David Pyott and Jim Mazzo talk to OSN

Two leaders of Allergan Inc. speak to Ocular Surgery News about acquisitions, alliances and recent and impending product launches.

With the acquisitions and mergers and the major pharmaceutical and refractive launches that have taken place from the late 1990s to the present, the face of the ophthalmic industry has noticeably changed. The major ophthalmic companies left standing are faced with different and more difficult challenges than the companies of 5 years ago. The top 10 or 20 companies have become the top five or six or seven. As part of a series, Ocular Surgery News embarks on an exploration of the recent past and impending future of today’s players in the ophthalmic arena.

I spoke with David E.I. Pyott, chairman of the board, president and chief executive officer of Allergan Inc., and James V. Mazzo, corporate vice president and president, Europe/Africa/ Middle East Region and global surgical business, also of Allergan, about the recent past, the future and what drives business decisions at their company.

Mr. Pyott joined Allergan in 1998. Upon his installation as Allergan’s CEO, he made a major commitment to research and development, including pumping a larger amount of money into the division. He also restructured his upper management and added to Allergan’s global sales force.

Mr. Mazzo, who joined Allergan in 1980, has held positions with the company in sales, marketing and various management roles in the United States, Canada and Europe.

It is clear that serendipity, a focused understanding of their philosophical approach to the customer and of the profile of an ideal business partner, and a well-researched product and product-line plan have led to a successful path for this company.

Joan-Marie Stiglich, ELS
Editor in Chief

Ocular Surgery News: In recent years, Allergan has secured several marketing and distribution alliances and has launched multiple products globally, including venturing into the refractive arena. As a result, the watching ophthalmic community has speculated as to what type of company Allergan wants to be.

David E.I. Pyott: The pharmaceutical side is our largest and fastest growing business, so it is always natural that is where you end up. Currently, 43% of our business is pharmaceutical products. From a company standpoint, that is where we start thinking first. It is a simple strategy — develop a total and complete line of ophthalmic pharmaceuticals.

We literally one by one plugged all the holes that we found in our product line until we got down to microholes, which is where you have to say you can’t do everything. Once you have products almost lying on top of each other, it just doesn’t pencil out.

On the surgical side, the strategy is different. When I joined, I would say that we suffered a form of psychological inferiority complex to Alcon, where 50% of their business is surgical. We were trying to be a little Alcon, which does not work psychologically nor in any other way. So when I first joined, we had a totally white sheet of paper so that everything was new in principle. We said we would like to be specialists in foldable lenses and phaco. Looking back at 1998, if I had told the team that we were going to be No. 1 in foldable lenses in 2-and-a-half years in Europe, they would have looked at me like I was off my rocker — let alone if I had said in 2-and-a-half years we would be No. 1 in phaco in Europe. But we have achieved both of those things.

Then the next part is refractive. When I first joined, we asked our customers, “What should we be doing that we are not?” It became clear with consistent messages that if we want to be a leader we have to be in refractive. So we thought about that. And looking back I think it was wisdom versus luck. We thought we really don’t want to acquire a laser company or an equipment company. We are not big fans of equipment because of the sales cycles, which often bunch up in one time frame. We decided we wanted to do it a different way. That is where serendipity and luck works out.

We met with Surgical Instrument System AG, of Biel, Switzerland, who made the Amadeus microkeratome. Our instincts told us immediately that the product looked desirable, looked new and looked like it had some great features and benefits. And those initial instincts proved true.

By this stage, Alcon had bought Summit, and we were pretty shocked by the amount they paid for it. Shortly after, we approached Visx and said, “We have a microkeratome. You don’t. We don’t want to be in the laser business, and you’re the big dog in the laser business. How can we work together?” So that was the beginning of the alliance.

OSN: This was a U.S.-based alliance first?

Mr. Pyott: Yes. And we had the discussion internally that even if Visx is weak outside the United States, we would form an alliance globally. It didn’t make sense allying by country because it would not be a true partnership.

OSN: Describe the sales force interaction.

James Mazzo: We are partners globally with Visx. We work together to identify the opportunities, and then we leverage together. But we let each other execute each product line.

Mr. Pyott: It is essentially lead generation. Once a customer says they want to buy a system, the sales person will say, “I’ll get my counterpart.”

OSN: And what about joint marketing plans?

Mr. Mazzo: The separate marketing plans fit together. You will see joint promotions at conventions and seminars. For instance, we just did a major program in Italy together that brings in customers to see both Visx and Allergan. Ultimately, both companies have not lost an identity but gained exposure to new customers. What I think has been extremely successful for us is that we haven’t gone in and tried to take in a knowledge base that we did not have, and they have not tried to come in and take a knowledge base that they did not have. Ultimately we have to do what is best for the customer. The customers couldn’t care less if this is a business contractual relationship but rather are concerned with how this is going to work for them.

Sometimes you do co-marketing, sometimes you acquire, sometimes you license, and in the case of the Allergan-Visx partnership, it was a win-win. We have no desire to be in medical equipment from a laser standpoint, and they don’t have a desire today to have a microkeratome. We are both leading companies. I think what is important is that both companies have to have a similar philosophical understanding of how you want to treat the customer. And in this case, premium quality, premium price. You have to be careful in how you select your partners.

We are big into continuing education. There are some companies that do not think that way.

OSN: What can you tell me about the impending European launch of Lumigan? And how is this launch similar to your other recent global launches?

Mr. Pyott: Unlike with devices, the Food and Drug Administration is fast in its approval process for pharmaceuticals. On the device side, the FDA always takes 12 to 18 months longer than European agencies. As a result, all companies launch surgical products in Europe first.

With pharmaceuticals, we are particularly lucky that the ophthalmic division of the FDA is quick. Since I’ve been on board the past 3 years, at least 50% of the applications have been given fast track status, thus turning them around in 6 months. Also, they have been rather pragmatic on the glaucoma studies, where they say, “OK, show us 6 months of data and then file.” And during the filing process, you have 12-month data available that supplements the original filing. The Europeans have been sticklers, saying, “File 12-month data, and nothing less.”

In pharmaceuticals, we always launch in the United States first. Latin America typically follows next because they are flexible and have good relationships with the United States. In the large countries, Brazil, Argentina and Mexico, you have to submit an independent file, but they are heavily influenced by what works in the United States. Lumigan is now on the market in Brazil and Argentina. Mexico and Chile will be following shortly. Europe will be next.

Mr. Mazzo: For the launch of Alphagan, we filed using the European Mutual Recognition Procedure (MRP). The MRP uses a reference member country to carry out the primary review. If the product is accepted, this country will give a recommendation to other countries who may either accept or reject the product. At the end of the procedure licenses are issued on a national basis. The product is thus launched country by country. For the launch of Lumigan, we chose to file using the European Centralized Procedure (CP). The review is carried out in two countries by a rapporteur and co-rapporteur. It results in a single European license facilitating a pan- European launch.

Europe, the United States, Latin America and Asia – globalization of products – that is our goal. Four or 5 years ago we each had individual products that were specific to the countries. Now we have global products and launches.

Mr. Pyott: When I looked at the history of Alphagan (and I shouldn’t be too critical because it is the No. 2 ophthalmology product in the world after Xalatan) and the speed at which they rolled that product out, I said, “Don’t try that with me.” Four years between country one and country 100 was unacceptable. About a year ago I asked the product management to give me a list by month of the top 25 markets in the world when Lumigan would be launched. I made it clear that the list was going into their personnel files. What gets measured in this company gets done; it is part of our management system. And I know from market 1 to market 25, it will be about 2 years.

Mr. Mazzo: Besides having consistent campaigns, this industry is small. What I mean by that is our customers in Europe are already making assumptions and forming ideas about Lumigan because they go to the United States and attend symposia. That is a blessing but it is also a curse if you don’t have a quick time frame for your launch. So the physicians are being educated even though the product is not approved.

Allergan is coming out with a lot of new drugs in a short amount of time. We have to maximize these assets emanating from our strong R&D team. It is incumbent upon us to do global launches.

OSN: When do you expect Lumigan to be launched in Europe?

Mr. Pyott: Lumigan should be launched in early 2002.

OSN: What products will you be filing in the near future?

Mr. Pyott: An Alphagan-beta-blocker combination will be filed at the end of 2001. We have a Lumigan-beta-blocker combination that will be filed in 2003. In the allergy arena we have Alocril; however, we only have the licensing rights from Aventis for Canada, the United States and Mexico. We will file epinastine, another allergy product, in United States and Europe in 2002. This will be a new entry into allergy for us. We have worldwide licensing rights (excluding Japan) from Boehringer Ingelheim to develop epinastine for the treatment of ocular allergies.

Gatifloxacin, which is a next-generation anti-infective, will likely be filed in 2002. This is beneficial, as we lose the patent on Ocuflox in late 2003. Restasis (cyclosporine ophthalmic suspension‚ Allergan) for the treatment of dry eye received an approvable letter in mid-1999. The FDA ruled that the drug needed an additional study. We believe the study will be done by 2003. When we submit the data — it will be a pretty quick review by the FDA — it will be either thumbs up or thumbs down.

We also entered into an agreement with Inspire Pharmaceuticals Inc. Inspire’s INS365 Ophthalmic is really a synergistic product with cyclosporine. Restasis prevents an inflammatory cascade particularly for severe dry eye and Inspire INS365 is indicated for the treatment of moderate dry eye. The negotiations were interesting – like dancing a tango. They thought that we wanted their product to bury it. We tried not to think on the dark side that Restasis won’t make it, but if it was not to be it would be nice to have Inspire. If we were so lucky as to have both approved, then we could literally have products for the whole dry-eye market in combination with our Refresh product line.

Mr. Mazzo: We can discuss our pharmaceutical expected filings because our competitors can pretty much chart these dates out. With medical devices we are not public until we come out. But we are not complacent on the surgical side. At ESCRS this year we released four new products and product improvements.

Mr. Pyott: In May 2000, Allergan entered into an in-license agreement with Oculex Pharmaceuticals for Oculex’s proprietary biodegradable (BDD) and reservoir (RDT) drug delivery technologies, which are used for the back of the eye. We entered this agreement thinking critically that one area of weakness we still have is in retinal diseases. Also, Visudyne is the only game in town for age-related macular degeneration. We have a dye, which is licensed from Japan, that we believe is better than Visudyne. It is a classical second-generation product. Unfortunately, we will probably have to wait until 2006.

OSN: So you have an entry into vit/ret pharmaceuticals. What about surgical?

Mr. Pyott: I don’t want to say no, never — but not now.

OSN: And the rest of the surgical side?

Mr. Mazzo: On plan, we came out a little later with an acrylic IOL. We waited, because if we came out with just another acrylic, why should a physician switch? But in a short period of time since we released the Sensar in Europe, we are already at 22% of market share. Overall, as the No. 1 IOL company, we command a 33% share of the small-incision market in Europe as per Quarter 1 of 2001.

OSN: Skin care is about 5% of your business?

Mr. Pyott: Yes, our skin care division remains strong. If we were to make an acquisition, dermatology is probably one of the first places we would go. In the dermatology arena, many of the big players are withdrawing. Only Novartis, Avenis and Johnson & Johnson are showing signs of life. But beyond that all the major pharmaceutical companies are saying these products are too small; because they don’t reach that $500 million threshold for which they are looking. Sounds just like ophthalmology, all those little products, which is why we like dermatology. We like products that are in the $100 to $500 million range.

OSN: What about your pipeline?

Mr. Pyott: For 2000 we spent 65% more on R&D than we were in 1996. In eye care R&D alone we will be spending close to $200 million.

On the surgical side, we are working on the next improvements for existing products. We are also researching ways to get around other people’s patents, which is another part of the whole device industry. We don’t let anyone know what we are doing until we release and then they scratch their heads thinking up ways to get around our patents.

OSN: What’s next?

Mr. Pyott: We have the largest ophthalmology sales force worldwide, which of course pre-positions us for being No. 1 by 2003. This year the growth has been slower in the first half of 2001. The way we describe it is that we feel that we are between two elevator banks. Even though Alphagan is growing, it is not enough for the rates we need. That is why we need Lumigan to give us the next round explosive growth. We have a lot of studies looking at Lumigan with Alphagan because glaucoma specialists are interested in additive drugs in treatment.

And we want to replicate what we have achieved in Europe in the surgical arena in the United States and Japan.

Mr. Mazzo: Globalization and harmonization is great, but we also don’t lose the natural touch for the individual market. At the end of the day, the Italian ophthalmologists versus the German ophthalmologists versus the Brazilian ophthalmologists still have their own needs. Why we have been successful is that we have been able to streamline the process of getting drugs to customers quicker, and we have been able to harmonize our message. But tactically the day-to-day customer interaction is still done by the local organization. I think that is what has been our measure of success. Harmonize at the strategic level, harmonize your message, but don’t lose the empathy of the individual customer.

That is a critical message that illustrates the reason behind the success of Allergan.

Mr. Pyott: What is outstanding to me is that many companies, with the exception of the two “A’s,” do not take great care of their customers. We are the two companies that take care of our customers the most. The others for some reason just don’t get it. It’s not rocket science.