth rates, of course somewhat flattered by the very poor sales of Q4 of 2008. Brazil and parts of Asia-Pacific also recorded very strong sales growth.

In the U.S., sales of silicon gel increased their share of the mix. U.S. market share has been somewhat flat as we have consciously moved to a modest premium pricing position. In Korea, we moved to a direct sales presence uniting breast aesthetics with our facial aesthetics line.

For the obesity intervention product area, we also saw improved performance in Q4 relative to earlier quarters in the year. Sales, however, still decreased 1.3% versus Q4 of 2008 and 5.3% in local currencies. Most of the improved performance is attributable to the U.S. where the rate of decline reduced significantly in the fourth quarter also aided by comparable market share for the LAP-BAND in Q4 2009 and Q4 2008.

Market share for Lap-Band seems to be settling in at just under 75%. For the first time in the U.S. the share of all geriatric procedures accounted for by bands surpassed the 50% mark overtaking bypass and sleeve costectomy [ph]. Overseas markets such as the U.K., Australia and Canada, which had recorded strong growth earlier in the year, suffered sales declines year-over-year in Q4. Our ORBERA Gastric Balloon grew strongly on a small base of sales in Europe, parts of Latin America, and Australia.

I’ll now pass over to Jeff Edwards who will take you through the financial and operating performance in greater detail.

Jeff Edwards

Thanks, David, and good morning to all of you on the call; thanks for joining us. As was the case in the third quarter of 2009, Allergan continued to generate strong earnings performance despite an ongoing stagnant economic environment and the challenge of new competition during the fourth quarter of 2009. Being able to overachieve our sales and earnings per share expectations for the quarter is a true reflection of the depth and breadth of Allergan’s business and a strong competitive position within each of our specialty areas.

This performance is also reflective of our forward-looking focus, an effort to prepare in advance of competition in moving towards economic recovery. Allergan’s diversified base of business and thoughtfully directed approach to reinvest back into the business to further stimulate market growth enabled the Company to deliver non-GAAP diluted EPS results above the top end of our range expectations.

Non-GAAP diluted earnings per share for the fourth quarter were $0.78, marking a 2.6% increase over 2008 results for the same quarter. As a reminder, for the fourth quarter, EPS for 2008 was positively impacted by approximately $0.04 due to the retroactive benefit caused by the renewal of the U.S. R&D tax credit in 2008. Adjusting to account for this forced [ph] benefit fourth quarter 2009 EPS would have grown 8.3% year-over-year. A reconciliation of all of the adjustments to GAAP earnings is set out in our earnings release.

For the full year of 2009, Allergan demonstrated its ability to leverage its expense base by delivering non-GAAP diluted earnings per share of $2.78 despite the various challenges spaced throughout 2009 including continuing economy-driven challenges and volatility within the currency markets versus prior year; generic intrusion within the anti-inflammatory and glaucoma segments of our eye care business; and new competition in the neuromodulator market. This strong result was above the high end of our initial range of expectations provided in February 2009 of $2.69 to $2.75.

Our commitment to the long term future of the Company and to our shareholders is evident in this results as we are able to both invest strongly into the growth drivers of the business and pass stronger earnings performance on to our shareholders in the form of greater EPS performance.

Excluding the effects of non-GAAP adjustments and amortization of acquired intangibles, Allergan’s Q4 2009 gross margin of 84.7% increased 230 basis points when compared to the prior year Allergan saw improvement in both its pharmaceutical and medical device margins. On a sequential basis, Q4 2009 gross margin increased 130 basis points over prior quarter. These improvements in gross margin were a product of our keen focus on year long broad based implementation and manufacturing facility efficiencies and a successful transfer of our breast implant manufacturing process from Ireland to Costa Rica.

The non-GAAP selling, general, and administrative expenses to product net sales ratio for the fourth quarter was flat at 41.7% compared with the third quarter of 2009. On a dollar basis, fourth quarter non-GAAP selling, general, and administrative expenses totaled $503 million. Similar to the third quarter of 2009, Allergan continued to implement targeted investments during the fourth quarter to further stimulate and support our future growth as we continue to observer emerging recovery and improvement within certain of our markets.

Non-GAAP research and development expenses were 15.4% of product net sales for the quarter, totaling $185.2 million, an increase of approximately $19 million over the third quarter 2009, as we continue to fund new projects and sequentially ramp up R&D investments moving into 2010.

Consistent with the expectations provided within our earnings release, this trend will continue throughout 2010. Excluding the effects of non-GAAP adjustments, Allergan fourth quarter operating income ratio increased by 100 basis points when compared to the third quarter of 2009. Allergan’s disciplined and selective approach centered on maximizing investment return and our commitment to cost moderation has enabled the Company to generate this improvement to the operating income performance.

With respect to our balance sheet, consolidated Allergan days sales outstanding was 44 days while consolidated Allergan inventory days on hand was 106 days. This represents an improvement of three days for days sales outstanding and 22 days for inventory days on hand when compared to the prior year. I am pleased to note that Allergan’s DSO and DOH metrics represent top quartile performance versus our industry peers.

Prior to the start of 2009, Allergan established objectives around working capital and capital targets that were pushed across to each of our operating units and included within each of their performance objectives for the year. With almost no exception, each of the responsible management teams exceeded our expectations and executed with impeccable quality.

At the end of the fourth quarter, Allergan’s cash and cash net of debt positions totaled approximately $1.9 billion and $439 million, respectively. Allergan continued to maintain exceptional cash flow generation capabilities in 2009 with operating cash flow after capital expenditures of approximately $276 million for the fourth quarter and over $1 billion for the full year. This represents record annual cash flow performance for the Company and truly exceptional performance by our team.

These strong balances, cash balances, and broader access to liquidity provide Allergan with the ability to remain active with respect to our ongoing pursuit of strategic acquisitions and licensing.

As we look forward into 2009, Allergan’s plan is to continue to carefully monitor our markets and manage business expenses as necessary through appropriate leverage with a goal of delivering our bottom line EPS expectations. As I had mentioned in the past, we continue to be very thoughtful on our evaluation of our expense base to ensure we are leveraging the appropriate areas and are operating the business with the most efficient and appropriate cost structure necessary to remain competitive in today’s markets.

We’ve also tried to be mindful with respect to the current state of the broader economic environment. Although we believe that the environment is clearly stabilized and in many cases shown signs of positive trends, we understand that some caution is prudent. For the first quarter of 2010, Allergan estimates product net sales in the range $1060 million to $1100 million and non-GAAP diluted earnings per share to be in the range of $0.57 to $0.59.

As Allergan invests to support the approvals and launches of a number of new products in 2010 spending levels are expected to be higher in the first half of the year as measured in both dollars and percent of sales while the second half of the year should produce some moderation of these investment levels. Consistent with the investments made in prior years, Allergan is very focused on leveraging and spending against our core traditional products, and focusing the benefits of leverage on our newer, higher growth, short and long term opportunities. We project the full year non-GAAP SG&A ratio to product net sales to be between 39% and 40%.

Regarding full year expectations for 2010, Allergan expects non-GAAP diluted earnings per share to be between $3.09 and $3.15, which represents growth of between 11% and 13%. This expectation assumes no passage of significant U.S. healthcare reform legislation, including excise axes or new rebates. We will continue to monitor the outcome of the legislative process and we will provide an update to our expectations at a later date if any legislation is passed and when its impact is fully understood.

Additionally, the expectations assume that the U.S. R&D tax credit will be renewed in the fourth quarter this year with full year retroactive benefits impacting Q4 results. This would generate a higher effective tax rate in the first three quarters of 2010 and thus lower EPS results while benefiting both the Q4 effective tax rate and reported Q4 EPS. For the full year we expect a tax rate on non-GAAP earnings of between 28% and 29%.

Regarding full year 2010 total sales expectations, Allergan expects total product net sales in the range of between $4550 million and $4750 million. For your information, specific product sales expectations are included in our earnings release.

With respect to R&D investment in 2010, Allergan will continue to make substantial commitments to spending across both our medical device and pharmaceutical technology portfolios. We project the non-GAAP R&D ratio to product net sales to be between 15% and 16% for 2010. For your information, we have included expectations for other lines of the income statement within our earnings release.

With respect to 2010 capital expenditures, we project CapEx of between $170 million and $190 million for the year. Regarding cash flow, as we demonstrated during 2009, Allergan is fortunate to have the ability to generate significant levels of cash, which allows us to maintain strong and healthy balance sheets. For 2010, we expect to generate operating cash flow after capital expenditures of approximately $800 million. We have assumed very moderate levels of share repurchase activity of approximately $4 million in 2010 with the repurchase objectives limited to only match expected employee stock option based compensations programs.

Our solid results during the fourth quarter and full year 2009 is another testament to the value of the depth and breadth of our diversified lines of businesses as well as Allergan’s ability to effectively manage its business through difficult markets. We hope to continue to build on our past excesses and look forward to new opportunities emerging for Allergan in 2010.

With that, operator, I would like to open the call for questions.

Question-and-Answer Session


(Operator instructions) Our first question comes from Gary Nachman, Leerink Swann.

Gary Nachman -- Leerink Swann

Hi good morning. My first question on BOTOX guidance, are you factoring any contribution for new indication specifically spasticity or migraine? What’s the update on the Phase III studies for OAB? And on migraine, are you preparing for (inaudible)?

David Pyott

Okay, I will take the – the kind of the number questions and let Scott answer the scientific questions. Given it’s public that the PDUFA date for spasticity is the First of April, clearly we have sales in for spasticity in the United States. Regarding migraine, given that you know that it was filed in Q3 of ’09 and assume it’s a full review cycle, and probably a little bit more even – the stub [ph] value of sales for migraine assumed in our numbers is pretty modest. So, I will now pass over to Scott for the answers on the other fronts.

Scott Whitcup

Hi Gary. Yes, to answer to your questions, first on our overactive bladder programs – we’ve completed sort of the negotiations on the neurogenic. We have a sort of the formula of how much followup they wanted to see and are on target to file that – a BLA this year. In addition, we have a large program, Phase III program in idiopathic overactive bladders. Those trials are recruiting. On the migraine side we don’t know for sure whether there will be advisory committee or not, but we are fully prepared given that that preparation helps us both for the U.S. should there by advisory committee and for answering regulatory questions around the world. We are very committed to get this filed and approved globally.

Gary Nachman -- Leerink Swann

Okay great. And if I can just take another one. 4Q spending was pretty high. Could you just specify what programs you accelerated towards the end of the year and how much of that was the ramp-up at DTC? Thanks.

David Pyott

As an order of magnitude obviously it was a very large number and of course one other thing I have to point out is that SG&A in dollars of course was also boosted by currency to the tune of around about $20 million. Roughly half of the increase was due to DTC increase year-over-year. And of course in all my remarks today you always have to bear in mind we are comparing against Q4 of 2008 where of course we were busy, frankly hot-shitting down expenditures. We watched the world kind of disappear down the tubes. And now we are on the other end where we increased a lot and hence my remark over the full year, we ended up spending more than 47% or 47% more than we had in 2008 full year. Otherwise, we basically turned on rather marketing programs that we thought were high return. And one other amount of course is also bonus and commissions because of course in Q4 of 2008 we were frankly reducing our accruals. And, yes, this year it was the opposite as things continued to ramp up of course then not truly – Mr. Barlow as the Corporate Controller has to make sure that we are accruing properly for sales force commissions and bonuses.

Another factor too is the lapping of Asia given that we have done an awful lot in Asia and Asia is just exploding given all the initiatives we’ve taken particularly in Korea and China, but also some of the smaller countries.

Gary Nachman -- Leerink Swann

Okay. Which products did you spend the most on at DTC?

David Pyott

Clearly you can see it in terms of measurement, LATISSE was the largest single one. We should probably move to another caller then.

Gary Nachman -- Leerink Swann

Okay great thanks.


Your next question comes from Larry Biegelsen, Wells Fargo.

Larry Biegelsen -- Wells Fargo

Good morning, thanks for taking the call. First, you mentioned you did not get a priority review for BOTOX for migraine. My understanding is that a priority review is for an unmet clinical need. What – how do you think about that, and is it somewhat – do you think we should read anything into it, why or why not, Scott, should we be disappointed that it didn’t get, though the FDA doesn’t view it as an unmet clinical need?

Scott Whitcup

Larry, we weren’t surprised at all that really some of our discussions, this is one of the largest files the review division needs to go through. To box them into six months would have been tough. I think they appreciate the unmet need in terms of treatments that really work but it’s – there is – there are treatments for migraine out there so it wasn’t like there are no treatments that patients could use. So I think they appreciate the unmet need. I think the fact that we didn’t get a priority review doesn’t really surprise me and I don’t view it as a negative, but that somehow their review division is viewing the unmet need any differently than when we met with them.

Larry Biegelsen -- Wells Fargo

Okay. And then on OAB neurogenic, OAB studies are scheduled to end in March 2010 according to Is that accurate and when will we see the results?

Scott Whitcup

I am not sure exactly when the – when the trials will end. The filing date was – or the amount of data that the FDA needed to see was complicated – there is a formula of how long the drug was acting and how many patients they needed post cycle. We are confident that we are on schedule to get that filed this year. So, that’s on schedule. When exactly those data will then be submitted for publication you will see them – to be honest, I don’t know yet, but our goal usually is once the trials are done get it written up, try to get it published and presented as quickly as we can and we’ll update you as soon as we have those dates.

Larry Biegelsen -- Wells Fargo

And Scott, no top line results like BOTOX Migraine?

Scott Whitcup

No, not that we are planning.

Larry Biegelsen -- Wells Fargo

Okay. And then lastly, the Q1 revenue guidance, the mid-point is about 9%, Jeff, but the full year is about 5%, the mid-point. I mean why do you assume a deceleration after the first quarter? Thanks.

David Pyott

Well, I think two factors. When we looked at various sell-side models, of course one of the things everybody will see is the disconnect on generics. I think most of you assume a lower impact than we do. Of course, that’s an easy model to get set up. I’ve got one right in front of me looking at sell-side models versus our own internal plans. And obviously as the year winds on you have to assume the generics share will somewhat increase and therefore impacts our growth rate. Equally, we have to assume more BOTOX competition, same kinds of effects. So, think about it really in terms of – although we plan to fight tooth and nail over every market share point, but we certainly have to be logical and plan for some share loss.

Larry Biegelsen -- Wells Fargo

Thank you.

Jim Hindman

Yes, if people can just limit their questions to two that would be great, that way we can get through most of these.


Your next question comes from Ronny Gal, Bernstein.

Ronny Gal – Bernstein

Good morning and thanks for taking the question. First, Scott, any update with the—on the targeted toxin plan and are you still going to Phase II, if you can just tell us a little bit more about where you are going to spend the extra R&D dollars?

And, second, on LATISSE, I guess you are making a positive commentary here, the numbers are strong. We are seeing from the (inaudible) report IMS (inaudible) IMS was seeing lower or somewhat a flattening of the product. Is there a (inaudible) between the states, states where the doctors can make money from prescribing this – from office – from office distribution of the product have the higher penetration rates are still growing? Can you give us a little bit of help on this?

Scott Whitcup

Sure, Ronny, I will start off with the R&D question first on the targeted toxin. We have a pretty extensive Phase I program that includes a little bit of proof of concept and today our plans are moving into Phase II in – this year, so that’s part of the increased R&D spend. If you look at the rest of the R&D portfolio, other big areas of spend, lots of glaucoma and retina programs. We’ve got the idiopathic OAB, which is a fairly bigger allergy [ph] program ramping up. And then a fairly aggressive increase both in clinical and in research on the device side at Allergan Medical. David and I are really committed to rejuvenating that pipeline and making sure we have the right efforts there.

David Pyott

Yes, I think answering your question on LATISSE in a nutshell, it’s clear that it’s much more convenient for patients to just fill their LATISSE prescription at the doctor’s office. It’s obvious you don’t have to forget to go to the drug store. Now clearly big three states that – dispensing isn’t permitted is Texas, New York, and Massachusetts. And we are continuing to work hard in those states because clearly there is a real benefit to doctor’s offices of bringing in a complete new generation and a new type of consumer into the medical aesthetic space with LATISSE. So, we are rather pleased with the growth in the dispensing states and as I had remarked in my script, the prescriptions only tell a rather small part of the story

Ronny Gal – Bernstein

Thank you.


Our next question comes from Ben Andrew, William Blair. Mr. Andrew, your line is open. Please check your mute button. Please pick up your handset. We’ll go ahead and move on. Your next question comes from Greg Fraser, Bank of America.

Greg Fraser -- Bank of America

Thanks. It’s Greg Fraser for Gregg Gilbert. Your Product sales guidance implies a year-over-year growth of about 2% to 7%. Roughly, how much of that expected sales growth is performance versus currency related?

Jeff Edwards

There is some currency in it. It’s modest. If you look on a local currency basis it’s about let’s see – local currency --

Company Representative

It’s about 1%.

Jeff Edwards

It’s about 1% on a global basis, the impact.

Greg Fraser -- Bank of America

Okay. And for your LATISSE sales guidance, does that include significant sales outside of the U.S. or is it mainly on U.S. sales?

Jeff Edwards

It’s predominantly the U.S. That’s the way you should view it for the time being.

Greg Fraser -- Bank of America

Okay. Thank you.


Your next question comes from Marc Goodman, UBS.

Marc Goodman – UBS

Jeff, one question about the tax rate. Should we assume – I mean if you looked at the way the tax rate worked in the four quarters of ’09, should we be thinking about that the same way in 2010, is that what you comment was, I mean I understand what the full year is going to be, but – and is that the reason why the first quarter EPS is below what you think even given the revenues and the spending? And I guess that’s question one.

And then another question is emerging markets, and David, can you give us a flavor for how big is the business there over the emerging markets, what percentage of the Company is sales and what growth rates are you seeing there?

And then the other question was on DTC spending this year relative to last year. What are you thinking?

Jeff Edwards

On the tax rate, the way you should look at it is in terms of the way it works, you may want to go back to 2008 and just look at the way it ramps there because the assumption here is for the first three quarters of the year, we don’t have the benefit of the R&D tax credit. And then in the fourth quarter we’ll get the benefit plus the retroactive effects for the prior three quarters. So that’s – I am sorry I wasn’t clear with my comments, but that’s hopefully a better expectation or a better explanation of our expectations. 2008 would be a good model year.

Marc Goodman – UBS


David Pyott

Okay, trying to be helpful on emerging markets. Clearly we’ve had a presence all over Latin America for a long time. Where the big push is East Asia and Eastern Europe. If you look at it within the whole Company, it’s still relatively small, but growing at a very, very strong rate and this is a huge emphasis in terms setting up our own direct operations and beyond just increasing unit growth in the market. Of course we are also getting a capture at a much higher level relative to – there is different rate of course between sales to distributor sales to wholesaler or sales direct to physician in market.

Marc Goodman – UBS

And then on the DTC side?

David Pyott

The question exactly was?

Marc Goodman – UBS

Oh, well, you gave us your number for 2009, I was just wondering in 2010 is that going off, is it about the same or what are your thoughts there?

David Pyott

Yes, as I’ve said, there is a point where we can start to plateau these investments just because that’s the way it works in consumer goods. So the broad indication you could say 2010 is a similar number to the number I quoted for 2009.

Marc Goodman – UBS



Your next question comes from Steve Willoughby, Cleveland Research.

Steve Willoughby -- Cleveland Research

Hi, good morning, thanks for taking the call. Two quick questions, first, could you comment and provide some more color on what’s driving the RESTASIS numbers here, is it something different or it’s – is something changed with RESTASIS?

And then secondly, if you could just provide any updates on future indications of LATISSE, thinking may be around kind of chemotherapy here?

David Pyott

Well, I will take the first one on RESTASIS. I think this product is just really hitting its stride. As I remarked in my prepared statement, when you look end markets, RESTASIS still grow a fantastic 20.6% Q4 of ’09 versus Q8. That’s somewhat lower than the ex-factory number. I tried to give you that flavor. Things fluctuate up and down. What’s really driving it I think is an ever broader group of physicians that are integrating RESTASIS into their dry eye practice I think a greater and greater understanding that dry eye is a progressive disease. Therefore treated earlier than has historically been the case before we as a company started building this category. Clearly the DTC is working. We do consumer tests to make absolutely sure that patients are understanding the messages of ads. Another thing that is difficult for you to understand on the outside is we introduced 60 count tray recently. So, per prescription, there is a larger and larger number of units being shipped per prescription. So, you see a real disconnect just tracking prescriptions to sales and that’s due to units. And also mail order continues to be a fairly large part of this business.

Scott Whitcup

Steve, on the LATISSE question, we have a couple of trials looking at LATISSE for post chemotherapy eye lash loss, one, which was part of our USFDA approvals to look actually in the pediatric population, where post chemotherapy they use lashes – clearly losing hair, you can wear wigs, but it’s (inaudible) for these children who lose their lashed, nothing they can do so. We have a program there as part of our European program as well a category of patients who’ve lost lashes post chemotherapy. And then on the earlier stage still not yet in the clinic is for scalp hair loss and hair thinning. So that program is underway and we’ll update you when we think we’ll be getting into the clinic.

Steve Willoughby -- Cleveland Research

Okay. Thanks very much guys.


Our next call comes from Ken Cacciatore, Cowen and Company.

Ken Cacciatore -- Cowen and Company

Hi thanks guys. A question on the DYSPORT introduction. Anything – you gave some good commentary around the share – anything surprising you? As they’ve moderated, are you seeing them take any different actions as they are probably observing what you are observing?

And, additionally on the migraine indication for BOTOX, any update on publication timing? Thank you.

David Pyott

In terms of DYSPORT’s entry, I really don’t want to get into the mood of saying, “ I told you so years ago.” But of course this isn’t a mystery product. We’ve been – this has been live combat for now our 21st year in Europe. So we know the product intimately. And I think as I’ve reflected on the thousands of pages I’ve read about DYSPORT and BOTOX and I’ve talked to physicians about how did they administer the treatment in practice. I think this whole issue of learning a new language, everything is different, the units, the dilution, the injection (inaudible) the diffusion [ph] makes it very difficult and I think really a great question somebody asked me a while back was well given JUVÉDERM’s success in the market versus Restylane, why shouldn’t the same happen with DYSPORT and BOTOX.

And the big difference is when you inject a filler you can actually see what you are doing whereas of course with BOTOX or DYSPORT, you inject into the area and then you see absolutely nothing for several days. And of course in practice unless you are doing a trial, the patients don’t come back for quite a while. The only thing you can get is the call back if they are unhappy with the result and I think that leads to a real issue of people saying is it worth really integrating a product that is new to me into my practice. And so I think what we’ve seen is a lot of physicians not truly being curious in trying out the product and they should. But after a while deciding that they have tried it and let’s go back to the tried and tested what works and they the patients are very happy with the product and of course BOTOX is also household name in terms of brand recognition.

Scott Whitcup

And then on the publication what we – our plan from the beginning was to have both manuscripts on the each of the Phase III trials published together and I am happy to say that both of those have been accepted. My guess is that they will be out online and then in press within months, but we don’t have the exact time and we’ll have Jim in the IR group update you as soon as we have the exact date that they will be out.


Your next question comes from Chris Schott, JP Morgan.

Chris Schott -- JP Morgan

Great thanks. First question just at it relates to operating margins, did you actually just – what’s your latest thinking about the longer term operating margin structure of the Company and if you are looking for modest improvement in 2010? Should we think about this 2010 number as a normalized year for the Company? And based on some of your commentary on the R&D side is that investment as a percentage of sales something that might be creeping higher over time?

And then second question, as you stepped SG&A investment just like DTC over these past two quarters, I know it’s early, but can you talk about some of the particular areas you are seeing a better-than-expected response to the spend, sounds like there are going to be a lot of them? But also, are there any areas that you are making investment and not yet seeing a return that you’d like? Thanks.

David Pyott

Well, first of all on SG&A, in my remarks clearly we made a point about not adding much to sales force. Therefore, there is the leverage point. When I answered one of the earlier questions on DTC being broadly the same number in 2010 than 2009, there is another point of leverage because obviously if the sales are going up we are holding expense flat. We know what that means. In terms of spend, obviously we spent a lot on LATISSE. This was a consumer goods final launch where you (inaudible) to spend very, very heavily at the beginning to get the product blasted off. So that one is difficult to – where is the chicken and where is the egg. You know, would it have been less if we’d spent half or would it have been double if we’d spent double, I don’t know. But we are on a very sharp ramp. I think also we’ve seen good results for JUVÉDERM. When you think about my remarks on dermal fillers, a really great turnaround from double digit declines in the market to now growth in the market. And our goal now as the leader is to build this market versus trying to be a share-grabbing mode. And clearly I think the addition of lidocaine both from us and indeed from our competition will further expand the market because it makes the procedure not only less painful, but also quicker, and so everybody wins.

Very importantly, in R&D, I stated my disappointment, but of course that’s easy to – in hindsight when one knows everything perfectly, I wish we’d spend more money in R&D in 2009, so you will see quite a dramatic uptick in 2010 and for the long term we as a company are very committed on continuing to build our pipeline, bring through products, and unfortunately of course it’s not pure brilliance, you need money as well. So there is one that you will see trending higher over the next couple of years.

Jim Hindman

Terry, I think we have time for one more question.


Thank you. That will come from Peter Bye, Jefferies and Company.

Peter Bye -- Jefferies and Company

Hey thanks guys. Just is there any update on -- one you are (inaudible) with the FDA, I think the last date in the filing was March 2nd and/or on the DOJ.

David Pyott

Well of course here, we are talking about two separate issues, one is the matter with the Department of Justice in Georgia and then those declaratory relief action in Washington, D.C., and I think that as the one you are really asking about. And it is in the public domain that the government asked for a stay a limited amount of time and so the date of the trial has been moved back by roughly a month to April the 7th and we agreed to that extension because there is a lot of work that needs to be done and we understand that.

Peter Bye -- Jefferies and Company

Okay. Then any other thoughts on – you talked about Eastern Europe and Asia, about rethinking Japan, are there options about taking back any of the drugs you had out-licensed there, is that just sort of off the table?

David Pyott

Well, I think the most important emphasis is on particularly getting JUVÉDERM approved in those markets, Japan, China, also getting silicon gel implants approved in Japan. And of course that then gives us the basis for creating an aesthetics portfolio and of course when one really steps back the real expertise of our partner in – for BOTOX in Japan and China is GlaxoSmithKline, and they are really strong of course on the therapeutic side and also they’ve done a fantastic job with regulatory work. We have product knowledge but they have local knowledge of how to work with the agencies and how to present the data in the way that they like to receive that data. So we are very excited about both East Asia and Eastern Europe.

Peter Bye -- Jefferies and Company

Okay thanks.

Jim Hindman

Okay. Well, we would like to thank you for your participation today. If you have any further question, 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. Market size, share, and growth rate information is a moving annual total for trailing 12 months as of the end of September, 2009, except where noted as year-to-date through December 2009

The market for ophthalmics is approximately 13.8 billion growing at a rate of 10% and Allergan's market share is 16%. The year-to-date market growth is 11% and year-to-date Allergan market share is 16%.

The market for glaucoma approximates 5.2 billion growing at a rate of 6% Allergan's market share approximates 19%. The year-to-date market growth is 6% and the year-to-date Allergan market share is 19%.

The market for ocular allergy approximates 1.1 billion growing at a rate of 6%; Allergan's market share approximates 5%. The year-to-date market growth is 8% and the year-to-date Allergan market share is 5%.

The plain ocular anti-infective market is roughly $1.1 billion growing at a rate of 5%; Allergan's share is 13%. The year-to-date market growth is 6% and the year-to-date Allergan market share is 12%.

The market for ophthalmic nonsteroidal anti-inflammatories is about $450 million growing at a rate of 15%; Allergan's market share is 34%. The year-to-date market growth is 17% and the year-to-date Allergan market share is 35%.

The artificial tears market inclusive of ointments is approximately 1.4 billion growing at a rate of 8% and Allergan's share is 21%. Year-to-date, the market growth is 9% and year-to-date Allergan’s share is 21%.

The U.S. topical market for acne and psoriasis is roughly 1.9 billion with an annual growth rate is 10% and Allergan's market share is roughly 7%. Year-to-date the market growth is 12% and year-to-date Allergan’s market share is 7%.

The top ten markets for neuromodulators are roughly 1.3 billion growing at a rate of roughly 3%. BOTOX has approximately a 90% market share. Year-to-date market growth is 4% and year-to-date BOTOX market share is 90%.

The worldwide market for neuromodulators is roughly 1.6 billion declining at a rate of roughly 1% and BOTOX has approximately an 82% market share. The year-to-date market growth is declining 2% and year-to-date BOTOX market share is 81%.

The worldwide market for dermal facial fillers is roughly 630 million declining at a rate of roughly 13% and Allergan has approximately a 33% market share. The year-to-date market is declining 14% and year-to-date Allergan market share is about 33%. The U.S. market for dermal facial fillers is roughly $270 million.

The worldwide breast aesthetics market, aesthetic and reconstructive, is roughly $750 million, declining at a rate of roughly 10% and Allergan has approximately a 37% market share. Year-to-date the market is declining 11% and year-to-date Allergan has about a 38% share.

The worldwide bariatric surgery market for the band and balloon segments only is roughly $370 million declining at a rate of roughly 6% and Allergan has approximately a 70% market share. Year-to-date the market is declining 10% and year-to-date Allergan’s market share is about 70%.

And that concludes our call for today. Thank you.


Thank you. That does conclude the conference for today. Please disconnect all remaining lines. Once again, today’s conference call has concluded. Please disconnect all remaining lines.

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