Recently, Allergan, Inc. (AGN) confirmed that a US federal court in the state of California handed a favorable ruling to the company. The court issued a permanent injunction against Merz Pharmaceuticals and Merz Aesthetics, two US subsidiaries of the German pharmaceutical company, Merz Pharma.
The court concluded that Merz had misappropriated Allergan’s trade secrets including financial details (sales targets, actual sales generated and product volumes) and physician customers details (identities and their relationship with Allergan).
The Allergan vs. Merz litigation has been going on for the last two years. Allergan had accused Merz of procuring critical information from its employees, who were former Allergan employees.
Merz has developed a product, Xeomin, which competes directly with Allergan’s Botox. Xeomin is marketed in the US for neurological indications like dermatogenic torticollis and blepharospasm. A launch in the aesthetic market was planned for mid-March 2012.
As per the injunction, Merz is prohibited from marketing Xeomin for aesthetic indications for the next 10 months or until the injunction is lifted, whichever occurs first. Additionally, for the same time period, sale of Xeomin for therapeutic indications will be restricted to certain US territories unless the customers themselves ask for the product.
Allergan also won two other cases against Merz — one in Germany and the other in Spain. In Germany, Merz is barred from claiming that a dose of Botox is equivalent to a dose of Xeomin. In Spain, Merz referred to a conversion ratio without warning about the not interchangeable nature of the doses, breaching the Spanish Pharmaceutical Code.
Our Take
Botox is Allergan’s key product, which generated revenues of $1.6 billion in 2011 (up 12.4% from the year-ago period), representing almost 30% of net product sales. Cosmetic and therapeutic indications contribute equally to total Botox sales. Allergan expects Botox sales in the range of $1.7 billion – $1.8 billion in 2012. With this latest development, Allergan has dispelled concerns about Xeomin eating into Botox’s market share this year. We believe that the 2012 Botox guidance is achievable considering the 78% share Botox enjoys of the $2.1 billion global neuromodulators market, which is growing at a rate of 16%.
Recommendation
We currently have a Neutral recommendation on Allergan, which is supported by a Zacks #3 Rank (short-term Hold rating).
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