Allergan plc (AGN) Management Presents at Jefferies 2019 Healthcare Conference (Transcript)

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About: Allergan plc (AGN)
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Earning Call Audio

Allergan plc (NYSE:AGN) Jefferies 2019 Healthcare Conference Call June 6, 2019 2:00 PM ET

Company Participants

Manisha Narasimhan - Vice President of Investor Relations and Strategic Initiatives

William Meury - Executive Vice President and Chief Commercial Officer

Conference Call Participants

David Steinberg - Jefferies

David Steinberg

Okay. Good afternoon, everyone, and welcome to today's fireside chat with Allergan management. I am David Steinberg, specialty pharma analyst at Jefferies. To my immediate left is Bill Meury, Chief Commercial Officer and Executive Vice President. And to his left is Manisha Narasimhan, Head of IR and Strategic Initiatives.

So we can get to the core issues here with a fireside chat. Bill and Manisha, thank you very much for coming. Bill, start with the topic because there actually have been many topics at Allergan, but last week the shares were punished and Allergan might be on the hook for substantial penalties relating to Teva’s unexpected and large settlement in State of Oklahoma. This relates to the sale of Allergan generic to you a while ago. It seems like an overreaction, given that you indemnified twice by Teva. But could you clarify the situation? What sort of exposure, if any might, Allergan have?

William Meury

Look, I think Brent was asked this question about four days ago. I think the answer right now is pretty simple. And I would take a look at his transcript and his comments related to the opioid situation. I would say it seems that it’s very manageable. And the transcript says it all.

David Steinberg

Fair enough. Right to the point. So a second topic to join, this has been ongoing as frustration with the company and the share price for many components of your investor base, hedge funds, activists, mutual funds. And on the last call, your CEO mentioned either urgency or sense of urgency, I think 13 times we calculated. So can you give us some color on what the sense of urgency is and when we might see some definitive and more decisive action from management?

William Meury

Again, I'm not going to avoid the question. I'd be glad to answer anything about the business as it relates to strategic options. Again, Brent has addressed this repeatedly at multiple meetings. He addressed that just four days ago. There is a sense of urgency of course both management and the Board are looking at all options and that hasn't changed at all.

David Steinberg

Okay, so let's move on to specific products. Perhaps top off of investors mind, neurotoxins. Years ago Allergan did a good job defending up Xeomin from Merz and Dysport from Medicis and I think now you still have at least 80% market share, but you are going to have some new entrance, in fact you already have one. Evolus just launched Jeuveau. Doctors we’ve spoken to think it acts pretty much like BOTOX, spreads the same, the patient looks the same, and the upper offering is 25% discount. In your mind, is that enough to break the bundle so to speak? And what level of concerns you have with that as you go, and what are you doing in the marketplace to surprise them?

William Meury

Yes, it’s a good question. There’s a couple of points here to keep in mind. I don't think first injectors know exactly how Jeuveau is going to behave. It's still very early and I think it's difficult to draw comparisons between Jeuveau and any other toxin. And what we do know is they're not interchangeable and that there can be differences. And even if those differences are so, they can be important. And so the jury is still out in terms of how Jeuveau may perform and it's a one indication toxin.

I think about it this way. First of all, in this aesthetics market, it's not a zero sum game. If we were dealing with a market that was not growing, market share maybe the focus but the focus here should be on market expansion. Between 2014 and 2018, the face on injectable market in anesthetics grew to roughly an 11% CAGR. Now from 2018 -- or excuse me, 2019 to 2024 that number may moderate, but it's still one of the fastest growing segments of healthcare and that's a good place to be. And so we're focused on attracting new consumers, not on swapping market share between companies.

Second, we have a unique advantage and that BOTOX is a brand, and it's very recognizable, and it's the most requested product in aesthetics. And I would describe that as a high ground. It doesn't guarantee success, but it's very important that we maintain a strong position with consumers.

Next, this is a ground game, we have 30,000 or 40,000 accounts across the United States. We have a sales force of approximately 350 people, and a customer service group that is the same size. And that's 2 times the size of any other company. And then finally, we have nine different projects in development on BOTOX or other toxins. And so we will launch new indications, new package configurations and new toxins over the next several years. And if we continue to focus on that plan then the growth rate for BOTOX not just in the next several years, but over the long-term is going to be very strong.

David Steinberg

So yesterday, as you put out a press release. And kind of confirm one of your points that the neurotoxin market is growing rapidly and said that in the early trial that 25% of their patients were toxin as new patients. On the other hand, they said that they will be open 3,000 accounts, and two out of every three patients has already been switched from the market leader, which is BOTOX. This is all done in the last four weeks. Does that concern you?

William Meury

Listen, it's not surprising that a company goes to market with a sampling strategy. I expected it, you of course can give it away forever. And if you think about the volume, that of business that we have, whatever it is doing right now represents a low single-digit percentage of our total business. And so listen, we're focused on building our business. I think at the end of the day that the aesthetics market is an efficient market, which means it's going to support three products, it's not going to support four or five or six products. Why would a practice buy inventory and inject four or five or six different toxins? They probably won't. And I think they'll be three, BOTOX will be number one. And then the other four companies, three of which are on the market and maybe there's one or two others in development are probably going to battle out for number two and number three spot. I think you have to think about this more as a marathon than a sprint.

David Steinberg

So let's discuss the fifth potential entrant next year perhaps Revance to reach the market. And Revance is claiming six months duration versus perhaps a four month duration for your product. Last week we did an investor call at one of the top practitioners in the country. He's in the top 10 users of neurotoxins Dr. Jeffrey Dover. And he said that he was so impressed with the data from the events that he predicts his practice, which is 65,000 patients a year will switch 25% to 50% of his neurotoxin practice to Revance and he is involved in all the clinical studies. What's your view of that? Is it an anomaly that 50% of his practice is Dysport. But how will you compete with Revance if they truly get a six month label?

William Meury

Yes. I think the jury is still out. If you look at the data on any high dose toxin, so I'm not speaking specifically or only to the data produced by Revance. But if you look at the data on any high dose toxin, what it shows is roughly 20% to 30% of patients depending on whether it's from the patients or the investigators view, have a benefit out to six months.

Now in the aesthetics space, if you want to be successful with a product, it's got to have an efficacy rate or a patient satisfaction rate in the 80% to 90% range. If only 20 to 30% of people are having a benefit out of the six months, it means 70% to 80% or not. And so in my view it's really unclear the extent to which a high dose toxin will have a place. And I think there are a few other points I’d make. We only know how these high dose toxins perform in the glabella region of the face and eye and crow's-feet or in forehead lines, which are a little bit less forgiven. We also don't know the extent to which someone is willing to trade off the aesthetic outcome for several more weeks of benefit, if in fact there is benefit. And what I mean by that is a higher dose toxin can create a frozen look, and plastic surgeons and dermatologists are aware of that. And so I think a lot has to be learned about these high dose toxins and specifically Revance’s this compound before anyone can predict that it's going to have -- or be disruptive to aesthetics.

David Steinberg

Got it. So one more toxin to discuss that may or may not reach the market in US, but there is a Korean company called Hugel backed by Bain Capital that could have another toxin in the market in the US in a couple of years. There's some thoughts that they may discount up to 50%, if it's approved. How that -- how would you defend -- that's a lot of net income into doctors pocket so they don't currently get. What are your thoughts on that, and how would you defend against a 50% discount?

William Meury

I think there's some misunderstanding about pricing in the aesthetics area. If you survey and we have thousands of consumers about what price they expect to pay for a non-BOTOX alternative, they'll say that they expect to pay 25% or more or less for non-BOTOX alternatives. That's the consumer. And so if you are in practice, and you buy non-BOTOX product, you can either keep the savings, or you pass it on to the consumer. If you don't pass it on to the consumer, they're going to want to know why. And so it's very difficult for me to see how a discounting strategy on a toxin is going to produce incremental profits for customers. In fact, I think discounted toxins, whether it be Jeuveau or Hugel, it’s in fact, that's what they decide to do, actually cut into profits, as opposed to preserve them. And so, aesthetics for years has traded on customer -- excuse me on innovation and customer service, and it's on a solid growth trajectory. And there's pricing power in this space. So I would expect that long-term is a better strategy than cutting your price, which I think calls into question whether you believe in the value of your product.

David Steinberg

So let's stick with aesthetics and move to non-invasive body sculpting, so ZELTIQ was a really good acquisition for Allergan, CoolSculpting has been a big success. The last quarter sales dropped 4% after growing 5% to 6% in previous quarters. Is this quarter an anomaly or most doctors are going to buy the device, bought one? And on the call actually last week that was huge potential in your next couple CoolSculpting initiatives like muscle tightening and cellulite. I know the company hasn't discussed those very much. Could you perhaps shed some light on those two initiatives as well?

William Meury

Yes. It's a good question. First, satisfaction with the procedure is high. We have an installed base that totals 6,000 systems and 4,000 accounts and we've just scratched the surface of the body contouring market and so those fundamentals are intact. Sales were moderate in the first quarter because I described on the call an innovation gap which is we hadn't introduced a new CoolSculpting system in 18 to 24 months. However that will change in ’19, ‘20 and ‘21 we have CoolTone as you mentioned, which we will launch in the second half of the year which is a muscle toning and stimulating system. And then in 2020, we will have a dual applicator system, which will allow for more treatments per sitting. And then in 2021, we will have -- or just beyond that we will have fire and ice technology, which is a heat and cold solution for fat reduction and skin tightening.

Now an analogy here is if Apple hadn't introduced iPhone 8.0, 9.0 and 10.0, its sales would have moderated. We hadn't had a new system introduction. I think we're set up nicely for ‘19, ‘20 and '21 and this should be a solid contributor to the aesthetics business, both domestically and internationally.

David Steinberg

Okay, so I think that's it for aesthetics and neurotoxins, let's move to some of your therapy area. Let's talk about GI. So, recently management indicated analysts to sort model low to mid-single-digit growth for LINZESS which is a more difficult payer environment, on the other hand the script seem to be improving this year. As a result to those prior comments, be readjusted? And secondly, Bausch recently bought Trulance, Trulance had struggled with Synergy because they were running out of money and didn't have any other products in the portfolio. Do you view Trulance now that it can be bundled with all the Bausch GI products as a competitive threat to LINZESS?

William Meury

I don't view Trulance as a competitive threat to LINZESS. LINZESS has got two indications, three doses. We have roughly 200,000 writers across the country and one of the largest consumer programs in the industry. And so I think while Trulance may find a position in gastroenterology and maybe in a select group of primary care physicians, it's likely to coexist with LINZESS rather than threaten it. And as it relates to the business look it’s eight years from approval, the underlying demand for the business, as you mentioned, is very, very strong 14% on units and 10% on prescriptions. We have had more price pressure over the past couple of years than historically. I do believe we're getting to a steady state. And so there is the potential for the sales growth rate to improve with a more stable pricing picture moving forward and very solid underlying prescription demand.

David Steinberg

Great. Let's move to ophthalmology, one of the core franchises of Allergan, legacy Allergan. So Abicipar has been a key pipeline product for many years, goes back to the David Pyott years, I wanted to call DARPin. It's been delayed repeatedly as the company's tried to find formulation that doesn't cause information in the recent MAPLE study. The information came down but it’s still relatively high at 8.9%. So many observers remain skeptical. Now what's the company's updated view as this opportunity particularly given advances by Novartis and Regeneron in recent years? And what about potential biosimilar competition from Avastin and Lucentis coming up as well?

William Meury

Yes, I think that the best way to think about this is an anti-VEGF market. There are let's call it 30% of people who are retina specialists who describe are on a life settings of injections. That is they are receiving 8, 9 or 10 injections a year. In that population of patients, there's a real unmet need for a product that has a true 12-week dosing regimen. And while other companies have shown some benefits out to 12 weeks, with their products, generally speaking, it's about 50% of people. It's not a 90%, which is what we showed in our Phase III trials. And so while, Eylea, Lucentis and Avastin have a benefit in a large portion of the population of AMD, so let's call it 70%, 80%, or 70%, there is almost a third of people who really need something like Abicipar. As it relates to the inflammation rate, we believe it’s subject to review right now at the FDA. But if treatment is discontinued at the first sign of inflammation and patients are treated aggressively with the steroid, my estimation is this is a side effect that will be manageable.

Of course, we need to get it approved by the FDA, anti-VEGF sales in the United States at brand new pricing of $12 billion. And so operating and placing this product in one-third of the market where there's a real need to reduce the injection burden, I think can produce a very, very significant product.

David Steinberg

One more question on ophthalmology. What is the future of eye care business at Allergan. In RESTASIS, we'll go generic soon, I think many of us, myself include or hoping it would go away and then you could buy Xiidra from Takeda because then you have a brand new drug for 15 years if it fits with Xiidra nicely but of course that got sold to Novartis. And COMBIGAN goes away in 2022 followed by ALPHAGAN again and potentially OZURDEX. So what is -- this is historically a huge business for you, but it looks like with all these LOEs revenues are going to drop markedly. Is there a future for Allergan eye care?

William Meury

Yes, it's a good question. I think valuation is really important when you're thinking about dry eye products. But as it relates to our pipeline, we have four product launches that we're working on. The first one is Abicipar for the treatment of AMD, which we just talked about. Then we have a product called Bimatoprost SR, which is a biodegradable sustained release implant for IOP control in glaucoma. And it will create a drop-free alternative for a certain portion of the glaucoma market. I would say it's one of the more underappreciated assets inside of Allergan and that will launch in 2020. Then we have a product for an eye drop of presbyopia, which we're calling Presbysol and then following that we're developing Brimonidine DDS for geographic atrophy. Geographic atrophy is part of the AMD continuum. It's a serious -- as serious a eye care condition as AMD and there are no FDA approved treatments. And so for successful with these four products, you're going to see a real transition in our eye care business over the next several years.

David Steinberg

Let's switch the migraine. So Allergan in a very interesting position, you have done really well with BOTOX migraine. Next year different people have various opinions, but obviously the CGRPs will not be free anymore. So doctors may be forced into a situation where they -- where only one gets reimbursed BOTOX or CGRP. So you have a very valuable oral program. The doctors we talked to think your acute CGRP maybe be modest sized product given limited efficacy and may only be used for those patients contraindicated in triptans or cardiovascular issues. On the other hand, ubrogepant, we think will be a really large drug and perhaps they'll switch over 50% of the patients currently on injectables to orals if this product makes it to the market. Can you comment on pushes and pulls in your migraine area and do agree with those assessments on you two oral CGRPs?

William Meury

Yes. Good question. First for everyone in the room we had three migraine medications, ubrogepant is for the treatment of migraine which we will launch in 2020. And then atogepant is an oral CGRP for the prevention of migraine which is in Phase III. And then of course we have BOTOX which is on the market today for the prevention of migraine. As it relates to ubrogepant, what I would say is the efficacy of ubrogepant is equal to that of the best selling triptan in the world, which is Imitrex. And so if you look at all the data on the CGRPs or the triptans, what you'll see in the treatment of migraine is that 60% of people get pain relief at 60 minutes, some people -- or excuse me at two hours, some patients will experience pain relief within 30 minutes. And so on the efficacy side of the equation we’ve checked that box.

As it relates to benefit risk and you pointed it out, if ubrogepant had launched in 1989, when Imitrex had launched, ubrogepant would be the selling migraine medication in the world. Now it's a different time. Two points about the migraine market, a third of people are insufficient responders. 20% of patients with migraine have cardiovascular risk factors. And so ubrogepant will be placed in that part of the market. Triptans with branded pricing do roughly $7 billion to $8 billion. And so I think that this is actually not a modest opportunity. And that it will exceed most expectations in migraines.

And then as it relates atogepant, you're absolutely right, an oral product in an injectable market has an advantage. If you think about TECFIDERA, or GILENYA or XELJANZ, all of these products were orals in injectable in IV markets. And atogepant should do quite well in the future. We'll watch to see how the prevention market for migraine developed with Amgen, Lilly and Teva over the next several years.

David Steinberg

So sticking with CNS, VRAYLAR has been your star asset, it’s I think doing over $600 million in three years. But there doesn't appear to be many other shots on goal, obviously Rapastinel was a major setback. You’d acquired Chase for it’s Alzheimer's program a couple years ago, it seemed like a Phase III ready asset but the company hasn't discussed it in some time. Is there anything else your CNS pipeline you're excited about? And should we see any more M&A activity in this particular area to bolster your product portfolio?

William Meury

Yes, it's a good question. I mean, first I’m going to say on, VRAYLAR we have a patent that extends well into the next decade to the very end. And so -- and we're just looking the indication for bipolar depression, actually this month, which I think is a major growth catalyst for the product. It’s done very well with psychiatry. We're also developing VRAYLAR for treatment resistant depression. We of course -- we also have an early stage program in Alzheimer's disease for symptomatic therapies. Of course, Rapastinel was a disappointing event. We are looking at an oral version of Rapastinel, where we're studying once daily, as well as twice daily. Those results will be available towards the end of the year.

And of course, there are many areas of CNS that we're not in, that we could consider entering. And we're usually one of the first companies called when there's an opportunity because we have a long history and we’ve a great deal of success in CNS1.

David Steinberg

Let me ask you about an area that's not discussed very often, which is your biosimilar pipeline. For the first time we're seeing biosimilars actually making an inroad in the United States. Coherus had a pretty successful launch recently with UDENYCA. What's the potential they can reach -- any of them can reach the market in next couple of years? You haven't really talked that much about the opportunity. And why is that -- and what's the company's view of what these assets could eventually contribute to Allergan?

William Meury

Do you want to take that?

Manisha Narasimhan

Sure. So we don't get a lot of questions about our biosimilar pipeline. When you look at the size of our business and the contribution of business, it’s very, very small. So this is not a significant driver. When you look at the pipeline, you look at both on the device side as well as the pharma side and the fact that we have got about 70 plus programs combined, biosimilar is in rank order though for not top priority.

David Steinberg

Got it, okay. Alright, we’re out of time. Thank you very much.

Question-and-Answer Session

End of Q&A