Allergan Inc. (AGN) recently said that the US Food and Drug Administration (FDA) cleared Allergan’s Lap-Band System for use in weight reduction of obese adults who have failed conservative weight reduction alternatives and have a Body Mass Index (BMI) of 30-40 with at least one co-morbid condition.
The FDA approved the product’s expanded use on the basis of full 12-month data and available 24-month data from a five-year study involving obese patients, who on average had been obese for 17 years and were treated with the Lap-Band System safely and effectively.
The label expansion does not come as a surprise as in December 2010, the FDA’s Gastroenterology and Urology Devices Panel of the Medical Devices Advisory Committee had voted 8 – 2 in favor of extending the use of the Lap-Band System based on the product’s benefit-risk profile.
The Lap-Band System is already approved for use in severely obese adults with a BMI of 35 with at least one severe co-morbid condition or a BMI of 40, or those who are at least 100 pounds or more overweight.
Allergan’s Lap-Band System faces competition from Johnson & Johnson’s (JNJ) Realize Band.
Our Take
We currently have a Neutral recommendation on Allergan, which is supported by a Zacks #3 Rank (short-term Hold rating). We view the label expansion of the Lap-Band System as a positive, given that the company is facing significant challenges in the form of slowing sales due to the global economic weakness, European pricing pressure, safety issues surrounding the use of Botox, and increased competition.
However, we believe Allergan will be able to face these challenges well and will be back on its historical mid-to-high teens earnings growth trajectory.
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