David Pyott

But CEO David Pyott is quick to point out that Allergan is much more than a one-product cosmetic company. "Sixty percent of the Botox business is, in fact, therapeutic," he says. "And last year, Botox was only a third of our total sales." With a projected annual growth rate of about 23 percent during the next five years, a full pipeline, and a streamlined new focus, Allergan's "future's so bright, you gotta wear shades," as the Timbuk3 song says. (See "Analysts' View," page 34.)

At a Glance

Meanwhile, Allergan bought Scott's company, renamed the product Botox, and gained approval in 11 countries by 1992. But the company didn't start clinical trials for the cosmetic indication until 1997. Its leaders knew they needed to proceed carefully with FDA, and they wanted to use data from independent studies to support their application. In 2002, Botox Cosmetic was approved in the United States to treat glabellar lines, commonly known as frown lines. It is now marketed in 20 other countries for that use, including France, which okayed it this year with the brand name Vistabel. France will act as the member reference state for the European Union, and more approvals are likely to follow.

David Pyott, Up Close

But when he joined Allergan in January 1998 after a long career at Novartis, the Botox clinical trials had just begun, and the company had been through a rough few years of losing patent protection on several ophthalmic products. He says, "The big assumption of the late '80s, was that generics would never come to ophthalmic pharmaceuticals because the category was too small. Bad, bad assumption." So the board of directors brought in Pyott to make some changes. He was only the third person to lead the company, which at that time had been around for nearly 50 years.

And he'd been hired to cut expenses, so employees were uneasy, especially when he started closing manufacturing plants. "I had worked in six countries in the last 20 years and whether I was talking to Spaniards or Germans or Americans, I'd say, 'Sorry guys, I'm Scottish, and we all know what that means.' So when I talked about saving money, it was taken pretty seriously."

But more important issues arose first. "When I came in, there was absolutely no clarity around the strategy at all," he says. "When I asked my senior group, 'Where are we going?' I got four different answers. So then I reversed the order of what we were going to do. Strategy came first, then we went after the overhead second."

Device Division One of the main concerns to emerge from those strategy sessions was the disparity between the company's business and its device unit. "The pharma business was growing about 20 percent a year," Pyott explains. "And the device end of the business was growing somewhere between zero and one percent. So it was like having a catamaran with two outboards-one churning out 20 knots and one doing only one."

On closer examination, the executive team came to realize that everything about the two businesses was different. That included:

• gross margins-80 percent of sales for pharma, devices only 60 percent
• R&D-much more intense and expensive for pharma
• product lifecycle-seven to ten years for pharma; two to three for devices only
• product size-much larger for Rx sales.