(FORTUNE Magazine) – It started in the late '90s as a rumor, then became a whisper, then a buzz. By last year every cosmetically correct woman on both coasts knew the secret. When you inject Botox--an obscure drug normally used to paralyze overactive muscles--into facial wrinkles, they disappear almost overnight. Federal regulators gave Allergan the okay to market Botox for cosmetic use a few weeks ago. If you missed the surrounding hoopla, you must have been camping in Tibet.

Allergan who? With all the fuss about Botox, it seems as if it would be hard to overlook the company that developed the stuff. But Botox's owner has never sought much attention. Allergan has generally been content to paddle the backwaters of the pharmaceuticals industry, selling little-known eye and skin drugs, some surgical devices, and a line of over-the-counter contact-lens cleaners.

Don't let that low profile fool you. Allergan (pronounced AL-er-gan) has also been one of the shrewdest and most successful of the specialty drug companies, with a clever approach to development and marketing that much larger companies can only envy. It has focused on two attractive submarkets: ophthalmology and dermatology. Because it is too small to attract much attention from pharma giants 20 times its size, Allergan has been left alone and has become the dominant player in those businesses--a strategy CEO David E.I. Pyott calls "Gulliver among the Lilliputians."

Resisting the lure of developing and mass-marketing blockbuster drugs is almost heresy in the pharma biz, but the approach has been a blessing for Allergan. It can buy promising compounds on the cheap from the giants, which rarely bother selling anything to just a handful of specialists. For example, Allergan licenses the rights to reformulate a popular antibiotic developed by Daiichi Pharmaceutical, a big Japanese company, as a topical medicine for eye infections.

A narrowcast marketing approach means that Allergan needn't spend a fortune on gargantuan sales forces calling on hundreds of thousands of internists and family practitioners. It can concentrate instead on a few thousand eye specialists and dermatologists in the U.S. and abroad. Pyott, a Scot with a lilting brogue, says that with just a few hundred salesmen worldwide, Allergan has the biggest eye sales force on every continent except Asia. It earns operating margins that rival those of the big guys, with net income of $262 million on sales of $1.69 billion last year. (The revenue chart on this page reflects a pending spinoff of nonprescription products.)

Nothing in Allergan's history prepared it for the transformation of one of its oddest drugs into a glamorous sensation. Botox was developed in the 1970s by a San Francisco doctor looking for ways to correct crossed eyes, or strabismus. He found that injections of purified botulinum toxin (an often lethal poison commonly produced by the bacteria in improperly prepared canned food) paralyzed the overactive muscles that cause strabismus; this allowed other eye muscles to operate normally. Allergan purchased the rights to the doctor's discovery in 1987, and started marketing Botox for strabismus and a similar condition that causes eyelid spasms after it received FDA approval in 1989. Over the next decade doctors found that Botox can treat other arcane conditions. The shots relax the painful neck contortions of cervical dystonia, as well as reducing the stiffness and tremors that often follow a stroke. The effect usually lasts for months.

Botox began to emerge from obscurity in the mid-1990s when doctors noticed something else intriguing: The drug's paralyzing properties seemed to greatly reduce frown lines and wrinkles in patients getting it for eye problems. A husband-and-wife team in Canada--she an ophthalmologist, he a dermatologist--did some experiments and reported the results to Allergan. As word of the Botox effect spread, more and more doctors began using it to relax the facial muscles that create eyebrow furrows, crow's-feet, and horizontal forehead lines. Allergan conducted clinical trials, which led to regulatory approval--and fame--in Canada last year and in the U.S. in April.

The early buzz and recent media splash have boosted Botox sales, but not enough to satisfy Allergan executives. For one thing, says Tom Albright, head of marketing, word of mouth didn't spread everywhere. Although high-glam places like New York, Los Angeles, and Miami took to Botox early on, Albright argues that doctors and patients in much of the nation's midsection still need enlightenment. He says that only 1% of Allergan's target audience of 5.5 million "aesthetically oriented people" (essentially, prosperous middle-aged women who have already visited a dermatologist) have used Botox for wrinkles.

Selling sensible Midwesterners on the joys of injecting poison to paralyze their foreheads requires a different approach than marketing glaucoma medicine--especially since health insurers won't cover cosmetic Botox. "If you have glaucoma [excess pressure in the eye], you have to go to the doctor," says Pyott. "Botox is elective. We want the experience to be marvelous. Like going to an expensive restaurant. If it's bad, you won't go back." So in addition to training doctors to inject Botox, Allergan is teaching them to design and decorate their offices to appeal to patients who want to be pampered. A new class of medicine men--"Botox cosmetic development managers"--will tell doctors what women really want while they are being inoculated against wrinkles. "If you decide there's something about your face, and you plan to spend your own money on it, you will have high demands and expectations," says Albright. "The patient should get favorable treatment and an aesthetically pleasant experience."

Besides hearing tips on lighting and art, the doctors will discover how to turn prospects into customers. "One thing we learned since cosmetic Botox was approved in Canada last year," says Pyott, "is that only one-third of the people who call the doctor to inquire about the procedure actually wind up in the doctor's chair." Therefore, that "development manager" will teach a doctor's receptionist such deal-closing techniques as ending a dubious caller's inquiries with, "So, Ms. Jones, can we put you down for next Tuesday at two o'clock?"

Allergan figures the best place to start its Botox marketing campaign is with dermatologists. In part that's because company salesmen have been flogging prescription skin medicines to them for years. More important, dermatologists are eager to do cosmetic Botox procedures. They know all about skin and facial muscles. And at a fee of $400 to $1,000 for a five-minute procedure, cosmetic Botox is highly profitable. (Allergan charges $400 for a vial that will treat five patients.) Adding to the economic allure for doctors, there's no need to hassle with insurers because patients pay out of pocket.

Allergan will call on plastic surgeons, too, but doesn't expect the same enthusiasm at first. Compared with doing lucrative facelifts and breast enlargements, injecting Botox does not seem like a big moneymaker to surgeons, says Pyott. At least not until Allergan helps them do the math. "We point out that unlike a facelift, Botox is a repeat business. It has to be done two to four times a year. And the margins are very good."

How big will Botox get? A Morgan Stanley analyst figures sales will grow 20% to 30% a year for the next few years, and Pyott doesn't disagree. That could put Allergan's Botox revenues at $650 million by 2005. Botox may have other uses as well. Shots appear to control excessive palm and underarm sweating, and some patients injected for wrinkles report fewer migraine and tension headaches. An Allergan executive says that if clinical trials for these uses succeed, Botox sales could grow by another several hundred million dollars a year.

Patent expiration, normally the bane of a decade-old drug, doesn't seem to be an issue. Like any naturally occurring substance, Botox is difficult to patent. Thus Allergan does not have a patent on the neurotoxin itself. But the process of making and harvesting it for medical purposes is a company secret akin to the formula for Coca-Cola, though one can assume that Allergan is not buying cans of soup and tuna gone bad, then siphoning off the botulinum.

Because Allergan sells about 90% of the botulinum toxin worldwide, you'd think the stock price would have risen higher than a wrinkled matron's hopes after the FDA approval in April. It didn't. The run-up began years ago. As word about Botox made its way from Park Avenue to Wall Street, Allergan's shares began to climb sharply in mid-1998, rising from $16 that January to a peak of $96 three years later. The stock has drifted south with the rest of the market since early 2001, and remains in the high 50s despite the FDA's nod. That's still pretty good. An index of major pharma stocks has risen only about 25% in the past five years.

But a few clouds linger over Allergan, tempering its stock price. The boom in laser eye surgery has cut demand for its over-the-counter contact-lens cleaners, a $297 million business last year. As Medicare squeezes reimbursements for cataract operations, doctors are doing fewer procedures, thus buying fewer of the Allergan products, including artificial lenses, used in the operation; eye-surgery products accounted for $254 million of Allergan's sales in 2001. The company plans to spin off both businesses into a new company called Advanced Medical Optics (AMO) in July. Analysts grumble that the spinoff is expensive; the banking fees and expenses will be more than $175 million, for a company that will have a market value of less than $500 million, and the new venture is slated to inherit $275 million in debt.

There's worry, too, over another of Allergan's best-selling pharmaceuticals, a glaucoma treatment called Alphagan. It comes in two formulations, but competitors have filed lawsuits that may hasten the expiration of the patent on the older formula. Allergan has been lobbying doctors to move patients to the newer concoction, Alphagan P, which causes less irritation. But Merrill Lynch analysts say that if generic competition is allowed next year, Alphagan's sales could fall by $40 million, to $233 million. Like any drug company, though, Allergan is hopeful that products in development will win approval and flourish. It is well along in clinical trials for new acne and psoriasis medicines, and is spending an impressive 16% of pharmaceutical revenues on R&D.

How will you know if things are going well at Allergan? Don't pay attention just to market-share projections and the balance sheet and income statement. Watch Pyott's forehead. The CEO has never had a Botox shot and jokes that he doesn't need one. "This is such a great company that I don't have anything to worry about," he says. If his brow gradually furrows, be concerned. If his crow's-feet deepen, get nervous. If the number of horizontal lines on his forehead climbs to six or seven, get scared. And if David Pyott shows up at work some day, and all those wrinkles have disappeared, that will mean he got Botox. It will be time to sell.

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