It’s been a year since Allergan spun off its medical device manufacturing subsidiary Advanced Medical Optics. While the two now travel divergent corporate roads, they’re following the same map to the same destination – a larger share of the growing world ophthalmic market. Both companies are broadening and deepening their product lines, pioneering and promoting new therapeutic fields through increased research and development, and aggressive partnering with new technology leaders.

Upcoming products include novel new treatments for dry eyes and glaucoma from Allergan, and new devices for improving intraocular lens outcomes, and treating back-of-the-eye conditions and presbyopia from AMO. So far, both companies have mostly exceeded analysts’ expectations for the split, though Allergan’s stock hit a bump this spring when it projected second- and third-quarter earnings slightly below market predictions. Since then, both stocks have advanced in a post-war boom.

Despite such a hiccup, all three major ratings agencies responded favorably to Allergan’s announced plans to acquire for €221 million Bardeen Sciences LLC, a business partner holding the rights to dry-eye and glaucoma products nearing launch. The agencies – Moody’s, Standard & Poor’s and Fitch – all saw the acquisition as a move to bolster Allergan’s future R&D efforts, leading to higher future returns, and all three maintain positive outlooks on Allergan.

AMO saw its credit upgraded by Fitch Ratings, largely on the strength of its success in reducing debt and transitioning its operations away from service contracts with Allergan. "AMO surprised me this year," said Michael Zbinovec, an analyst and associate director at Fitch. "Their sales came in higher than we anticipated. What we were hesitant about was whether they could they survive as an independent company. But they are building up R&D and weaning themselves off of long term agreements they have with Allergan." The spin-off has also played well in the ophthalmology field, according to David E.I. Pyott, Allergan’s chairman, president and CEO.

"I was a little nervous how the ophthalmic surgeon would react," Pyott told EuroTimes. "The surgeon thinks of intraocular lenses first, then an anti-inflammatory, an anti-infective and artificial tears. Were we going to tick these guys off by making them deal with two suppliers in place of one? The good news is all the surgeons I have talked to are saying, ‘This is great; we now see an Allergan more focused on the pharmaceutical side.’" That the company had for years maintained separate sales forces for drugs and devices also made the split easier on customers, said Pyott, who joined Allergan in 1998 after heading the nutrition division at Novartis AG.

Sharper focus brings expanded product lines Creating two companies tightly focused on specific market segments instead of one dividing itself between pharmaceuticals and medical devices was the goal of the spin-off, Pyott noted. "These are two completely separate businesses with different product development needs and different product life cycles. The only thing they share is the same customer base." Before the spin-off, that led to internal struggles for development resources, with AMO usually losing out to the larger, more profitable, but longer-term pharmaceutical projects. The result: pharmacy sales grew at double-digit rates while device sales stagnated.

"We were gradually squeezing AMO," Pyott said. "We weren’t investing in things we knew the market needed." That’s changed dramatically since the spin-off. In the first quarter of 2003, AMO grew its surgical device business by 7.6%, excluding the effects of changing currency rates. Company officials expect that performance to continue, and have modestly raised 2003 revenue projections to a range of €475 to €485 million. "We are quite pleased with our accomplishments since the spin," said James V. Mazzo, AMO’s president and CEO. "Our focus on improving practitioner productivity and improving patient outcomes will make AMO a better organization."

AMO plans to keep up its competitive position by increasing R&D expenditures to about eight percent of revenues. Last year R&D amounted to about 5.5 percent of revenues and AMO officials project it will hit 6.5 percent this year. "New technology is the key," said Mazzo, who headed Allergan’s European operations before the spin-off. "Customers want to support companies with leading technology. If you don’t introduce new technology you fall behind." To further strengthen its surgical product line, AMO is pursuing partnerships with other companies.

Already AMO has joined up with Italian manufacturer Optikon to market vitreal retinal systems, marking AMO’s first entry into surgical devices for the back of the eye. AMO has also partnered with Netherlands-based OPHTEC to distribute a capsular tension ring system that should improve outcomes for intraocular implants. "We’re definitely not advocates of the ‘not-invented-here’ syndrome," Mazzo said. If there are other technologies out there that can benefit our customers, we are going to aggressively pursue partnerships."

On the horizon, AMO plans to tap into what Mazzo believes will be a huge market for treating presbyopia with intraocular implants. "There are 1.1 billion presbyopes in the world. The market potential is obviously quite large." AMO is currently the only ophthalmic company with two products competing in this market, with its Array and Verisyse lenses. Allergan is also growing through expanded R&D and new product launches. Bolstered by a 245% increase in sales of glaucoma treatment Lumigan (bimatoprost) following its successful European launch in 2002, Allergan saw its eye care pharmaceutical sales grow 12.7% for the year.

That’s about double the six percent increase in the world ophthalmic drug market overall. Allergan’s total sales grew 21%, largely driven by a 42% jump in sales of Botox products. Eye care drug sales totaled about €700 million in 2002, or about 60% of pharmaceutical sales, while Botox (botulinum toxin type A) sales reached €373 million, or about 32%. Skin care products and non-pharmaceutical products made up the remainder of sales, which totaled €1.18 billion.

While Botox is still showing the strongest growth among Allergan’s current offerings, new ophthalmology products are coming on strong – so strong that Pyott believes Allergan, which now holds a 15% share of the world ophthalmology drug market, will overtake within the next two years Pfizer and Alcon, which each now have 18% of the world ophthalmology market. Dry eye products will play a big role in the expansion. The December U.S. launch of Restasis (cyclosporine ophthalmic emulsion 0.05%) gives Allergan the first and only approved therapy for keratoconjunctivitis sicca due to ocular inflammation.

Allergan hopes to gain European approval of the agent by 2006. Two other dry eye products are in the pipeline: Inspire (diquafosol), a compound that promotes tear production expected to reach the market next year; and Androgen tears, expected to reach the market in 2005. "There is a huge unmet medical need for these products," said Pyott, who estimates the total dry eye treatment market at about €1.4 billion. In the glaucoma market, Pyott also believes Lumigan will pick up market share on the strength of studies showing it is more effective than competing products.

Also Pyott expects sales of Alpahgan P (brimonidine tartrate ophthalmic solution 0.15%) to hold up its presence. In the glaucoma product pipeline is memantine, a revolutionary glaucoma treatment that works by preserving the optic nerve rather than reducing intraocular pressure. "Memantine up-regulates cell survival signals and down-regulates apoptosis in the optic nerve," Pyott explains. "It is a unique approach to treating glaucoma." Pyott expects memantine to come to market in the U.S. in late 2006 or 2007 and a year later in Europe. Such prospects confirm Allergan’s position as a world leader in ophthalmic pharmaceuticals, Pyott observes. "We’re strongly committed to ophthalmology," he says. "It’s our roots; it’s where we are going."