Allergan’s SkinMedica deal shows dermatology action more than skin deep

Allergan’s $350m buyout of SkinMedica confirms that dealmaking activity in dermatology shows no sign of letting up. While not in the same league as the multi-billion-dollar acquisition that competitors Novartis and Valeant announced earlier this year, the Botox maker’s move on its fellow California group should help it retain market share in a rapidly consolidating field.

In bringing aboard the private company Allergan acquires two prescription products, five physician-dispensed speciality therapies and a collection of over-the-counter treatments. With its commitment to spend $1bn on R&D next year bringing products such as macular degeneration drug MP0112 through the clinic, new top-line growth will be welcome (Allergan sees dosing potential in Molecular Partners' AMD candidate, May 5, 2011).

In acquiring SkinMedica, Allergan obtains the prescription drugs EpiQuin Micro, a treatment for ultraviolet light-induced skin discoloration, and Vaniqa, a cream that slows the growth of facial hair, originally developed by Gillette and Bristol-Myers Squibb. Five physician-dispensed chemical peels and therapies, and the over-the-counter products, also come with the deal; before the deal closes, SkinMedica will spin off its Colorescience make-up business, which was acquired earlier this year.

An additional $25m will be due to SkinMedica’s investors upon achievement of undisclosed sales milestones. As SkinMedica is privately held, little is known publicly about its product sales.

Competition coming

If ever there were a company that had a good reason to be optimistic about its near-term future, it is Allergan. It has managed the lifecycle of its top-seller and only blockbuster, Botox, skilfully so far, securing indications in migraine, limb spasticity and incontinence due to neurological conditions in addition to its more familiar use as a treatment for facial wrinkles.

Botox sales are forecast to grow from $1.78bn this year to $3.14bn in 2018, according to EvaluatePharma consensus data. A potential competitor in the form of Merz’s Xeomin is on the sidelines until early 2013 because of a court order relating to charges of stolen trade secrets, while Medicis Pharmaceuticals’ and Ipsen’s Dysport, also a botulinum toxin, has so far carved only a small part of the aesthetic and therapeutic markets.

But there are reasons for Allergan to resist any urge to rest on its laurels. Consolidation has come to this specialised field as big pharma recognises the stable growth that can be achieved in dermatology. This year has been marked by billion-dollar takeouts from the likes of Novartis, which took over the former Nycomed dermatology business renamed Fougera, and the ever-acquisitive Valeant Pharmaceuticals, which grabbed Medicis.

Allergan’s was the second dermatology acquisition last week alone, on the heels of Sun Pharmaceuticals’ buyout of DUSA Pharmaceuticals (Sun sets on DUSA’s independence as derma hots up, November 13, 2012). And Leo Pharma, the fourth-biggest dermatology company, has made clear its dealmaking plans (EP Vantage Interview – Leo on the prowl for derma deals, June 26, 2012).

Thus Allergan is no doubt aware that it needs to hold its position as sixth-biggest dermatology company – Valeant will vault over it when the acquisition of fifth-place Medicis is complete – and it will need to grow to thrive.

Looking within

There are also internal reasons to want to achieve growth. Botox sales missed investor expectations in the third quarter, a stumble blamed on disappointing therapeutic reimbursement in Europe; sluggish economies will probably not lend much confidence to the cash-pay aesthetic business for the near term.

Meanwhile, the company has committed to a $1bn R&D budget in 2013, having taken over the development of Molecular Partners’ MP0112 as it nears completion of phase II development; the two companies have agreed to develop further ophthalmological compounds from the Swiss firm. Should Botox sales continue to miss forecasts, that R&D budget will become a bigger drain on the bottom line.

As such, addition of steady and growing sales would lend some confidence that Allergan can withstand the damage should its R&D strategy come a cropper. It is not the sort of claim that many pharma companies can make.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com

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