Allergan Shares Fall After CEO Says Two Studies Delayed

Allergan Inc., the maker of the Botox wrinkle treatment, fell the most in 13 years after saying it will delay final studies for drugs to treat age-related macular degeneration and baldness.

A mid-term trial of the company’s DARPin treatment for macular degeneration, the leading cause of blindness in the elderly, failed to find the best way to separate it in final testing from Roche Holding AG’s Lucentis, Chief Scientific Officer Scott Whitcup said today on a conference call. A study of bimatoprost showed insufficient hair growth and Allergan plans to test a formulation that’s 10 times stronger, he said.

The announcements mark a delay for the Irvine, California-based company’s two most important products in mid-stage development, Chris Schott, an analyst at JPMorgan Chase & Co. in New York, wrote today to investors. Clarity on DARPin won’t be available for about six months, while the magnitude of the dose increase for bimatoprost is “less than encouraging,” he said.

“We believe these updates are clearly disappointing and remove a potential significant catalyst from the story at least for the next one to two years,” Schott said. “That said, we believe Allergan’s current portfolio supports one of the best growth profiles in our coverage universe.”

The third and final stage of testing usually required for regulatory approval is “hugely” expensive, particularly for drugs to treat age-related macular degeneration, Whitcup said. The final study needs to be meticulously designed, he said.

Cautious Stance

“We are being cautious and considered,” David Pyott, Allergan’s chief executive officer, said of DARPin on the conference call. “When we go into Phase 3 we want to have everything worked out to increase the probability of success.”

Allergan tumbled 13 percent to $98.67 at the close in New York, the biggest single-day decline since July 1999, with 14 times more shares traded than the average three-month volume. Regeneron Pharmaceuticals Inc., which makes Eylea, an eye medicine that may gain a competitor in Allergan’s treatment, increased 10 percent to $237.29.

Allergan plans to add another arm to the existing trial to further evaluate the drug starting in the third quarter, Whitcup said. Those findings should be ready by the end of next year. The current study results will be presented at an American Academy of Ophthalmology meeting in November.

Delay Approval

The additional DARPin research will delay approval of the medication by one to two years, Pyott said. The slower pace of development won’t hinder the company’s ability to post earnings growth, he said.

“Based on the enormous number of products we have approved, nine since the beginning of 2010 and another three on tap for the remainder of 2013, we believe this is sufficient for our strategic plan to deliver mid-teens earnings-per-share growth,” Pyott said.

The company, which generated $1.5 billion last year in cash flow, is “always looking” for acquisitions and partnerships to supplement internal growth, he said.

Whitcup said the studies on both drugs produced encouraging results. The DARPin data suggested the medicine looks different than Lucentis and provided enough information to continue testing, he said. He declined to say whether the benefits of the therapy were greater or lasted longer than Lucentis.

Hair Growth

The bimatoprost study showed it spurred some hair growth, though not enough, he said. Allergan, which previously said the medicine may be a $1 billion a year drug, is testing the higher dose so it doesn’t prove the treatment is equal to generically available rivals, he said. While the original data was easier to pull together for men, the company will also re-evaluate the treatment for women, Whitcup said.

“It makes sense to focus on where the data were clearest and where the pathway is the most well-defined,” he said.

Earlier, Allergan announced it is evaluating offers for its obesity treatment unit, including the Lap-Band weight loss product, and expects to sell the unit by the middle of the year.

Separately, a U.S. appeals court today upheld a patent that would keep generic versions of Allergan’s glaucoma treatment Combigan off the market until 2022. The patent covers a way to combine the eye treatments Alphagan with Timoptic into a medicine that’s given twice a day without any loss of efficacy.

Another patent, which expires in 2023, is invalid because the combination of specific amounts of the two drugs would have been obvious to researchers, the U.S. Court of Appeals for the Federal Circuit in Washington ruled.