Drug Maker Allergan's spending on consumer advertising has soared from zero to more than $120 million since it launched its Botox Cosmetic product in 2002. Now, the Irvine, Calif., eye-care and dermatology company is set to spend even more to assert its leadership in the burgeoning field of aesthetic medicine.
Allergan made a major strategic push into that market with its $3.4 billion acquisition of Inamed in March. The deal doubled the size of Allergan's revenue from appearance-enhancing products, which include injectable skin treatments and breast implants. Allergan estimates that its aesthetic sales now account for about 30% of the world-wide market.
"We have a real opportunity to industrialize this business," says David E.I. Pyott, chairman and chief executive officer. Many of the other players are relatively small pharmaceutical companies with limited sophistication and financial scale, he says. Allergan has the resources and marketing expertise to make breast implants and facial-rejuvenation products as popular and acceptable as Botox, he says.
Allergan sees the overall aesthetics market growing at an annual clip of 25%, reaching $6.5 billion in five years, excluding physician services. These figures include Botox and dermal fillers such as Juvederm, which Allergan is now launching in the U.S. Many competing products, already sold in Europe, are making their way through the U.S. regulatory process.
"It's a wide-open field," says David Maris, an analyst at Banc of America Securities. There has been a surge in demand by boomers who aren't used to feeling old or looking old and are willing to pay to fight it, he says. At the same time, people are trying aesthetic treatments at a younger age and continuing to use them longer. The analyst, who has a "buy" recommendation on Allergan stock, predicts that aesthetic treatments will account for about 50% of the company's sales and 75% of its growth next year.
Consumers will get a dose of Allergan's marketing finesse early next year when the company unveils a direct-to-consumer campaign for Juvederm. Allergan isn't saying what it will spend, but it is promising to link its two cosmetic injectables in consumers' minds. Juvederm's antiaging treatments work best by plumping the large creases of the lower face, while Botox works best in the upper part of the face. Thus, in the hands of a facial-rejuvenation specialist, the products are complementary rather than substitutes for each other.
That message could spur further expansion of the fast-growing U.S. filler market, currently dominated by Restylane, sold by Medicis Pharmaceutical. But a head-to-head battle between Restylane and Juvederm is also shaping up. Patients are eager for new treatments that are less expensive and last longer than six months or so. It remains to be seen how Juvederm will perform, but patients are likely to be disappointed if they expect the cost to come down anytime soon. Allergan has even hinted that it may price Juvederm at a premium to Restylane.
"It's always better to be a high-ground marketer" and "there is some scientific basis to believe that we have a superior product," Mr. Pyott says. The cost of Restylane injections varies from doctor to doctor, but averages roughly $500 per syringe, and two syringes are commonly needed to achieve a good result, bringing an annual treatment regimen to some $2,000 a year. Jonah Shacknai, Medicis's chairman and chief executive officer, counters: "It's preposterous to believe that there is any technological advance associated with Juvederm. It is a cheap imitation of Restylane that has failed to gain traction in any market in the world against Restylane."
New fillers are expected soon, including Perlane, a thicker version of Restylane that is awaiting Food and Drug Administration approval. Some U.S. physicians are using Sculptra, made by Dermik Laboratories, and approved for treating facial wasting in HIV patients, though not yet for broader cosmetic use. Pharmaceutical titan Johnson & Johnson is also quietly moving into the arena with its acquisition in July of ColBar LifeSciences, an Israeli biotechnology company that has been developing Evolence for the aesthetic-filler market. Dermik is a unit of France's Sanofi-Aventis.
Since the Inamed acquisition in March, Allergan has been realigning some operations and is announcing this week the formation of a new division incorporating breast implants, facial-aesthetics products and an obesity-intervention device, the Lap-Band system. Allergan's sales force is targeting plastic surgeons who buy Botox but not the company's breast implants. Allergan is targeting implant customers of rival Mentor, which has roughly half the U.S. market, including saline implants.
The wild card for Allergan is the FDA's pending decision on approval for silicone breast implants, which currently are sold in the U.S. for reconstructive surgery but not cosmetic use. If that happens before the year's end, as Allergan expects, the overall U.S. market could increase to $308 million for 2007 from an estimated $183 million for 2006, says Mr. Maris, the analyst.
If the FDA turns thumbs down on silicone implants, which is possible, it wouldn't be calamitous for Allergan, Mr. Maris says. "The only way we would view it as a disaster is if Mentor received approval and Allergan did not."
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