Allergan is the Past and the Future
“We all wear masks, metaphorically speaking” Ben Stein unceremoniously drawls in Jim Carey’s Blockbuster The Mask. Not to delve too deep into philosophical applications in what is supposed to be a Biotech blog, but who are you? Yes, you? What are your dreams? What were your dreams as a child? To what percentage do you feel like the truest-to-form version of yourself? To what degree is how your significant other perceives you akin to the person you really are? What is the magnitude of bilayers and artifice that constitute the percipience of your world? The most successful firms are able to answer these questions about their demographics very accurately. Social Media companies have perfected data collection to use as a way for us to join their platforms, using methods to bridge the gap between who we are and what we can actually present in a societal space. It is no wonder that companies like Allergan, a largely known Biotech firm, is using the concept of self-image to improve their bottom-line. By making leaps on the cosmetic side of biotech instead of the medical treatment side, Allergan is distancing itself from the needs-based industry of pharmaceuticals that treat disease, to the want-based industry of humans feeling the dissonance of new social pressures.
To come clean, there is another, rather crude reason why Allergan would be pushed to make more drugs in the cosmetic field- insurance doesn’t cover these products. This effectively helps Allergan add more to their own bottom line (charging more for their products), but that is just one side of the story. Allergan has been listed as a ‘Sell’ by many analysts and has been in the news for all the wrong reasons. Recently, when the Federal Government challenged an Allergan patent on their dry-eye treatment drug Restasis, the firm sold the patent to the Mohawk Native American Tribe. The reason behind this? Under constitutional law, the St. Regis Mohawks are offered sovereign immunity which allows them to hold onto the patent instead of turning it over so other companies can’t create competing products for Restasis. Although it was an incredibly smart play by Allergan, it received a lot of negative press as Senators disparaged the move as a way for them to consolidate their monopoly on the product.
Allergan’s Restasis Patent is just the tip of the iceburg regarding their recent troubles. Their stock price, at an abysmal $171.82, is the worst its been since June of 2014. Allergan stock has declined nearly 15% since July alone. Also, the year-over-year performance of sales of certain drugs they manufacture are not good, namely Restasis was a disappointment at -9% for the year, Nameneda XR at -29% and their drug Asacol with a pathetic -55% dip.
Allergan Five-Year Chart courtesty of Seeking Alpha
The Value Line states that recent drops can be explained by “softness in the Restasis franchise and broader industry headwinds facing generic drug companies.”
So with all of this negativity swarming Allergan (AGN), why would anyone pick up the stock? Well one shouldn’t do so now, but the long-term prospects of AGN seem pretty glorious for reasons we teased in the beginning of this article, but haven’t come around to fully explaining yet. Allergan has been surging in a key market segment: cosmetic biotech. They have come out with drugs such as the highly touted Rhofade Cream, which has just been approved by the FDA this year. Rhofade is used to treat persistent facial redness.
Another drug that Allergan introduced two years ago is Kybella. Allergan touts it as the “First & Only Injectable Double Chin Treatment” (meaning it melts the chin fat without the surgery). Although this is somewhat funny and obscure, it has resonated well in the cosmetic biotech community. If you don’t believe how well it works, just look at how it nuked Khloe Kardashian’s double chin right off her face:
For the record, I have no clue if Khloe has used Kybella, but here is her prior to, and after a Kybella sponsored event (coincidence, I think not).
But if you’ve been reading the article this long, you deserve to know the bombshell, the real thing that will eventually make Allergan the big gains: Botox. Contrary to common belief, there is only one maker of Botox and that is Allergan. Consequently, it has been its best performing product this year at +13%, generating $2.8 billion in sales. Allergan is in an incredibly unique situation because their monopoly on Botox is one of the most multifarious and secure monopolies in contemporary history.
The reason why Allergan is able to be the sole makers of Botox and maintain the monopoly on the market without government interference has to do with the core compounds in which Botox is derived from. It comes from the toxin Clostridium botulinum. While you may never have heard of this toxin, you probably have heard of someone who was killed by botulism, which occurs when the bacteria proliferates in canned foods. However, pure Clostridium botulinum is so potent, that an aspirin-sized amount is sufficient to produce a global supply of Botox for a year. Clostridium botulinum is considered one of the greatest bioterrorism threats in the world because of its toxin potency, and fearing a ‘botulism bomb’, it is significantly regulated by the government to the point where only a handful of firms are allowed to harness it under strict government regulation and overwatch. And out of these firms, Allergan is the only one that possesses the knowledge to condense Colstridium botulinum into such a filtered down version of itself, add that to a saline solution and create Botox out of it.
And that’s precisely how the government likes to keep it. Bloomberg Businessweek states “The government’s vigilance [in securing the toxin] enchances the company’s [Allergan’s] own secrecy, and together they give Botox a near-monopoly that is almost unassailable.” Due to the nature of how dangerous it is to transport, protect, and synthesize Colstridium botulinum, the government gives Allergan the rare privilege of making it the only firm in the world capable of producing such a drug as Botox. In the neurotoxin market, 90% of medical uses are attributed from Botox and 75% of the cosmetic applications are from Botox. David Pyott, who used to be a chief executive of Allergan until 2015 spoke to Bloomberg about the exorbitant percent of the marketplace Allergan posseses; “How often do you see that distribution of market share in any category-not just drugs, just in anything?… People used to laugh and say, ‘I see what you mean’, because its just unheard of.”
Modest projections expect the Botox market to double by 2020 considering all of the new applications it can be used for to treat various conditions. It is currently being used (most obviously) to give people a more youthful appearance by blocking the release of a chemical through the motor nerves, instructing the bodies’ muscles to contract. But Botox is way more than that. It is being used as a treatment for severe muscle spasms, overactive bladders and chronic migraines. It is also being studied as a possible treatment to AFib (atrial fibrillation) and depression.
Botox treatments average at around $600 per treatment and the drug price sells for full-price (more so then most drugs) because patients pay full price for the product and for the M.D. to administer it, since their is no coverage from insurance companies. Allergan was bought by Actavis in 2015, yet took the Allergan name as evidence to the brand potential Botox exhibits.
There are many reasons why Allergan (stock ticker AGN) may be appealing to long-term investors. First and foremost is the firm’s monopoly on Botox and its dedication to expand its uses treating various other syndromes. Secondly, is the several other new drugs Allergan has added to its line up such as Rhofade and Kybella which I believe to be very useful in treating common conditions that many people have. Lastly, is the companies’ silent vigilance to move away from the medical treatment side of biotech to the cosmetic side. As a millennial, who grew up with social media and Instagram, I see the cosmetic world becoming more of a factor in the general population’s lives for better or for worse. I believe cosmetic biotech projections into the future are severely understated and that the growth will be more exponential then most analysts predict. With Allergan being in a perfect position to bear the fruits of the psychographic makeup of the Instagram generation, while shedding the fat (no pun intended) of the meds that aren’t aligned with this concept, I think it can profit from the ever increasing vanity of our society. And with the stock getting beat down to its lowest price since 2014, a long-term minded investor may be very compelled to pick some [what I believe are] discounted shares when the new year rolls around.