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Edited Transcript of AGN presentation 8-Mar-17 1:40pm GMT

Thomson Reuters StreetEvents

Allergan plc at Raymond James Institutional Investors Conference

Orlando Apr 10, 2018 (Thomson StreetEvents) -- Edited Transcript of Allergan plc presentation Wednesday, March 8, 2017 at 1:40:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bill Meury

Allergan Plc - Chief Commercial Officer

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Presentation

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Unidentified Participant [1]

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I was watching ESPN, the show called [Legends of the Game] -- Allergan's really a legend of the game, certainly a legend in the specialty pharmaceutical space. But the Company is not really specially pharmaceutical company, it emerged as a leader in growth pharma or growth biopharma, one of the strongest topline growth profiles in industry, one of the best margin profiles. So, very pleased to have the Company here today to present.

Presenting from the Company is Bill Meury, Allergan's Chief Commercial Officer, and also here with Bill to answer the numbers questions, Tessa Hilado, the Company's Chief Financial Officer. Bill?

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Bill Meury, Allergan Plc - Chief Commercial Officer [2]

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Thanks, Elliot. Good morning everyone and thanks for the opportunity to be here. Many people in the room know Allergan, and others do not, and so I thought I'd start off by briefly describing the fundamentals of the Company, and then we can take it from there. In 2016, sales for Allergan totaled approximately $15 billion, which represented 8% growth on a pro forma basis which made, as Elliot just said, Allergan one of the fastest growing companies in the healthcare industry.

Importantly though growth came from every product line, it came from every geography, our international business grew at double-digit rate, and it came from both our pharmaceutical and our cash-pay businesses. We operate in seven therapeutic areas. The four largest, the four to watch aesthetics, eye care, CNS and gastroenterology, and I'll talk about those shortly.

In terms of research and development as many of you know, we employ an Open Science model which essentially means we use our R&D and business development capabilities internally to plug into the worldwide network of biopharmaceutical companies externally. There are hundreds perhaps thousands of scientists in small companies all around the world doing research. In our seven therapeutic areas of interest, we positioned the Company as the best buyer and partner for innovation. In 2016, we did 12 stepping stone deals at least for us, the Open Science model has proven to be the most effective and efficient way to source innovation.

In terms of margins, we run very efficiently. We have two models at Allergan. Spend it like it's your own, and the second one is to do more with less, not more with more. We have roughly 16,000 employees around the world. 2016 was a transformational year, a credit to all of the teams within Allergan. There was a great deal of focus despite many, many different distractions. Here's a snapshot of our product lines.

Our aim here is to be Number 1 in each one of these therapeutic areas. And if we can't be Number 1, we have to see an opportunity to be Number 1. Our approach is to essentially build a supermarket treatment options for the customers in each of these areas. And the logic is very simple, the more products we have, the stronger we'll be. There are strategic, promotional and economic advantages to product line breadth and depth, which is what you see on this slide. Strategically, we can give physicians, providers and payers, a more complete view of pharmacotherapy, that's an advantage. Promotionally, we get more access in time with customers, that's an advantage. And then economically it's staggeringly efficient. The incremental cost of a second, or a third, or a fourth product are fraction of the first product.

By the numbers, 2016 was a strong year. There are several key points on this slide. The first one is five of our seven product lines produced sales of $1 billion or more in 2016. And while each product line is different, some bigger than others, eye care aesthetics of course are the largest, we are fairly balanced. We're not overly dependent on one area. Next all seven of these areas had an increase in sales in 2016 over 2015. Five of the seven increased at a double-digit rate. And so you can see that it's a fairly balanced picture when it comes to our product line.

New product launches, they're the lifeblood of any company. That's no different at Allergan. In 2016, we launched four products collectively. They are at expectations. We're entering year two with KYBELLA, VIBERZI, VRAYLAR, NAMZARIC. Product launches can be fickle. This is getting a great deal of attention in the Company. In 2017, we'll launch nine products. I won't go through all nine, but I would watch if I was you, three. The 72-microgram dose of Linzess, which will - Linzess is for IBS-C, our flagship gastroenterology product that was developed for one reason, to accelerate our conversion of the OTC market, which we've at least for the past four years been very successful at.

The next is RESTASIS MDPF, which will shore up our business in the dry eye market in the face of competitive activity from Shire which launched a product called Xiidra. And then the third product I'd watch, we're launching in a couple weeks called RHOFADE, which is a basal constrictor for rosacea, a form of redness, a major unmet need in medical dermatology. It will be a stepping stone to I believe a number of other medical dermatology launches over the next several years. I estimate that part of our business could evolve more dramatically than many others and I would say that RHOFADE right now could be a sleeper in the product line.

In 2016 and early part of 2017, we added 12 assets to our pipeline and to our product line. In CNS, we added products for Alzheimer's disease and Parkinson's disease, these are early stage compounds. If you look to the upper right, we added several products in dermatology, psoriasis and a regenerative medicine business, which strategically made a great deal of sense for us since plastic surgeons are one of the most important customers at Allergan.

If you look at the bottom left, we added two products to our eye care business. And if you look at the bottom right, several products in gastroenterology which in several years, could be the largest product line in Allergan. In GI, we're covering virtually everything from the top of the GI tract to the bottom of the GI tract. We have orals, we have biologics, we have creams among other things.

We have over 65 products in development. These six have significant commercial potential. I will make some general comments about them. First, each one is either first or superior or both to any product in the market. Next, these are -- each represent a strategic fit. We are entering a market, each market where the customers know us and where we know the customers and when it comes to development and commercialization of new products that simply mitigates execution risk.

Third, the pricing dynamics for these products will be in my opinion, easier to manage than the pricing dynamics in our product line today, which is an important factor that we have to take into consideration, when we take products in the development or acquire assets. And then finally, each one of these could be bigger than any product that we have on the market today at Allergan. And to wrap up, in 2017, here's what we're focused on. This is how we expect to be judged and measured very simply. Topline revenue growth. Progress with our pipeline, especially the six stars, many of which will be entering Phase 3 as we speak. High operating margins both growth and operating margins and then of course capital allocation.

I'll wrap up by saying that the Company went through a great deal of change in 2016 as many of you know, but the climate, the morale in the Company is very, very high. We have a lot to do, which I always say is a high-class problem. The business is set up very well for 2017. As you know, we've issued guidance and we feel good about the next 12 months. So Elliot, with that, I'll turn it over to you.

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Questions and Answers

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Unidentified Participant [1]

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Let's talk about the tweet of the day, or the tweet of yesterday. Those two dirty words, drug pricing. Maybe you can just talk a little bit about Allergan's position on drug pricing, the steps the Company has taken to distance itself or stand out as a better corporate citizen amongst the pharma participants, and then maybe just kind of walk through the actual numbers of the business in terms of split between cash-pay and commercial, and then I want you to touch on kind of the bigger picture in terms of what you guys may think is on the table in terms of what the administration may look at in terms of its going after Part D or Part B.

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Bill Meury, Allergan Plc - Chief Commercial Officer [2]

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I guess, it is the Number 1 question we get right now, and I don't want to minimize the subject as a headwind for the industry, but I can tell you personally, and I've had multiple conversations over the past month with executives at major health plans in PBM, just as part of normal course of business. And there is still a balance discussion to be had between pharmaceutical manufacturers and health plans, as it relates to balancing innovation with cost controls.

Health plans just need to know that pharmaceutical companies are going to be part of the solution and not part of the problem. And they're facing very real challenges as it relates to managing their own business and it affects every decision we make, not just how we price our products or price increases that we take on our products, but it affects which types of products we acquire taken to development and commercialize. If you look at the six stars, that's a very different group of products than for example we market today. I use a perfect example Bystolic, which is a beta blocker for hypertension that we launched. I guess legacy Actavis does over $600 million in sales. And it's a real moneymaker for us and very popular with cardiologists and primary care physicians. We wouldn't acquire Bystolic today, just to illustrate the extent to which the pricing debate is impacting decision making. As it relates to our business and how we're set up, our plan is not built on price increases that exceed low-to-mid single digits. And we started implementing that in the third quarter of 2015.

This debate started three years ago. You could see it coming and that was the basis for the social contract. One unique aspect of Allergan to keep in mind is that we're not overly dependent on one payer. Roughly 40% of total sales for Allergan are not subject at least to some of the US pricing regulations or pilots that are being contemplated. That's our international business. And we have a cash pay business in medical aesthetics, which I think is probably the hottest sector of all of healthcare. And we have a market leadership position. It is truly in the golden age, but when you are balanced like that, these sort of pricing headwinds are much easier to manage.

When you turn to the reimburse part of our business in the United States, here again, we're not overly dependent on Medicare Part D, Medicare Part B or Medicaid. It's an important part of our business, particularly for products like RESTASIS or NAMZARIC, but there's not too much risk in that area. We expect low-to-mid single digit price appreciation as we've talked about. As it relates to the ideas coming out of Washington, it's very difficult to predict what's going to happen. My personal opinion is the Medicare Part D model is working for the US government, I don't expect it to change.

Health plans do a good job negotiating discounts on behalf of CMS, on behalf of the government. And it's hard for me to believe that would be adjusted. There are some ideas related to Medicare Part B that could evolve. For Allergan that would not represent a major headwind. They're talking about accelerating generic approvals as a means to increased competition. The transparency laws that are being contemplated at the federal and state levels again, I think those are manageable.

The best solution for the industry and Brent's been pretty clear about this is self-regulation. And I firmly believe that if companies think more carefully about the prices they set and the price increases that they take, this can be taken off the front page of the newspaper and more focused could be put on all of the research and innovation that's coming out of the drug industry as opposed to pricing practices that are inconsistent with good business to be fair.

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Unidentified Participant [3]

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I would say nobody waits in line at the pharmacy, go to the [next nearest pharmaceutical] with the exception perhaps on the aesthetics side. Speaking of which, I was happened to be in a plastic surgeon's office last week and was looking around at all the cool stuff in there. Of course, many of your products are represented. You guys have put a lot of money into that space in the last couple of years in terms of acquisitions with KYBELLA and LifeCell, and most recently ZELTIQ. Maybe talk about those franchises a little bit and sort of the motivation to kind of step it up a little bit in terms of getting more aggressive on the acquisition front in that space and the opportunity set there, and why those businesses are better owned by Allergan than stand-alone.

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Bill Meury, Allergan Plc - Chief Commercial Officer [4]

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The analogy I'd like to make is the aesthetics market is on fire, we have a market leadership position and we're going to pour gas on it. Whether you're in Asia Pacific, in Shanghai or in Toronto or New York or London or Tele Aviv, around the world, there are more physicians practicing aesthetic medicine than ever before. And there are more people consuming aesthetic treatments. There are two major trends right now in aesthetic medicine that are very encouraging to us, given how important the business is. There's a millennial movement or youth movement, more and more young people in their 20s or 30s are getting aesthetic treatments. There's an emerging although it will take some time male movement.

And the relationship that we have with dermatologists and plastic surgeons or other physicians that are involved is excellent. We have a leadership position by a wide margin with BOTOX and our fillers as well as KYBELLA which sort of they collectively represent 360-degree solution for facial aesthetics or facial contouring. And then we acquired ZELTIQ because in our estimation, the body contouring market is where the facial injectable market was 10 years ago. And ZELTIQ's product CoolSculpting is the BOTOX of that market.

And if we manage this business carefully and continue to introduce new products, which is what you saw in ZELTIQ and of course LifeCell, which is a regenerative medicine business, we should be able to sustain double-digit growth for the next several years. And I think that comment applies to both United States and internationally. I can play in Asia Pacific -- Asia Pacific, Latin America and parts of the Middle East. The business is growing at plus 20% overall, our fillers are up 50% to 100% in China for example where we just expanded our field force.

And so it's a very, very good business, we just have to manage it carefully and continue to introduce new products.

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Unidentified Participant [5]

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The relative pricing on the aesthetic treatments ex-US better than it is relative pricing versus pharma.

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Bill Meury, Allergan Plc - Chief Commercial Officer [6]

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Yes. It's lower, but it's not 20%. I would say probably 50% of what it is in the United States.

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Unidentified Participant [7]

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Any questions from the audience?

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Bill Meury, Allergan Plc - Chief Commercial Officer [8]

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Just Elliot, one topic on pricing I forgot to cover you had mentioned is what is our price volume. And I think about it two ways. First of all, there are roughly 15 products at Allergan that contribute 70% of sales. Sales of those products will increase at a double-digit rate and it's based more on volume than on price.

When you look at the entire business, our core products or our growth products, as well as more mature products, it's roughly 50-50 split between volume and price, which I think is a sensible split.

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Unidentified Audience Member [9]

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(Inaudible - Microphone inaccessible)

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Unidentified Participant [10]

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Allergan Generics.

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Bill Meury, Allergan Plc - Chief Commercial Officer [11]

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Yes, I think -- listen, there was a vision that the branded business was a higher growth, higher margin business. It was consolidation in the generic industry, there was a moment in time where we could get full value for our generic business, and take the proceeds to build a high quality, branded business. And I think that if you look at how we're set up today, and look, what's happening in the generic business, it's a really good deal.

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Unidentified Participant [12]

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Arguably the greatest X decision in the history of the pharmaceutical industry.

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Unidentified Audience Member [13]

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(Inaudible - Microphone inaccessible)

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Bill Meury, Allergan Plc - Chief Commercial Officer [14]

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That question is only second to the pricing question. As it relates to the patent, we feel good, first about our invention story. For those of you don't know, there's an IPR -- there are IPR and court decisions pending. The IPR panel wants to hear from witnesses, the court understands our invention story, which we think is encouraging.

Now, if one or both decisions go against us that would kick off an appeal process, which would take us to end of 2018, 2019. That is worst case. Conversely, we have six Orange Book-listed patent to take us to 2024. And so for planning purposes, we are continuing to invest in RESTASIS MDPF, we'll know more over the next year or so. That's where we are with -- to sort of book-end the issue. As it relates to performance for RESTASIS, I think to the extent that you are aware of our fourth quarter numbers, the revenue stream for RESTASIS has proven to be remarkably durable, point Number 1. Point Number 2, the market for dry eye is 30% bigger today than it was before Shire's launch of Xiidra. And let's not underestimate that.

There were scenarios where a challenger comes in and takes a pound of flesh from the from the leader, and right now that is not what we are seeing. That being said, it's still early. And I think over the next six to nine months, we'll see how this market looks. And I believe there will be a stable oligopoly, a two-product market, and I believe we're going to maintain majority of share. We have as part of guidance, assume sales for RESTASIS would trade roughly at the same level in 2016. There's a possibility we beat that given the current trend, but it's too early to call.

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Unidentified Audience Member [15]

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(Inaudible - Microphone inaccessible)

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Bill Meury, Allergan Plc - Chief Commercial Officer [16]

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The majority of Shire -- I'm sure (inaudible) the majority of Shire's business appears to be coming from the over-the-counter market and from new patients. Their share of new patients is not quite as high as eye depending on the source you look, but they have pretty good share of new patients which isn't unusual for a new product. Eye care guys, they love new stuff. And so they're going to try it, and they are. But what we're not seeing is an erosion -- exactly right, in our recurring patient business, which is really, really important, because that can result in a quite dramatic change in share for our product, and we're not seeing it. It couldn't go any better than it's gone over the past. They've been out there roughly seven or eight months and we feel pretty good about it, but product launches and competitors can be fickle and can impact your business. So we're set to stand top of it. I don't want to get past the guidance that we gave.

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Unidentified Participant [17]

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And the launch dynamics around MDPF, in terms of timing and switch mechanics?

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Bill Meury, Allergan Plc - Chief Commercial Officer [18]

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We're launching a multi dose preservative-free version formulation of RESTASIS in actually two weeks. And right now, if you go to a pharmacy, if anybody has dry eye, you get RESTASIS or Xiidra, you get a tray of 60, and they're single unit vials. They are not very easy to use, just if you think about dexterity, particularly for patients over 65 and older, and that's roughly 35% to 40% of the market. So the 60 count bottle, I expect to be very popular with patients. Under a normal conversion plan, you can look at models in any market for any product. You could expect over time, 30% to 50% to move to a line extension or a new formulation. If it gets really popular, it could be bigger than that. Just as a strategic matter, we get to take back the headline in the dry eye market.

To a certain extent, Shire has the benefit of trading on being new, but that expires. And then you have to actually run your business. And I think MDPF is going to be really popular, and it's going to get a deal of investment, both professional and consumer advertising. And it's perfect timing when you think about what we're trying to do with that business.

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Unidentified Audience Member [19]

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(Inaudible - Microphone inaccessible)

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Bill Meury, Allergan Plc - Chief Commercial Officer [20]

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I describe it as a fortress and for a couple reasons. And this applies to both the therapeutic side and the aesthetics or cosmetic side. And it's roughly 55-45 split. If someone's want's to introduce and really challenge BOTOX, you need to show up with 11 different indications essentially. You need to show up with a dose conversion calculation, you need to show up with an injection pattern that's been studied and is consistent with the injection pattern for BOTOX. And while that may doable for some of the indications, it's very difficult to do it with all 11 indications.

On the esthetic side of the business, BOTOX is linked to every other product in our aesthetics product line, which is one of the benefits of product line breadth and depth. There is a moat around BOTOX. If you use BOTOX and one of our JUVEDERM fillers, there's an economic benefit. If you use BOTOX, one of our JUVEDERM fillers and KYBELLA, there is an even bigger economic benefit.

And now we're going to add CoolSculpting to that. So for an aesthetics, or plastics, or derm practice, they have to think very carefully about how they use these products and this is a moneymaking business for them. And so I feel very confident about the durability. I'm not minimizing the risk of competitors. There are many toxins and development, there is long-acting, topical, liquid, I don't think any of those are game-changers. And I think what's important for us right now is to continue to develop new indications on both the therapeutic and aesthetic sides. On the therapeutic side, we're looking at allergic rhinitis, atrial fibrillation, depression. On the aesthetics side, we expect to get indications for platysma and masseter, which is the lower part of the face, which many aesthetic docs would say sort of a new frontier. The focus so far has been on the upper face.

And if we do those things, where the growth rate stays at double-digits for the next five years, that's kind of hard to predict. But this is a pretty powerful growth driver and an extraordinarily durable business as long as we don't take our eye off the ball.

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Unidentified Participant [21]

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You have quasi-generic competition out there already. There are a couple competing toxin products if they wanted to compete specifically on price, they could. I don't think anyone can even name what they are.

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Bill Meury, Allergan Plc - Chief Commercial Officer [22]

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That's alright. If you ask -- what's the Number 1 sports magazine? Sports Illustrated. What's Number 2? Who knows. I think it's Dysport -- it's Xeomin and Dysport.

If you ask a plastic surgeon or a high volume injector of toxins whether BOTOX, Dysport and Xeomin are the same, and you survey most of them, they'll say no. And they would say one spread is more than the other, which is not the outcome and the other one doesn't last as long. And so I think it's a misnomer to think that always toxins are the same and there's many small companies and that's not surprising. BOTOX is a big powerful business, and so that happens. And we just have to, like I said not take our eye off the ball and continue to innovate the product.

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Unidentified Participant [23]

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Any further questions? Sneak one last one in here, you guys also have a topical botulinum toxin in development, which one point in time I think Wall Street sort of viewed as -- when it wasn't yours, it was potential competitive agent to BOTOX. And then we did some work on it, toxins and plastic surgeon, they're like no, it's not a competitor, it's BOTOX Lite, it's a starter kit to be introduce to patients into more -- eventually into injections and other therapies. I don't know if you want to just kind of give a quick 30 seconds on the topical opportunity?

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Bill Meury, Allergan Plc - Chief Commercial Officer [24]

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Generally speaking, plastics and derms think about a topical toxin for thin skin areas, perhaps under the eye. One of challenges in terms of development is controlling the administration. An injection of Botox is a very precise procedure. And you have to think little bit differently when it comes to a topical toxin. I think it's a logical next step for us, but I don't think it replaces any material way the BOTOX business.

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Unidentified Participant [25]

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Okay great, thank you. And the breakout is Mediterranean 1. Thanks.