Allergan gets a booster shot
By Lisa Urquhart
Published: September 8 2006 03:00 | Last updated: September 8 2006 03:00
David Pyott's brow is serenely untroubled for someone running a multi-billion dollar pharmaceutical company.
One might even say suspiciously untroubled, given that he is chairman and chief executive of Allergan, the company behind Botox, one of the biggest innovations in cosmetic treatments since silicone.
When challenged on this, the 52-year-old Scot laughs and gives a refreshinglyhonest response: "Yes, I have used Botox - you've always got to try your own product."
Another possible reason for his wrinkle-free countenance is that he has recently completed a slew of discussions with investors, providing reassurance following fears earlier in the year of slowing sales of Allergan's golden goose. Gratifyingly, the California-based company's shares have risen by almost 19 per cent in the past three months.
His chief message has been the virtues of the group's acquisition of Inamed, the California-based cosmetic medicines company, in March for $3.4bn (£1.8bn). The purchase is intended to smooth out the group's earnings and give it products with similar growth potential to Botox.
Having sorted out millions of foreheads and eyes, it was a natural step to look to "derma-fillers", the treatments, such as collagen, used to plump up lips and fill deep facial lines, says Mr Pyott. "We were looking below the eyes and we knew for a long time we needed a dermal filler."
The Inamed acquisition has led it even further below the eyes, providing a range of breast implants products alongside Juvéderm, the derma-filler that was its original target product. Mr Pyott was initially ambivalent about the additional market segment: "Selling breast implants is not something that I planned to do with my life."
In spite of his initial reservations, however, he believes he has identified a strong opportunity for cross-selling: the majority of women buying implants are those in their late 30s and 40s, who are likely to seek other ways to regain the looks of their youth.
With this brow-to-breast approach the group plans to sell its customers a suite of Allergan products. Mr Pyott says the neat strategic fit has turned what was a defensive strategy - to reduce Allergan's dependence on Botox - into an aggressive one. Inamed has also given Allergan an entrée into the growing obesity market with Lap-Band, a medical device that reduces the size of the stomach.
In spite of the logic of the deal, Mr Pyott was still worried the market would not be receptive. "The night before it was announced you do have the moments of thinking, 'Will my head still be sitting on my shoulders to-morrow night?', because you are going to find out wheth-er Wall Street loves you or hates you pretty quickly."
Overnight the move made Allergan, which re-ported $2.3bn revenue for 2005, the world's largest company in medical aesthetics.
Mr Pyott, who was raised on a plantation in India, has faced a particular management challenge with Allergan: how to maintain performance in a company that has averaged compound growth of about 19 per cent per annum for the past eight years.
When he joined in January 1998, after 17 years as head of the nutrition division at Nov-artis, Allergan was a small operator in a sector dominated by multibillion-dollar players. His confidence in leaving the larger company was based on what he saw as the opportunity of a specialist business: "If you are specialist in a niche you can take on even the biggest people," he argues.
But his first task was identifying that niche and the company's biggest opportunity. Having asked "all the clever marketers" what that might be, Mr Pyott says, one name kept coming back: Botox. So, three months into the job, he invested in the product, which at that time was only being used to treat those with fluttering eyelids and crossed and lazy eyes.
As with many innovations it was a chance observation that set Botox on the path to becoming one of the most widely recognised drugs in the world, second only to Viagra. While treating patients in 1987, Californian ophthalmologist Jean Carruthers noticed that their wrinkles were going away: after friends who were cosmetic surgeons in Beverly Hills used it off-prescription, sales started to snowball.
Even after cosmetic ap-proval in 2002 Mr Pyott did not set much store by the sheer vanity of users, which led the drug to become a blockbuster. "I always say that we literally fell into this market with our eyes half open. I originally only forecast sales of $200m."
Botox is now available in 75 countries around the world and last year had sales of $831m. Its success has helped push Allergan's market capitalisation up from $2bn to $16bn in the past eight years.
Despite all the hype surrounding the cosmetic use of Botox, 57 per cent of sales are still related to its therapeutic use. It is used in more than 20 medical indications and new treatments for migraine and bladder problems are being explored.
The acquisition of Inamed pitched Allergan against Medicis, the Arizona-based pharmaceutical company. When Allergan trumped Medicis' $2.5bn offer, it looked as though the offer had come out of the blue, but it was all about stealth, says Mr Pyott. "I'm a great lover of military strategy and getting prepared, and we had been working on that deal for seven months before we went public and were completely ready."
He describes Medicis as devastated by the outcome. "Life is terribly unfair. -Normally we are the little person, but Medicis was the little person compared to us and so we did a financial calculation that made good sense for us, but was a bridge too far for them."
Having achieved the business shape he is happy with, and reduced dependence on Botox, Mr Pyott is doing some fine-tuning, most recently shifting Allergan's European operations to Marlow in the UK. His success at Allergan recently garnered him a CBE in recognition of his contribution to British business excellence in the US.
Mr Pyott spends a lot of time on the road keeping in contact with customers. He says this is a fundamental part of his role and allows him to use the four languages that he speaks. "I use a machine gun on anyone who tries to tie me down, or bottle me up in meetings all the time."
If he carries on like this Mr Pyott's brow could remain wrinkle-free for years to come.
Copyright The Financial Times Limited 2006
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