When David Pyott took the reins of Allergan (NYSE: AGN) as president and CEO in 1998, the stock was trading at just under $8 a share, and the company reported annual sales of $716 million. Thirteen years and two stock splits later, the company has grown — significantly. At the close of 2011, Allergan reported product net sales of over $5.3 billion, and in March 2012 the stock was trading in the neighborhood of $95 a share.
Based in Irvine, CA, the company has had growth beyond just increases in sales and stock price. For example, from 2007 to 2011, Allergan was granted nearly 1,600 patents worldwide and ranked tenth on the Patent Board’s list of the top 50 pharmaceutical industry innovators, based on the number of patents issued and the strength of its patent portfolio. Pyott attributes some of Allergan’s growth to the company’s extreme success at securing a high proportion of regulatory approvals around the globe. He says that success is due to three things: Allergan’s business model, expertise through specialization, and an enormous attention to detail, using what he describes as the “flywheel effect.”
The Allergan Business Model
When Pyott arrived at Allergan, he sought to improve the company’s business model to that of being a global, multispecialty healthcare company with portfolios in eye care, neurosciences, medical dermatology, medical aesthetics, obesity intervention, and urologics. Clarifying, Pyott states, “Most of our products are topicals, or in the case of BOTOX, extremely focal injections. The benefit of being primarily a topical-based company is that most regulatory agencies are very quickly able to get beyond the issue of drug safety with many of Allergan’s products and can then focus on whether or not the product really works for its indication.” As an example, Pyott cites the FDA’s approval of RESTASIS, the only therapeutic treatment to increase tear production in patients with chronic dry eye due to ocular inflammation. Based on cyclosporine, a compound originally used for the suppression of organ transplant rejection, RESTASIS was able to take advantage of the well-known liver toxicity data in addition to that which Allergan generated. When evaluating RESTASIS for approval, the FDA first looked at the drug toxicology data and then at its concentration, which with eye drops is typically low. “We are basking in the success of no less than seven FDA approvals in 2010 and 2011, which starts with our business model of being primarily topical,” he concludes.
Specialize In A Limited Number Of Therapeutic Areas
Allergan’s second key to accelerating the drug approval process, according to Pyott, is what he describes as “having an almost extreme specialization in a very limited number of therapeutic areas.” Allergan focuses on 24 products in 6 therapeutic categories. Interestingly, Allergan’s most well-known product, BOTOX, is being developed or has been approved for indications in five out of the six therapeutic categories. Compare this to Merck, which has more than 100 products including vaccines, prescription, consumer, and animal health products spanning 12 therapeutic categories.
With its 24-product focus, Allergan approaches clinical development similarly to the manufacturing process. “First, develop a protocol which answers the specific question you wish to address and execute,” Pyott states. “If you develop protocols which attempt to answer everything, you will have a difficult time recruiting patients.” Next, Pyott advises to gather metrics on everything, such as, but not limited to, time to draft a protocol, time to get through IRB (institutional review board), time to first patient enrolled in a trial, and time until last patient out. By having a significant level of metrics, companies develop an enormous attention to detail. This attention to detail is just one of the reasons why BOTOX has 25 individual indications around the globe.
Using The Flywheel Effect For Regulatory Approvals
Lastly, Pyott advises using what he refers to as the flywheel effect to accelerate the regulatory approval process. A flywheel is a rotating mechanical device that is used to store rotational energy, has a significant moment of inertia, and as such, resists changes in rotational speed. Pyott and his team apply this physics principle of creating momentum to accelerating the drug approval process. “Once you have regulatory approval in one of the major jurisdictions — typically the United States or one of the members of the EU — you need to figure out how to continue that momentum and get approval in other countries in an expeditious way,” he explains. “We have gotten better at identifying the first ‘court’ of regulatory approval for a product, which is the first step in the flywheel effect.” For example, according to Pyott, in the area of ophthalmology, the FDA is usually the first agency from which they seek approval. Canada and Australia are usually the first countries they go to for approval of additional BOTOX indications, followed closely by the United Kingdom. “Unfortunately for BOTOX,” Pyott explains, “the United States is usually second to last for approving additional indications, and Japan is almost always last.” By knowing which is the first court of approval for a given indication, you can better determine the best place to apply first when seeking regulatory approval. From there you can also determine where to apply for approvals in other countries, the second phase of the flywheel regulatory approval process.
For example, Brazil, like many countries, accepts the common technical document (CTD), which is a standardized format for describing the quality, safety, and efficacy information related to a drug. The CTD is maintained by the International Conference of Harmonization (ICH) and eliminates the need for customized submissions to many ICH regulatory agencies. Thus, you can accelerate the approval process in other countries by knowing which ones accept the CTD. Other countries do have a review process, but this can be accelerated if you have a solid data package and approval from one of the more rigorous approval bodies. “Once we get approval from the United States or Canada, we then go to Brazil, because we manufacture ophthalmology products there,” Pyott explains. “We can then use the Brazilian documentation to go to Argentina, Colombia, Venezuela, Chile, and on down the line. That is how you operate the flywheel. Get it started, and turn it up into a bigger gear.”
Another key aspect to executing the flywheel is developing relationships with particular regulatory agencies. Pyott advises to focus not only on the agency, but the reviewers as well, so that you know what they are comfortable with and what they would consider as the logical next step. For example, Ireland plays a very important role historically with BOTOX for two reasons. First, BOTOX is made in Ireland, and second, Ireland is a reference member state of the European Medicines Agency (EMA). According to Pyott, “The EMA allocates you an agency. No longer are you able to pick which agency to review your application.” He prefers this because the EMA has demonstrated a pragmatic tendency to assigning the regulatory agency with the most experience. Since the Irish Medicine Board has more than 20 years of experience in reviewing BOTOX files, it is often assigned to review an additional BOTOX application for the EMA.
Many small companies often struggle with building relationships with agencies around the world as a result of having limited resources, being first-time filers, or having just one or two programs in development. Pyott thinks it would be wise to hire a consultant who does this for a living rather than hiring someone to manage the process internally, unless you anticipate a significant amount of ongoing work. When hiring a consultant, look for ones who have past experience with big companies, as they will most likely have had the benefit of doing many filings. By tapping into somebody else’s expertise, smaller companies can avoid making common first-time filer mistakes and thus enhance their chance of gaining approval.
Some have described BOTOX as being a pipeline within a drug, given its ability to be successfully utilized across a variety of therapeutic categories. However, as Pyott points out, there’s more to the company’s success than just one product. And, evidently the company’s plan is working, considering last year Allergan had sales increases of 22% in Asia/Pacific; 17% in Europe, Africa, and the Middle East; and 25% in emerging markets. Not bad when you consider these numbers were achieved during one of the worst global economic recessions on record.
David Pyott, president and CEO of Allergan, has guided his company to significant growth during the past 13 years. During this same time period, he has witnessed the evolution of greater analytical capabilities that have enabled both the life sciences industry, as well as the regulatory agencies, to constantly raise the bar with regard to requesting data for clinical tests to approve a product for an additional indication — a prospect that is both good and bad. “The good part is that you have higher sterility standards,” says Pyott. The bad part is that raising the bar results in additional costs and increased spending on the part of the drug company with minimal benefit to the patient. “At some point the system is going to break because we just can’t afford it,” he affirms. Pyott believes that some of the new regulatory requirements resulting from the utilization of greater analytical capabilities have resulted in the FDA developing what he would characterize as “unreasonable expectations.”
According to Pyott, once a regulator has set a requirement to do something, e.g. the FDA requiring a pulmonary function test to approve BOTOX for cerebral palsy (CP) in the United States, it is very difficult for them to undo. “When somebody rules on something, how do you do a 180-degree turn?” he asks. “I think to be fair to the agency, they are particularly concerned that once they have made a pronouncement and clinical sponsor companies have relied upon it, all other sponsors will often complain if the rules are changed.” The example of requiring a pulmonary function test to approve BOTOX for Juvenile CP seems unreasonable to Pyott given that it affects approximately 3 of every 1,000 children, making it difficult to recruit and test. “At some point they need to realize that this is impossible and negotiate a pass,” says Pyott. This certainly seems reasonable when you consider that BOTOX is approved for Juvenile CP in approximately 60 other countries around the world, including Japan, but not the United States.
We Weren’t Listening
According to David Pyott, president and CEO of Allergan, there have been times of regulatory failures when “Our biggest problem was we needed a hearing aid.” Elaborating, he states, “We have a product called Tazorac, a topical for acne and psoriasis. We had a program for oral Tazarotene, for the same indication. I still think today that we had a much better product than Roche’s Accutane.” Pyott believes that the product Allergan had developed really worked and, as a result, prevented the company from being able to effectively listen to the FDA’s concerns. “Because of the history of isotretinoin and retinoids in general, the FDA was just terrified,” he says. Isotretinoin’s best known and most dangerous side effect is birth defects. “If you know the regulators have every card stacked against you, it is probably not the best competition to get into,” he observes.
Pyott wishes he had sought and listened to regulatory advice earlier on. “I always recommend to people that if you are unsure of your pathway, getting a special protocol assessment (SPA) is a very smart way to go,” he states. “In this way, you have at least defined what tests you are doing and what needs to be done versus throwing yourself at the regulators’ mercy later on.” According to Pyott, an SPA wouldn’t have solved the problem, but listening would have, and Allergan could have saved a lot of money in the process.