The Botox Economy
Gross, Daniel, Newsweek
Byline: Daniel Gross
Why drugmaker Allergan is the perfect company.
Because of Botox I don't have any wrinkles," says Allergan CEO David Pyott, whose 58-year-old forehead is as smooth as an aging Hollywood starlet's, thanks to his company's fountain-of-youth-in-a-syringe. "But I don't really have any worries, either."
And why would he? The pharmaceutical company's stock is in the 90s, near a 52-week high, making the firm worth $26 billion. Sales are climbing, and the company reported a $296 million profit in its most recent quarter. And while Big Pharma CEOs tend to have short shelf lives--Jeff Kindler lasted just four and a half years at Pfizer--Pyott is approaching his 15th year at the helm of the company.
His pharmaceutical firm is based, appropriately, in the faux city of Irvine, Calif., an aesthetically pleasing enclave of palm-lined office parks and red-tile-roofed tract homes. In fact, at a time when companies around the world struggle with sluggish demand, Allergan serves as an example--and a metaphor--for how American firms can thrive in a low-growth economy.
Don't laugh. Yes, Allergan is best-known for producing products that are essentially filler: Botox, Juvederm, breast implants. But those are huge, growing businesses. And half of Allergan's revenues come from prescription drugs that treat serious medical conditions. The company focuses on a few high-growth areas, has demonstrated an ability to create consumer demand, and continually innovates and finds new uses for existing products. And it's hiring.
In a period of slow growth, Allergan is plugged into some big secular and social trends: an aging population determined to fight the ravages of time, rapidly rising incomes in emerging markets, and an increased desire and acceptance everywhere for spending on physical maintenance. Even in the depths of the recession, in 2009, global Botox sales held steady, and by 2010 they had surpassed 2008 levels. This year sales are rising at a double-digit clip: Allergan projects that Botox, which accounts for about one third of its sales, will ring up $1.8 billion in 2012.
"Botox is ubiquitous, and it's probably one of the most famous consumer brands," Pyott says. It has a 76 percent share of the $2.3 billion global market for "neuromodulators" (those nerve-inhibiting products that give users of Botox and its competitors that permanently surprised look), which is growing at a 16 percent annual clip. It also has a 42 percent share of the $870 million "breast aesthetics" market worldwide. "When one looks at the state of our markets, not just in the U.S. but globally, it tells us this is a real social trend, that people want to look better and a couple years younger than their driver's license will actually tell us," says Pyott, who is more of a trend spotter than a medical researcher (the old pharmaceutical model was to get a drug approved and push it out to doctors; Allergan's products depend more on consumer pull than physician push).
A sluggish economy may actually be a boon to the aesthetics market. People are investing in their looks "even in an economy that is not as robust as we would like it to be, for both personal and professional reasons," says Adam Schaffner, a Manhattan-based plastic surgeon who provides his patients with Botox, Juvederm, and Allergan tissue expanders and breast implants. As the financial crisis raged, followed by an anemic recovery, his customers' demand for Botox ($200 per treatment) and Juvederm ($500 per syringe) remained strong.
Breast implants are a leading indicator. In 2009 and 2010, like other capital expenditures, expensive surgical procedures went down--partly due to cost and the fact that getting a breast augmentation means missing a few days' work. …