Thursday, November 15, 2012

A Conversation with Allergan CEO David Pyott

David Pyott

Allergan CEO, medical aesthetics pioneer and CHI Chairman-Elect David Pyott tells us what the business of beauty can teach the medical device industry about consumer-centric medicine. This article orginally appeared on It has been republished here, in part, with permission.

Hear from Pyott in person when he joins a panel of biomedical industry executives for the MassDevice Big 100 West. CHI President and CEO David L. Gollaher, Ph.D., will moderate the panel Dec. 11 in Newport Beach. CHI members receive a discount to attend. Click here for more information or to register with code CHI.

Allergan CEO David Pyott has described himself as a "mountaineer," a "born marketer," and a bit of a masochist, but there's one thing the man undoubtedly is: A pioneer of the medical technology world.

After taking the reigns of the Irvine, Calif.-based medical aesthetics giant in 1998, Pyott quickly set about transforming an eyecare company into a global juggernaut that pulls in north of $5 billion a year with a diverse line of specialty pharmaceuticals and medical devices. Pyott did so not by doubling down on conventional wisdom, but by changing the playbook. Much to the chagrin of some company executives at the time, he cut costs by 33 percent, shed Allergan's contact lens solution business and concentrated significant resources on a little-known product in the company's pipeline called Botox.

Today no one needs any introduction to Botox, which is as much a cultural phenomenon as it is a medical product. But the lessons of the drug and Allergan's medical aesthetics business, which makes up 40 percent of its sales (all paid for directly by consumers) could hold some significant lessons for the broader medical device world.

We sat down with Pyott recently to discuss how medical aesthetics could change the way medical devices are sold and marketed to patients.

MassDevice: When Allergan bought InaMed in 2006, you said, "Now Allergan is the global leader in medical aesthetics." I'm hoping you can define what the term "medical aesthetics" means to you and how it fits within your overall approach to the Allergan business.

David Pyott: I think I can be speaking accurately if I can say really I invented that term. I was literally sitting there, because I'm a recovering marketer, thinking "What on earth does one call the genre of Botox and its competitors?" Latisse was still a twinkle in my eye at that stage. Clearly it had something to do with improvement of appearance and so I liked the word aesthetics. But I wanted to make it very clear. This is aesthetics delivered through a physician, hence, why I chose the word medical. Breast implants were long way away from any form of cosmetics that you'd buy at the Macy's counter. But the further you got to that direction, such as physician-dispensed creams and lotions, that's probably the closest point to where the world of retail is just around the corner.

MassDevice: When you coined the term, how were these classifications of drugs and devices generally referred to in the medical community? Was it sort of ambiguous?

DP: I would say the markets were very small and I'm not sure that anybody had thought of the overarching market in such a holistic way. People were very much drilled in on the individual product segments. So, clearly by 2006 Botox had grown enormously, because we got the approval in 2001. By that stage it was probably roughly half a billion in sales. And dermal fillers, in my view, hadn't really happened in the United States.

At that point, the European market, particularly Central Europe, was probably two and a half times the consumption per capita of broader North America. And when we brought Juvederm into the Canadian and U.S. market, it probably took us three years to get up to European consumption levels. So, you can see that there is kind of a whole history in the background here of creating markets where really nothing had existed before.

MassDevice: Was there an a-ha moment for you in the medical aesthetics field, or is it directly tied to Botox? When you took over Allergan, it certainly wouldn't have been referred to as medical aesthetics company – it was more eyecare.

DP: I'm pretty sanguine about these things, because people often claim instant brilliance and I'm not sure I would ever subscribe to that theory. I think there are moments that are similar to hiking in the Sierras, a pass in the mountains as you get higher and higher

The way I would see it is if I look at that journey, when I came to Allergan, Botox was literally an orphan drug. And I think it was probably an orphan drug in the minds of a lot of the senior management as well. And this was before the heyday of orphan drugs.

I realized, listening to both people internally and then customers, that there was a huge opportunity for Botox, not only cosmetics but therapeutic, which is a different topic. That led to having investments and getting cosmetics through the FDA. So that really started in early 1998 and we got the approval three years later. And that was the beginning of the journey.

MassDevice: In one of your recent earnings calls you discussed the resiliency of the dermal filler and the Botox markets, the breast implants in markets like Southern Europe, which you seemed a little bit tickled by. Is there a broader lesson here?

DP: When we look back, the great recession year for us was 2009. When we entered 2009, of course, none of us knew how bad it was going to be. So we were pretty cautious and the first half of that year, the whole company declined about 10 percent.

But what was really interesting was that the recession, particularly in the U.S., around the world, some places you could argue maybe it never happened. Like China, Brazil, they felt they had a recession, but it was like hitting a little pothole, a very small one, and just bounced right through it. In the U.S., our market stopped declining five months after it started, and then it re-accelerated. So when we got to 2010 – in fact all of our product markets globally were already bigger than in 2008. Which, of course, I would never have dared to predict in early 2009. I was thinking, "Oh man, this is going to take years until we get back to the high-water mark."

Partly it was because of the segments of society that we probably addressed at that time, in terms of our penetration. So typically, this is kind of middle-top for income. It's not only women, probably 10 percent of the consumption's male – but women's repertoire of how they want to keep themselves looking a bit younger than their driver's license or passport, or birth certificate would say. Of course, the idea of going back to being the way you were before is not really a great option for most people.

During that phase, I literally heard about people postponing or canceling vacations or crimping on fine dining, basically to save up for Botox and Juvederm. We used to hear lots of that.

MassDevice: Well that's interesting too, because in the orthopedics business, we've heard tons of stories about people postponing all acute surgeries, and all other medical markets seemed to contract a bit there.

DP: I think we saw a bit of that with breast augmentation surgery. That was the one that was the most heavily hit, because of course there's somewhere a good correlation to what is the out-of-pocket spend.

I think another comment you made which I'd like to address was, "Why is Europe doing so well?" Well, my experience has been that, basically, innovation can trump a lot of economic headwinds. We have syndicated market research, so we have the very fix on the European market and of course we know our sales even better. We're growing somewhere between – depends on the country – two and three times the speed of the market in Europe.

MassDevice: You're a born marketer, I mean, when you're looking at these indications, and these products that you're going to place into there, when you look at the specialties, do you pick one that fit within that specialties where you can communicate directly to the patient? I saw some of the direct consumer advertisings you had for Botox for migraines, so you're going directly to the patient there and addressing their pain point.

DP: I think really where we start is where is the technology? Where do we have a solution that in some manner improves patient care? That's always the starting point and maybe because we've looked carefully and found, time and time again we found these solutions. If I cross over, to say, Botox for a chronic migraine, one of the reasons that we chose to go down that road was because so many migraine patients have just given up. They've tried treatment after treatment, on to doctor after doctor and they're basically at home miserable. We know from consumer research we've done that these people, when they're not in sort of maximum pain, because they're probably to some degree forced to be inward-looking. Because they don't go out so often because they're in terrible pain, so they're on the Internet a lot.

MassDevice: When we spoke to Align Technology CEO Tom Prescott, he said that the medical device industry used to look down on the private pay model. Do you think there's still that attitude?

DP: I don't think so. I mean if you look at the pressures that are facing our industry, whether it's device or pharma, I think there are huge pressures. I think a lot of both; well, industry executives realize that private pay could be an escape valve. How do you get out of some of these pressures? And we've seen that in Europe in a different field, another example of how we go to and fro between cash pay and reimbursed.

In this country, artificial tears are paid for out-of-pocket. You just go down to Walgreens and you can find it on the shelf. Now, you probably as a consumer have in the back of your head that the optometrist or the ophthalmologist recommended you brand A or B, hopefully ours. We happen to be the world's No. 1 producer of artificial tears. But then in Europe, it's very interesting. There there is a bifurcated model where historically the government has paid for tears.

But, more recently, certain governments have either completely de-reimbursed tears or made it possible in parallel to introduce, I'll call it non-price regulated tears, I mean you still have the approval, right? But then you have the ability to price-relate. There's another example of where you can kind of go down two streets.

It shows there are ways to segment markets and of course you've got to do it within the regulatory process of that individual country.

You can see there are many different angles to this question about how medical aesthetics can translate. You can come in through, "What is the regulatory framework?" You can come in through, "How do you drive the consumer element?" if you like delivering consumer or consumerized medicine. Then I suppose this is just the whole backdrop of how do you innovate, right?

MassDevice: I like the idea of how you pioneer delivery to a consumer market because there's a great desire in all the companies that we cover for growth. And it feels like they are just throwing products against the wall, seeing if they can keep the same model or expand to a different country.

DP: Yeah, well, I mean to end on a high note, I would say, hard times often are great times to get creative, right? Because you sit there and go, "This isn't enough, we've got to find something new."

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