Weight loss: Why didn't the Lap-Band work for Allergan?

February 8, 2013 by Brian Johnson

Allergan officials said they will look to sell the Lap-Band by mid-2013. Here are a few reasons why the company is looking to move on from what should have been a blockbuster product.

Lap-band illustration

Allergan (NYSE:AGN) told investors this week it plans to sell off its sagging obesity intervention business by the middle of the year, ending the aesthetics giant's involvement with the Lap-Band.

Sales in the division haven't grown since 2009 for Irvine, Calif.-based Allergan, despite a major regulatory win in 2011 when the FDA approved the Lap-Band device for patients with a body mass index of at least 35, or a BMI greater than or equal to 30 along with at least one co-morbid condition, such as diabetes or hypertension.

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At the time, analysts predicted that the watchdog agency's decision would be a major boost. Collins Stewart analyst Louise Chen estimated that sales could increase some 51% to $390 million by 2016, or $500 million if the economy improved. That obviously didn't happen. In 2012, the division posted an anemic $160 million in sales, down 43.6% from 2011, which were down 16% from 2010.

Given the success of several of Allergan's other business units and the company's push to maintain double-digit sales growth every year, ditching the unit became a no-brainer – albeit a surprising one given the statistics on U.S. obesity. With an estimated 36% of American adultscategorized as obese, and projections that nearly ½ of all Americans could hit that level by 2030, why did the Lap-Band have failed to take off?