March 24 (Bloomberg) -- Allergan Inc., maker of the Botox wrinkle treatment, rose the most in 20 years in New York trading on speculation the company might be bought.

Allergan surged $5.41, or 13 percent, to $48.58 at 4:05 p.m. in New York Stock Exchange composite trading, for the biggest one-day percentage gain since June 21, 1989.

A report on the Web site dealReporter.com said London-based GlaxoSmithKline Plc may be interested in acquiring Allergan, citing a person familiar with Glaxo’s policy. Allergan, based in Irvine, California, agreed in 2005 to share promotion of Botox with Glaxo and jointly market two Glaxo migraine medicines. Allergan fired 5 percent of its workers last month after saying sales fell in the fourth quarter as the recession cut demand for cosmetic procedures.

“Allergan is having more earnings pressure than I have ever seen them face, and they are having to cut spending just to have any growth,” said Corey Davis, an analyst with Natixis Bleichroeder in New York, in a telephone interview. “Any buyer for Allergan would be chomping at the bit these days.”

Allergan spokeswoman Caroline Van Hove and Glaxo spokesman David Outhwaite declined to comment.

Allergan, bracing for a sag in Botox sales from a bad economy, also faces new competition. Medicis Pharmaceutical Corp. of Scottsdale, Arizona, and France-based Ipsen SA anticipate winning U.S. approval of their rival wrinkle smoother, Reloxin.

Urology Business

The jobs Allergan eliminated were for sales and marketing in its urology business. Allergan plans to find a partner to promote Sanctura XR, its drug for overactive bladders.

Allergan’s Lap-Band device for weight-loss surgery competes with Johnson & Johnson’s similar product, called Realize. Allergan also makes Latisse to spur eyelash growth and prescription medicines for dry eye and glaucoma.

The company also makes silicone breast implants, competing with J&J, of New Brunswick, New Jersey. The U.S. Food and Drug Administration allowed marketing of the implants for cosmetic surgery in 2006, after 14 years of limiting use to reconstruction due to safety concerns.

Trading of Allergan call options surged to a record 74,833, or 25 times the four-week average. Calls give the right to buy a security for a certain amount by a given date.

The most-active contracts were calls to buy the stock at $50 before next month’s expiration on April 17. They jumped almost sixfold to $3.30 and accounted for about a third of today’s call volume. They rose more than 10-fold yesterday.

Anticipating Rising Shares

An investor paying $3.30 for the April $50 calls is betting that the shares will rise to about $53.30 before expiration. The stock hasn’t closed above that price for six months.

Allergan is “undervalued by at least 20 percent to 40 percent based on recent ophthalmology and medical aesthetics transactions,” said Larry Biegelsen, an analyst with Wachovia in New York, in a note to clients today.

J&J agreed in December to pay $31 a share to buy breast- implant maker Mentor Corp., of Santa Barbara, California. Allergan and Mentor are the only companies offering silicone breast implants in the U.S. That is almost twice Mentor’s closing price of $16.15 on the last day of trading before the deal was announced.

Abbott Laboratories, of Abbott Park, Illinois, agreed in January to pay $22 a share to acquire Advanced Medical Optics, of Santa Ana, California. That is more than twice Advanced Medical’s closing price of $8.85 on the last day of trading before the deal was announced.

To contact the reporters on this story: Lisa Rapaport in New York at lrapaport1@bloomberg.net; Jeff Kearns in New York at Jkearns3@bloomberg.net

Last Updated: March 24, 2009 16:16 EDT