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Gastric band decline

Allergan considering sale of Lap-Band division

Allergan are considering the sale among dropping sales and questions over the device's efficacy.
Company is "exploring strategic options" after 50% sales drop in five years
Allergan establishing "a very in-depth internal assessment process" to decide on future of division

Allergan, manufacturers of the Lap-Band, are considering selling their $160m-a-year obesity intervention business, bringing into question the future of the world’s best-selling gastric band.

In a press release announcing their quarterly results, Allergan announced that they are “exploring strategic options for maximizing the value of its obesity intervention business, including among other things, a potential sale of that business unit.”

In a conference call to investors, David Pyott, president and CEO of the company, said that sales in their obesity division “do not fit the profile of a high growth company like Allergan”.

Sales for the division have dropped by almost half in the last five years. In 2008, Allergan projected worldwide sales reaching $290m-$300m; the most recent report for 2012 projected sales of $160m, a drop of 20% from 2011’s figure.

Cathy Taylor, a spokesperson for Allergan, said, “one of the key drivers of Allergan’s long-term success has been the continuous evaluation of our portfolio of businesses to ensure that they are delivering high growth. During the past few years, the entire obesity intervention market has faced challenges as a result of economic conditions and reimbursement limitations.”

The company manufactures two obesity intervention devices: the Lap-Band, which is sold worldwide and makes up 90% of the US market for gastric bands, and the Orbera, a gastric balloon, which is marketed in countries outside of the US.

Allergan acquired the Lap-Band business in 2006 as part of a $3.1bn merger with medical aesthetics company Inamed, along with a line of breast implants.

Speaking to Bloomberg BusinessWeek, Pyott suggested that a private equity business may be interested in buying the business, considering the “great” brand name of the product.

While Jeffrey Edwards, Allergan’s chief financial officer, declined to comment on the operating margin for the obesity intervention business, he said that the division did remain profitable.

Edwards added that the company was continuing “a very in-depth internal assessment process” to establish the best outcome for the business.

As a company, Allergan remains profitable. The company’s third-quarter product net sales increased 9.4% compared to the same quarter in 2011.

Gastric band decline

The gastric band procedure has seen a reversal in its fortunes in recent years, as the bariatric community remains divided over the efficacy and safety of the operation.

As a procedure, gastric banding's global market share has dropped from over 40% in 2011 to 33% in 2012. Laparoscopic sleeve gastrectomy is rivalling gastric banding’s position as the secondary operation of choice after Roux-en-Y gastric bypass: the procedure constituted 31% of operations in 2011.

This year, Allergan dropped plans to market the Lap-Band to obese adolescents in the US, abandoning a seven-year application process.

American bariatric surgeon Henry Buchwald said that he expected the procedure would “more or less disappear” as a stand-alone operation in the near future.

A 2011 study investigating the long-term outcomes of laparoscopic adjustable gastric banding, published in the Archives of Surgery, found that 48.6% of the participants needed their bands removed, and excess weight loss was 42.8% at 12 years.

However, Jean Marc Chevallier released research earlier this year suggesting that a more intensive patient selective process can result in greater weight loss and fewer reoperations following the surgery.

This story has been updated to include a comment from an Allergan spokesperson.

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