Is Botox Really Recession-Resistant?

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The lineup of Allergan (NYS: AGN) products reads like a Hollywood starlet's wish list: Botox, breast implants, Latisse. Last week, the company reported 14% higher quarterly sales, aided by a 16% surge in Botox sales. The company also boosted its full-year sales forecast despite the market's reacting violently to a possible recession and sovereign debt issues. Is Botox really recession-resistant? Can the company manage yet another possible recession?

Looking at the recent recession, Allergan doesn't seem entirely resistant. The top line started to suffer in the fourth quarter of 2008. The stock took more than a 40% hit at the time, along with the markets, but began to recover ahead of them. Sales began to recover only in the second half of 2009.

During that period, Botox sales also declined. The company even offered $50 coupons. Still, in constant currencies, sales always grew, albeit much more slowly. In the worst quarter, they were just about flat. Again, in constant currencies. When sales began to recover, management declared Botox recession-resilient.

Data released by the American Society of Plastic Surgeons seem to confirm what the company has been saying. There were 8% more Botox procedures in 2008 compared to 2007; 4% less procedures in 2009; and 12% more in 2010. Botox injections did much better during those years than most other plastic procedures -- invasive and minimally invasive.

How is Botox faring these days? Well, CEO David Pyott said in the recent earnings call that he sees the U.S. aesthetic Botox market growing around the midteens. In Europe, Botox sales, despite economic challenges, are expected to continue growing in the low double digits, Pyott said. He believes Botox's customers are in the higher income brackets and are better able to absorb higher food, gas, and clothing prices. In Latin America and Asia-Pacific, conditions "remain buoyant," he said.

The injectable neurotoxin is also approved for a variety of medical conditions, including most recently for chronic migraines. It might also soon be approved for urinary incontinence, another possible growth catalyst.

Botox is not without competitors. In 2009, Medicis' (NYS: MRX) Dysport was approved and Botox has been losing market share since, from 83% in the third quarter of 2008 to 76% today. Pyott said Allergan has "contained" Dysport in the U.S.

As for Merz's upcoming launch of cosmetic Xeomin, Pyott said Allergan is ready. He didn't comment about the possible launch of a competitor in 2013 from Johnson & Johnson (NYS: JNJ) . J&J also competes with Allergan in breast implants.

The company reported 14% sales growth for its eye drugs, a segment that accounted for 47% of revenue in the quarter. Some of these products have more competition and may be less resilient in a recession. Allergan's growth also came from expanding international sales, which now account for more than 41% of revenue.

On the down side, the Botox maker needs to smooth a few financial wrinkles of its own. Also, there could be pricing pressure in the U.S. and Europe. And if the recession goes into full gear, even if for now it seems its customers can take it, Allergan will feel some pain. On the plus side, Allergan has been expanding margins and the recent acquisition of Vicept exposes it to the large rosacea market.

All told, short term, there may be more pressures and unknowns than I'm comfortable with. While the stock has more than recovered from its 2008 lows, it might be prudent to wait and see how recessionary pressures play out. Long term is a different story. If the potential treatment for male pattern baldness proves successful, there's no telling where Allergan can end. But that's quite a few years down the road.

At the time this article was published Melly Alazraki does not own shares in any of the companies mentioned. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy

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4 Comments

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dabrownman

After Obama taxed tanning beds, the least he can do to pay for another mere couple trillion dollars extra Obama Care will cost over 10 years . is to tax Botox. A high enough tax, and mandatory injections required by Obama Care, could possibly pay off the US debt, say, a million dollars for one syringe of the stuff. Then Warren Buffet and a few of his friends could look younger and be taxed like Obama says Millionaires and Billionaires should be taxed. We would only have about $15 trillion more additional debt reduction to go once all the rich people get wrinkle free.

Then the EPA could tax the CO2 in the air all people breath - say at $1 a breath. The 50% of the poorest Americans would have this tax paid for them by the evil richest 50% of Americans that actually still pay income taxes of course - or they could get free CO2 offsets from AlGore who would charge the US government for them.

August 15 2011 at 10:59 PM Report abuse +1 rate up rate down Reply
1 reply to dabrownman's comment
mrspelosi

If President Obama taxed me for botox injections like you suggested dear. I'd be broke in a month.

August 16 2011 at 8:15 PM Report abuse +1 rate up rate down Reply
mrspelosi

This is a subject that I am an expert on. It has been recession resistant for me. Really! I have had so many injections that I can hardly close my eyes anymore. I look like a deer caught in the headlights.

August 15 2011 at 6:57 PM Report abuse +2 rate up rate down Reply
1 reply to mrspelosi's comment
pity4us

ROTFLMAO!!!!!!!!!!!!!!!!

August 15 2011 at 7:35 PM Report abuse +1 rate up rate down Reply