For Apollo Endosurgery, a bet on older Allergan tech starts paying off

Apollo Endosurgery spent $90 million-plus nearly two years ago to acquire the Lap-Band gastric band weight loss system and the in-development Orbera intra-gastric balloon from Allergan (NYSE: AGN). A well-trained, international sales force also came with the acquisition. Recently, I asked founder, president & CEO Dennis McWilliams if the investment was worth it, and he gave a brief reply.

“Most certainly.”

We talked during a telephone interview a few weeks after the FDA granted a premarket approval for Orbera to treat adult patients dealing with obesity who have a body mass index of 30 to 40. McWilliams was bullish about the milestone and what will follow.

Lap-Band was already widely used around the world before Apollo stepped in, and the global sales force that went with it is a vital tool to help continue to support and build that business, he noted.

The same goes for Orbera. With this device, Apollo gained a product that already served a significant overseas market, having been implanted in more than 200,000 patients globally. Now that the FDA’s approval is out, Orbera gets to enter “the most important bariatric market in the world,” McWilliams said.

“For us to finally get approval for that, is the culmination of a lot of work, and a lot of people, and we’re happy as a company to be able to take advantage of this product from a commercial perspective now in the U.S.,” McWilliams added.

Even without the U.S. in the equation, Orbera has still been a big part of Apollo’s bottom line, although McWilliams declined to disclose revenue specifics. He did say that Apollo produces around $100 million in global revenue, and Orbera is “a solid double digit percentage” of that (less than 50% but “still a very meaningful portion of what we do.”).

Putting Orbera to use takes about 30 minutes. Patients get a mild sedative and then doctors deploy an endoscopic tool to place a thin and deflated Orbera balloon into the stomach. Next, the implant is filled with saline until it reaches the size of a grapefruit, and then the patient usually goes home. Six months later, doctors deflate the balloon and remove it, though coaching takes place over a year to help patients develop and maintain healthy habits designed to keep off the weight they lose.

McWilliams explained that there are multiple factors in play to support Orbera’s rollout. The sales force that joined Apollo as part of the Allergan deal is being trained to market Orbera and support physicians who use it. Physician groups are also getting their own Orbera primer over the next 2 quarters, and McWilliams said a number of surgeons in the U.S. have already performed their first cases.

At the same time, insurance reimbursement isn’t going to be part of Orbera’s initial revenue strategy over the next few years. McWilliams said that insurance does cover bariatric surgery, but intragastric balloons aren’t yet reimbursed in the U.S. Apollo isn’t concerned, considering the relatively inexpensive price tag for the procedure and follow-up – about $6,000 to $8,000, he said.

“We feel that for this type of product there will be a significant cash-paid portion of the market, given the demand for less-invasive bariatric products,” McWilliams explained, noting that the cost is “not too far off” what patients typically pay for standard diet programs.

Regardless, Apollo is launching Orbera from a much different position than it was in before the Allergan acquisition. The company employs nearly 200 people around the world – 100 of whom came on from Allergan. The Texas-based company now has a direct sales force spread out in the U.S., Canada, Brazil, Europe and Australia.

“One of the big advantages we have as a company is when we made the Allergan acquisition we were able to … bring on board a sales organization that has a significant presence in the U.S.,” McWilliams said.

The company is well financed and has a strong cash flow, he added. McWilliams would not discuss whether Apollo is profitable, but said executives have spent the last 2 years “focusing a lot of resources on 1-time integration costs” with the Allergan deal.

This has included building up manufacturing capacity to support a global business.

Allergan previously manufactured Orbera at a plant in Costa Rica and will continue to do so in the interim. But Apollo began to build its own Costa Rica manufacturing plant to take on the task, which is expected to come online in Apollo’s 4th quarter. (McWilliams said both facilities are near each other, in neighboring districts.)

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