Allergan CEO: R&D Strategies And Legal Headaches

Allergan's CEO talks to Pharmaceutical Executive's Ben Comer about the company's strategic approach to R&D, what it's likeworking under a Corporate Integrity Agreement (CIA), and how Allergan's core ophthalmics business helped the company put feet on the ground in emerging markets.

Pharm Exec: There has been a lot of talk in the industry about new strategic approaches to Research and Development, and whether licensing deals are a better bet than internal investment, given the failure rate of drugs in phase II. What’s Allergan’s approach, and is there a balance to be struck?

David Pyott (DP): Since I joined Allergan thirteen years ago, I’ve consistently invested in Research and Development, and have overseen increases in spending – from $98 million annually in 1998 up to roughly $824 million in 2011. The $824 million figure represents approximately 16% of our annual sales, and in pharmaceutical Research and Development, almost 20% of pharma sales. We currently have 15 compounds in phase III of clinical testing, on a revenue base of about $5 billion, so we think investing in Research and Development has paid off. But we have also been able to recognize opportunities to partner with other companies when it makes sense. We announced the deal with Molecular Partners for an ophthalmic candidate last week, and we finalized a deal with MAP Pharmaceuticals in late January, for Levadex – that drug will be filed during the first half of this year, so by the end of June. One thing we’ve been able to do well is take existing systemic drugs and reformulate them into new ophthalmic and dermatologic products. We continue to get new approvals for Botox, not only in the US but around the world, and we’re currently working on an overactive bladder indication for Botox Therapeutic. Our urology pipeline, in fact, has the potential to become a leading therapeutic area for us over the next five years.

As part of your settlement with the DOJ last year, Allergan signed a Corporate Integrity Agreement that requires, among other things, for an independent review organization to examine your current marketing practices with respect to physicians. Has that been much of a headache, or are there any positives that have come out of that?

About 80% of it is a headache, and it’s time consuming. The way it works is that our internal compliance staff conducts comprehensive reviews of all of our marketing activities, which includes going out with sales reps on details, and then our chief compliance officer’s quarterly reports are reviewed by the Independent Review Organization, to make sure everything is in order. But on the positive side, out of necessity we’ve created new internal systems that are more transparent, and that helps with work flow and creates more efficiency. It’s a bit like investing $100 to make $20, so it’s a headache, but putting these systems in place is an improvement.

Prior to reading your Q1 2011 report, I was not aware of the extent of your commercial activities globally. For example, Allergan is a direct seller in Turkey and Poland. How did you establish your global network?

Going back to Gavin Herbert, Allergan’s founder, our ophthalmic business has been our key strength, in the US and internationally. We’ve had our own dedicated organization in Brazil, as an example, for over 30 years. In those markets where we’ve been established for a long time, like India and also Brazil, we’re building out from ophthalmology. In addition to Turkey and Poland, we also have direct selling operations in 26 markets including China, Korea and the Philippines. In 2010, 15% of our worldwide sales came from emerging markets, and we expect that trend to continue. In fact, it’s my opinion that the US is losing its relevant appeal in the global pharmaceutical industry, which it will regret. Capital, by nature, is mobile, and as the US continues to make drug development and commercialization more difficult and expensive for manufacturers, dollars will continue to leave in favor of more attractive geographies.