Allergan Terminates Sales of Lap-Band

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Medical device and cosmetic drug Botox maker Allergan (NYSE: AGN) announced on Thursday, February 2nd,  that it will halt the selling its gastric banding device to a group of Southern California bariatric surgery center. Weight loss surgery centers affiliated with marketing firm 1-800-GET-THIN are being shut off from the devices.

What's the reason for the termination? The marketing firm and the affiliated surgery centers are under sharp scrutiny for possible deceptive advertising, billing practices, safety history.

The questionable 1-800-GET-THIN Lap-Band advertisements are ubitiquious: on billboards, radio, television, and even bus placards, which boast that Allegan's Lap-Band Adjustable Gastric Banding System has led some women and men to lose as much as 130 pounds because of the procedure.

Earlier Slap

However, the FDA warned 1-800-GET-THIN and the interconnected surgery centers that the ads fail to detail the risks of the surgery and are therefore misleading. At least five Southern California patients have died as a result of the procedure, reports The Los Angeles Times.

Gastric Banding Devices Few and Far Between

Allergan is the leading manufacturer worldwide of surgically implanted bands designed to restrict the stomach to limit food intake; it also controls over 80 percent of the market.

To date, the Lap-Band device made by Allergan is only one of two FDA approved gastric banding devices for weight loss. Realize Adjustable Gastric Band is the other gastric banding device marketed by Ethicon, which is a subsidiary of Johnson & Johnson (NYSE: JNJ). The Johnson & Johnson subsidiary doesn't sell its gastric banding devices to the surgery centers in question, nor has any plans to. Medical devices and diagnostics represents roughly over one third of Johnson & Johnson revenue.

Alergan's Financials

The news came on the heels of a 6.3 percent Allergan 4Q earnings increase, despite a large rise in its research and development expenses. Strong sales of its skin anti-wrinkle drug BOTOX (which grew 7 percent for 4Q 2011) more than offset an increase in expenses. The day after the halted Lap-Band sales announcement Allergen's stock rose 1.46 percent to $86.08.

Allergan's 2012 projections include net product sales of up to $5,850 million. While only $170 million of that is expected to come from obesity intervention devices (such as the Lap-Band device), up to $1,800 million and $770 million are expected to come from its sales of BOTOX and Restasis, respectively. BOTOX isn't only used for anti-aging, but for eyelid twitching, muscle spasms, and cervical dystonia.

Allergan's Challenge

Allergan has bigger challenges it seems: the emergence of a cheaper-patient alternative to BOTOX. Xeomin, manufactured by Merz Pharmaceuticals, was approved by the FDA for the treatment of blepharospam (eyelid twitching) and cervical dystonia in 2010. But in July 2011, Xeomin was also approved for aesthetic applications.

Some physicians are said to be going to price Xeomin 25 percent cheaper than BOTOX, which is expected to drive down the cost of botulism toxins -- and the price of beauty -- when it arrives at the doorstep of physicians come Spring 2012.

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