The FDA recently said 20% to 40% of patients who have breast implants for cosmetic reasons will need another operation to modify or remove them within eight to 10 years. Women seem to have replied with a big “So what?” Despite the warning that breast implants won’t last for life and come with a small risk of cancer, plastic surgeons expect a substantial increase in consultations for the procedure. Further evidence that looks do matter, Botox and wrinkle fill procedures are expected to increase about 7% in the coming year, according to a survey of leading cosmetic doctors.
Allergan (NYSE:AGN) and its shareholders have to be rejoicing at the news. The Irvine, Calif.-based company is the maker of Botox and is a leader in the aesthetic drug market along with Medicis (NYSE:MRX). Allergan reported $319 million in sales from breast implants in 2010, up 11% from a year earlier. Meanwhile, the company’s Botox sales climbed 8% to $1.4 billion in 2010. Even with Medicis’ Dysport chipping away, Allergan has an 80%-plus share of the market for wrinkle treatments.
Both Allergan and Medicis might want to keep an eye on a potential up-and-comer in the field, Fibrocell Science, which just got FDA approval to sell its wrinkle treatment, LaViv. The company’s initial offering uses cells extracted from patients to produce a personalized treatment that is injected into the area of the wrinkles. The company also is studying the drug to treat acne and burn scars.
Fibrocell isn’t exactly sprinting out of the starting gate with LaViv, and for good reason: It doesn’t have much cash, can’t make enough product and it lacks a marketing partner. However, CEO David Pernock, a former GlaxoSmithKline (NYSE:GSK) executive who joined the company last year, thinks that, in the long term, Fibrocell could generate $500 million in sales from LaViv for smile lines and acne scars.
Of course, Fibrocell has a long way to go before it’s even mentioned in the same breath as Allergan. With a nearly $25 billion market cap, Allergan has sound financials, a strong product pipeline, good growth prospects and history of strong revenue growth. Sales have climbed an average of nearly 12% during the past decade, and revenue gains should be even greater in the next five years.
To boost its skin-care business, Allergan recently made a deal to buy privately held Vicept Therapeutics for an up-front payment of $75 million in cash and an aggregate of $200 million in payments, including some contingent upon acquired products achieving certain sales milestones.
Allergan gets Vicept’s lead investigational product, a topical cream for the treatment of the erythema (redness) associated with rosacea that has achieved positive results in two randomized, placebo-controlled Phase II studies. Rosacea is a common, chronic skin disorder that affects more than 15 million Americans and 45 million people worldwide and currently has no approved treatment.
Despite an outstanding track record and excellent growth prospects, some investors think Allergan is too pricey. Shares are up 19% since the end for March, and the stock traded at its 52-week high of near $90 less than a month ago. Moreover, analysts estimate the company will earn about $3.64 per share in 2011, which would give it a P/E of about 22, quite a bit higher than the average forward P/E for the S&P 500.
