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Wall Street Restless as Allergan Fails to Shake Botox Addiction

Try as CEO David Pyott might, he just can't seem to wean Allergan (AGN) from its addiction to Botox. The company is a prisoner of its own success -- Botox is 29 percent of Allergan's sales; the wrinkle-killer added 10 percent revenue growth in Q2 2011; and newer products that Allergan has added to its portfolio have failed to impress.

Worse, the wheels appear to be falling off the company's obesity intervention business. The Lap-Band stomach-cincher received expanded approval from the FDA in February for use in less obese adults -- yet sales slipped 15 percent in that division, to just $52 million for the quarter. We're in the middle of an obesity crisis, Allergan has the most advanced surgical device for that problem, and yet somehow it can't sell the thing. The company also discontinued development of its "Easyband" remote-adjustable gastric band system, on the grounds that it was too complicated.

Latisse, the company's eyelash lengthener, saw a bit of a lift following the appearance of Claire Danes in ads for the product, but it's still only $25.3 million of Allergan's $1.3 billion in quarterly revenues.

Pyott was asked about the Lap-Band fail on his analysts' conference call. His frustration was evident:

Well, clearly, when you look through all the results of the company, you can imagine if you were sitting on my chair, this is an area that's getting a lot of attention because it's the only thing where I can be less than satisfied.
... We have dedicated special resources to this area, not only at the management level but also at the field account level. So I think that's going to be Step 1. And I'm going to be spending, as well as the person who runs that business, a lot of time on how we're going to bring this around.
But that one, clearly, has a red dot beside it, and it's getting a lot of attention.
Wall Street is getting restless. It seems to want Pyott to find some way of making Allergan less dependent on its most successful product. AGN stock, however, is riding high, so selling the company seems to be out of the question (even though it would make a nice additional business for many of Big Pharma's ailing giants). Instead, two analysts asked Pyott if he ought to acquire his way out of the quandary (even though that would depress the stock). Pyott replied:
No. Pfizer is absolutely safe, don't worry. So the comment -- the only comment I'd make is very much stick to our specialties. And then we do occasionally look and see if there could be another adjacency. But we look critically at that as well, whether that could be a sustained strong position with differentiated technology.
One of those adjacencies is Allergan's eye business (Latisse was originally a drug that treats glaucoma; eyelash growth was one of its weird side effects). The company announced a $420 million deal to license a new eye disease drug from Molecular Partners AG Wednesday. Another is its development of Latisse as a cure for baldness -- a blockbuster if it works, but there's scant evidence for that yet.

We can't know whether that will be enough to satisfy Wall Street (is anything ever enough to satisfy Wall Street?). But we do know that Allergan can't afford to see any more major bets go belly-up.

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