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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 1-10269
ALLERGAN, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 95-1622442
(State of Incorporation) (I.R.S. Employer Identification No.)
2525 DUPONT DRIVE
IRVINE, CALIFORNIA 92612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 246-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which each class registered
Common Stock, $0.01 par value New York Stock Exchange
Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $2,200,000,000 on February 27, 1998, based upon
the closing price on the New York Stock Exchange on such date.
Common Stock outstanding as of February 27, 1998 - 65,479,220 shares
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate certain information by reference from the
registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1997. With the exception of the sections of the Annual Report specifically
incorporated by reference herein, the Annual Report is not deemed filed as part
of this Report on Form 10-K.
Part III incorporates certain information by reference from the
registrant's definitive proxy statement for the annual meeting of stockholders
to be held on April 21, 1998, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1997.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Business....................................................1
Item 2. Properties.................................................13
Item 3. Legal Proceedings..........................................14
Item 4. Submission of Matters to a Vote of Security Holders........14
Item I-A. Executive Officers of Allergan, Inc........................15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................18
Item 6. Selected Financial Data....................................18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................18
Item 8. Financial Statements and Supplementary Data................18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................18
PART III
Item 10. Directors and Executive Officers of Allergan, Inc..........19
Item 11. Executive Compensation ....................................19
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................19
Item 13. Certain Relationships and Related Transactions.............19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................20
SIGNATURES ...........................................................21
INDEX OF EXHIBITS ........................................................23
SCHEDULE ..........................................................S-1
EXHIBITS .......................(Attached to this Report on Form 10-K)
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Allergan, Inc. ("Allergan" or the "Company") is a leading provider of
eye care and specialty pharmaceutical products throughout the world with
products in the eye care pharmaceutical, ophthalmic surgical device,
over-the-counter contact lens care, movement disorder, and dermatological
markets. Its worldwide consolidated revenues are principally generated by
prescription and non-prescription pharmaceutical products in the areas of
ophthalmology and skin care, intraocular lenses and other ophthalmic surgical
products, and contact lens care products.
Allergan was incorporated in California in 1948 and reincorporated in
Delaware in 1977. In 1980, the Company was acquired by SmithKline Beckman
Corporation (then known as "SmithKline Corporation" and herein "SmithKline").
The Company operated as a wholly-owned subsidiary of SmithKline from 1980 until
1989 when Allergan again became a stand-alone public company through a spin-off
distribution by SmithKline.
In November 1992, the Company sold its contact lens business in North
and South America. In August 1993, the Company sold its contact lens business
outside of the Americas.
During 1994, the Company acquired the Ioptex Research worldwide
intraocular lens product line and Lorsen SA, a manufacturer of skin care
products in Argentina. During 1995, the Company completed four acquisitions. In
January 1995, the Company acquired Optical Micro Systems, Inc., a U.S.-based
developer and manufacturer of phacoemulsification surgical equipment. In June
1995, the Company acquired Laboratorios Frumtost, S.A., a manufacturer of
ophthalmic and other pharmaceutical products in Brazil. In August 1995, the
Company purchased the assets of Herald Pharmacal, Inc., a U.S.-based developer
and manufacturer of glycolic acid-based, aesthetic skin care products. In
November 1995, the Company purchased the worldwide contact lens care product
business of Pilkington Barnes Hind. Also in 1995, Allergan acquired 100%
ownership interest in Santen-Allergan, its Japanese contact lens care joint
venture.
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ALLERGAN BUSINESSES
The following table sets forth, for the periods indicated, the net sales
from continuing operations for each of the Company's specialty therapeutics
businesses and product lines:
YEAR ENDED DECEMBER 31
------------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
Specialty Pharmaceuticals:
Eye Care Pharmaceuticals $ 408.5 $ 425.1 $ 415.1
Skin Care 80.6 64.7 44.7
Botox(R)/Neuromuscular 90.1 67.2 48.9
-------- -------- --------
Total 579.2 557.0 508.7
Medical Devices and OTC Product Lines:
Ophthalmic Surgical 182.2 184.0 188.7
Optical Contact Lens Care 376.6 406.0 369.8
-------- -------- --------
Total 558.8 590.0 558.5
-------- -------- --------
Total Product Net Sales $1,138.0 $1,147.0 $1,067.2
======== ======== ========
Domestic 42.8% 41.4% 43.6%
International 57.2% 58.6% 56.4%
The foregoing table does not include sales of discontinued operations. See Note
12 of Notes to Consolidated Financial Statements on page 47 of the 1997 Annual
Report for further information concerning foreign and domestic operations.
SPECIALTY PHARMACEUTICAL BUSINESS
Eye Care Pharmaceutical Product Line
Allergan develops, manufactures and markets a broad range of
prescription and non-prescription products designed to treat diseases and
disorders of the eye, including glaucoma, inflammation, infection and allergy.
In addition, the specialty over-the-counter product line consists of products
designed to treat ocular surface disease, including artificial tears and ocular
decongestants.
The largest segment of the market for ophthalmic prescription drugs is
for the treatment of glaucoma, a sight-threatening disease characterized by
elevated intraocular pressure. Allergan's largest selling pharmaceutical product
is Alphagan(R) (brimonidine), which was approved in the United States in
September 1996 for the treatment of open-angle glaucoma and ocular hypertension;
the period of new chemical entity exclusivity for Alphagan(R) ophthalmic
solution extends for five years from the date of approval. In March 1997,
Alphagan(R) was also approved in the United Kingdom; in October 1997, the
Company received approval to market Alphagan(R) in 14 of the 15 member states of
the European Union through the mutual recognition filing process. Also, in March
1997, Alphagan(R) was approved in the United States for acute post-surgical
elevated pressure in the eye following argon laser trabeculoplasty. The Company
also markets Betagan(R) ophthalmic solution, a topical beta blocker used in the
initial treatment of glaucoma, and Propine(R) ophthalmic solution, which is used
alone or in combination with other drugs when initial drug therapy for glaucoma
becomes inadequate. Patent protection for both products expired in the United
States in 1991 and they both face generic competition from several companies
including Bausch & Lomb and Alcon Laboratories, Inc. (a division of Nestle). In
addition, the Company markets its own generic version of these two products.
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The Company also markets several leading ophthalmic products to treat
ocular inflammation and infection. Pred Forte(R) and FML(R) Liquifilm(R)
suspensions are leading products in the ocular corticosteroid inflammation
market. Allergan's Acular(R)1 ophthalmic solution is indicated for the relief of
itch associated with seasonal allergic conjunctivitis and for the treatment of
postoperative inflammation in patients who have undergone cataract extraction.
In November 1997, the Company received approval from the U.S. Food and Drug
Administration ("FDA") to market Acular(R) PF, the first unit-dose,
preservative-free topical nonsteroidal anti-inflammatory drug (NSAID) in the
United States, for the reduction of ocular pain and photophobia following
incisional refractive surgery. Allergan's major products in the anti-infective
market are Blephamide(R) suspension, a topical anti-inflammatory and
anti-infective, Polytrim(R) solution, a synthetic antimicrobial which treats
surface ocular bacterial infections, and Ocuflox(R)/Oflox(R)/Exocin(R) solution,
a fluroquinolone which treats bacterial conjunctivitis. In May 1996, the Company
received approval from the FDA to market Ocuflox(R) solution for the treatment
of corneal ulcers.
Skin Care Product Line
Building upon its strength in marketing to medical specialties and
taking advantage of synergies in research and development, Allergan's skin care
business develops, manufactures and markets therapeutic as well as cosmetic skin
care products, primarily in the United States and Argentina. During the fourth
quarter of 1996, the Company received approval from the German Ministry of
Health (Bfarm) to market Zorac(R) (tazarotene topical gel) 0.05% and 0.1% to
treat mild-to-moderate plaque psoriasis. Approval to market Zorac(R) in the
balance of the European Union through the mutual recognition filing process
began in April 1997; approval has been obtained in 12 of the 15 member
countries. In June 1997, the Company received approval from the FDA to market
Tazorac(R) (tazarotene topical gel) 0.05% and 0.1% (the trade name for Zorac(R)
topical gel in the United States and Canada) for the treatment of plaque
psoriasis and acne.
Azelex(R) (azelaic acid) cream for the topical treatment of mild to
moderate inflammatory acne vulgaris was launched in the U.S. in December 1995
and has been well received in the market. The therapeutic product line also
includes Elimite(R) cream for the treatment of scabies, Naftin(R), a topical
anti-fungal gel and cream and Gris-Peg(R) tablets, a systemic anti-fungal
product.
The Company also develops, manufactures and markets glycolic acid-based
skin care products as a result of its 1995 acquisition of the assets of Herald
Pharmacal, Inc.
Botox(R)/Neuromuscular
Allergan's Botox(R) (Botulinum Toxin Type A) purified neurotoxin complex
injection is used in the treatment of certain neuromuscular disorders which are
characterized by involuntary muscle contractions or spasms. Botox(R) purified
neurotoxin complex injection is marketed in the United States and a number of
other major countries for the treatment of blepharospasm (the uncontrollable
contraction of the eyelid muscles which can force the eye closed and result in
functional blindness) and strabismus (misalignment of the eyes) in people 12
years of age and over. In May 1994, Botox(R) was approved in the United Kingdom
for blepharospasm and hemifacial spasm. In March 1991, an application was filed
with the FDA for the treatment of a neck and shoulder movement disorder known as
cervical dystonia (spasmodic torticollis). In 1995, in response to a request
from the FDA, Allergan initiated
- -------------------
1 Acular(R), is a registered trademark of and is licensed from its developer
Syntex (U.S.A.) Inc.
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additional clinical trials in support of the cervical dystonia filing. Botox(R)
purified neurotoxin complex has been approved in Canada and several European
countries for the treatment of cervical dystonia and in Denmark and Ireland for
the treatment of juvenile cerebral palsy. In October 1996, Botox(R) was approved
in Japan for the treatment of blepharospasm.
MEDICAL DEVICES AND OTC PRODUCT LINES
- -------------------------------------
Ophthalmic Surgical Product Line
Allergan's ophthalmic surgical business develops, manufactures and
markets intraocular lenses ("IOLs"), surgically related pharmaceuticals,
phacoemulsification equipment and other ophthalmic surgical products.
The largest segment of the surgical market is for the treatment of
cataracts. Cataracts are a condition, usually age related, in which the natural
lens of the eye becomes progressively clouded. This clouding obstructs the
passage of light and can lead to blindness. Most patients blinded by cataracts
can be surgically cured by removing the clouded lens and replacing it with an
IOL. The Company currently offers a full line of AMO(R) products used in the
performance of cataract surgery, including rigid multi-piece, single-piece and
small incision design IOLs. In September 1994, Allergan acquired the worldwide
IOL business of Ioptex Research Inc., a division of Smith & Nephew, plc.
Sales of all models of the Company's IOLs represented 12%, 11% and 11%
of total Company sales in 1995, 1996 and 1997, respectively. Intraocular lenses
marketed by Allergan for small incision cataract surgery include the AMO(R)
PhacoflexII(R)SI-30NB(R) foldable small incision IOL, introduced in April 1993,
the AMO(R)SI-40NB(TM) foldable small incision IOL, introduced in 1995, the
AMO(R)PhacoflexII(R)SI-55NB(TM), introduced in 1997 and the AMO(R)DuraLens(R)
IOL, which was also introduced in 1995. Along with foldable IOLs, the Company
also markets a series of insertion systems for each of its foldable lens models,
referred to as The UnFolder(TM)AMO(R)PhacoflexII(R) implantation systems. The
systems assist the surgeon in achieving controlled release of the IOL in the
smallest incisions The AMO(R)Array(R) multifocal IOL was approved for marketing
in the United States in September 1997. It is also available in Brazil and
several European countries including Germany, France and Italy. The Company
believes that the AMO(R)Array(R) multifocal IOL will be viewed by ophthalmic
surgeons and cataract patients as a significant improvement in IOL design,
providing an improved patient outcome due to enhanced near vision.
Small incision IOLs continue to grow in popularity along with increasing
use of phacoemulsification, a method of cataract extraction that uses ultrasound
waves to break the natural lens into small fragments that can be removed through
a hollow needle. Phacoemulsification requires only a 3 to 4 millimeter incision,
compared to incisions of up to 12 millimeters for other techniques.
Phacoemulsification is currently utilized in more than 80 percent of cataract
procedures in the United States. In 1993 Allergan introduced the
AMO(R)Prestige(R) phacoemulsification machine. AMO(R)Prestige(R) makes
small-incision cataract surgery easier than other phacoemulsification machines
by using a sophisticated microprocessor that monitors vacuum and fluid in the
eye. In January 1995, Allergan acquired Optical Micro Systems, Inc. ("OMS"). OMS
develops and manufactures phacoemulsification equipment. This acquisition, along
with the acquisition of the Ioptex business in 1994, provided the Company with
additional IOL and phacoemulsification equipment product offerings and the
capability to manufacture phacoemulsification equipment. The AMO(R)Diplomax(R)
phacoemulsification machine, launched in the U.S. by the Company in November
1995, is the first OMS phaco-technology system introduced since the
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acquisition. Allergan also markets AMO(R)Vitrax(R), a viscoelastic used to
maintain the anterior chamber and protect endothelial cells during cataract
surgery.
Optical Contact Lens Care Product Line
The Company has been doing business in the contact lens care market
since 1960. On a worldwide basis, it develops, manufactures and markets a broad
range of products for use with every available type of contact lens. These
products include disinfecting solutions to destroy harmful microorganisms in and
on the surface of contact lenses; daily cleaners to remove undesirable film and
deposits from contact lenses; and enzymatic cleaners to remove protein deposits
from contact lenses. In the area of disinfecting products, the Company offers
products that can be used in each of the three disinfecting systems: hydrogen
peroxide systems, convenient chemical systems and thermal systems. Allergan's
leading hydrogen peroxide system products are the Oxysept 1Step(R)/UltraCare(R)
hydrogen peroxide neutralizer/disinfection system and the UltraCare(R) system
with a color indicator which turns the solution pink to indicate the
disinfectant tablet has dissolved. Both UltraCare(R) products are marketed in
many countries around the world under the brand name, Oxysept 1Step(R).
Complete(R) brand Multi-Purpose solution is the Company's convenient, one-bottle
chemical disinfection system for soft contact lenses. One-bottle systems,
including the Company's product, continue to gain popularity with consumers.
In November 1995, the Company acquired the worldwide contact lens care
business of Pilkington Barnes Hind. Included in the acquisition was the Consept
F(R) Cleaning and Disinfecting System, the first approved non-heat disinfection
system for soft contact lenses in Japan. This acquisition significantly
increased the Company's contact lens care product business in Japan.
Sales of the Company's hydrogen peroxide disinfection systems
represented 14%, 12% and 11% of total Company sales in 1995, 1996 and 1997,
respectively. It is difficult for the Company to predict what effect, if any,
the continued market acceptance of daily disposable contact lenses and the
increasing acceptance of the surgical correction of nearsightedness and other
forms of visual acuity impairment, especially in the United States, will have on
the Company's optical business. The Company believes that a continuation of
these trends could result in a material adverse impact on sales of the Company's
contact lens care products in the United States. In addition, in Europe, sales
of the Company's contact lens care products have been negatively impacted by the
market shift from traditional hydrogen peroxide disinfection systems to more
convenient and lower priced one-bottle disinfection systems and by new private
label competition.
EMPLOYEE RELATIONS
At December 31, 1997, the Company employed approximately 6,100 persons
throughout the world, including approximately 2,500 in the United States. None
of the Company's U.S.-based employees are represented by unions. The Company
considers that its relations with its employees are, in general, very good.
INTERNATIONAL OPERATIONS
The Company believes that international markets represent a significant
opportunity for continued growth. International sales have represented
approximately 56.4%, 58.6% and 57.2% of total sales for the years ended December
31, 1995, 1996 and 1997, respectively. Allergan believes that its
well-established international market presence provides it with a
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competitive advantage, enabling the Company to maximize the return on its
investment in research, product development and manufacturing.
Allergan established its first foreign subsidiary in 1964 and currently
sells products in approximately 100 countries. Marketing activities are
coordinated on a worldwide basis and resident management teams provide
leadership and infrastructure for customer focused rapid introduction of new
products in the local markets.
In Japan, the second largest eye care market in the world, certain of
Allergan's eye care pharmaceutical products have been licensed to Santen
Pharmaceuticals ("Santen"), the largest eye care pharmaceutical manufacturer in
Japan. Allergan also directly markets contact lens care products, IOLs and other
eye care surgical products, for which it has a leading market position.
Beginning in 1993, Allergan launched its Complete(R) brand contact lens
care products and a range of ophthalmic pharmaceutical products, including Poly
Pred(R), Pred Forte(R), Acular(R), FML(R), Propine(R) and Betagan(R) solutions,
in the People's Republic of China. In 1995, the Company received government
approval to do business through its wholly foreign owned entity, Allergan
Pharmaceutical (Hangzhou) Co. Ltd., and five additional products were launched.
The Company also began construction of its new manufacturing facility in
Hangzhou in October, 1995; the grand opening took place in March 1998. Also, in
June 1995, Allergan acquired Laboratorios Frumtost, S.A., a manufacturer of
ophthalmic and other pharmaceutical products in Brazil. In 1994, Allergan and
Nicholas Piramal India Limited formed Allergan India Private Ltd., a joint
venture to manufacture and market eye care products in India. Since 1994, 17
ophthalmic pharmaceutical products as well as Botox(R) purified neurotoxin
complex have been approved for sale in India.
SALES AND MARKETING
Allergan maintains global marketing and regional sales organizations.
Supplementing the sales efforts and promotional activities aimed at eye and skin
care professionals, as well as neurologists outside the U.S., who use, prescribe
and recommend its products, Allergan has been focusing increasingly on managed
care providers. In addition, Allergan advertises in professional journals and
has an extensive direct mail program of descriptive product literature and
scientific information to specialists in the ophthalmic, dermatological and
movement disorder fields. The Company's specialty therapeutic products are sold
to drug wholesalers, independent and chain drug stores, commercial optical
chains, mass merchandisers, food stores, hospitals, ambulatory surgery centers
and medical practitioners, including neurologists. At December 31, 1997, the
Company employed approximately 1,200 sales representatives throughout the world.
RESEARCH AND DEVELOPMENT
The Company's global research and development efforts focus on eye care,
skin care and neuromuscular products that are safe, effective, convenient and
have an economic benefit. The Company's own research and development activities
are supplemented by a commitment to identifying and obtaining new technologies
through in-licensing, technological collaborations, joint ventures and
acquisition efforts, including the establishment of research relationships with
academic institutions and individual researchers.
At December 31, 1997, there were, in the aggregate, approximately 800
people involved in the Company's research and development efforts. The Company's
research and development expenditures associated with continuing operations for
1995, 1996 and 1997
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were $116.7 million, $118.3 million and $131.2 million, respectively, excluding
amounts spent by the Company on behalf of Allergan Ligand Retinoid Therapeutics,
Inc. ("ALRT").
Research and development efforts for the ophthalmic pharmaceuticals
business focus primarily on new therapeutic products for glaucoma, inflammation,
dry eye, allergy and new anti-infective pharmaceuticals for eye care. The
Company is conducting research on new compounds that control intraocular
pressure by either reducing the inflow or production, or improving the outflow
of aqueous humor. The Company is also conducting research and clinical trials on
a class of compounds called hypotensive lipids. Unlike beta-blockers that
decrease the inflow or production of aqueous humor, hypotensive lipids reduce
intraocular pressure by improving its outflow. The Company is also developing
topical cyclosporine A for the treatment of severe dry eye.
Research and development activities for the surgical business
concentrate on improved cataract surgical systems, implantation instruments and
methods, and new IOL materials and designs, including the AMO(R)Array(R)
multifocal IOL, designed to allow patients to see well over a range of distances
and the AMO(R)SENSAR(TM), an acrylic foldable IOL. The Company received U.S.
marketing approval for the AMO(R)Array(R) multifocal IOL in September 1997 and
anticipates filing for U.S. marketing approval for the AMO(R)SENSAR(TM) acrylic
foldable IOL in 1998.
Research and development efforts for neuromuscular disorders focus on
expanding the uses for Botox(R) (Botulinum Toxin Type A) purified neurotoxin
complex to include treatment for cervical dystonia, juvenile cerebral palsy,
spasticity, migraine headache pain and back pain.
Research and development in the optical business is aimed at contact
lens care systems which are effective and more convenient for patients to use,
and thus lead to a higher rate of compliance with recommended lens care
procedures. Improved compliance can enhance safety and extend the time a patient
will be a contact lens wearer. The Company believes that continued development
and commercialization of disinfection systems that are both easy-to-use and
efficacious will be important for the future success of this part of the
Company's business.
From 1992 to 1994, the Company and Ligand Pharmaceuticals Incorporated
(Ligand) operated a joint venture for the purpose of performing certain research
and development activities. In December 1994, Allergan and Ligand formed a new
research and development company, Allergan Ligand Retinoid Therapeutics, Inc.
("ALRT") to function as the successor to the joint venture. In June 1995, Ligand
contributed $17.5 million to ALRT for a right to acquire all of the stock of
ALRT at specified future dates and amounts. At the same time, the Company
contributed $50.0 million to ALRT in exchange for rights to acquire one half of
all technologies and other assets, or a similar right to acquire all of the
stock of ALRT if Ligand did not exercise its right. The Company accounted for
its $50.0 million contribution as a charge to operating expense at the time of
the contribution. Allergan Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan
Ireland"), a wholly owned subsidiary of the Company, also purchased $6.0 million
of Ligand common stock at the time of its contribution to ALRT. As a result,
Allergan Ireland owns approximately 8.9% of the outstanding common stock of
Ligand.
In November 1997, pursuant to the exercise of its stock purchase option,
Ligand acquired all of the stock of ALRT in exchange for $71.4 million. At the
same time, pursuant to the exercise of its asset purchase option, Allergan
acquired one-half of all technologies, cash (of which Allergan's share was
approximately $5.5 million) and other assets of ALRT
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in exchange for $8.9 million. The initial agreements between Allergan and Ligand
provided for a joint research, development and commercialization arrangement
following such option exercises. In connection with the option exercises,
Allergan and Ligand amended their agreements so that, among other things, ALRT
compounds and development programs were divided between Allergan and Ligand, and
each party received exclusive rights to ALRT technology for use with their
respective compounds and programs, subject to certain royalty and milestone
payment obligations.
The Company performed contract research services for ALRT from 1995 to
1997. Revenues from such services represent a recovery of the research and
development costs incurred with an amount added to compensate the Company for
general corporate overhead costs.
In 1997 the Company formed a new subsidiary, Allergan Specialty
Therapeutics, Inc. ("ASTI"), to conduct research and development of potential
pharmaceutical products based on the Company's retinoid and neuroprotective
technologies. In November, the Company filed a registration statement with the
Securities and Exchange Commission on behalf of ASTI relating to a proposed
special distribution of ASTI Class A Common Stock to the Company's stockholders.
The distribution of the ASTI shares was completed on March 10, 1998 to
shareholders of record on February 17, 1998.
Prior to the distribution, the Company contributed $200 million to ASTI.
The market value of ASTI stock was approximately $29 million at the date of
distribution. The Company recorded a dividend for the amount of the market value
of ASTI stock at the distribution. The remainder of the $200 million was
recorded as a charge against operating income. The Company's stockholders
received one share of ASTI Class A Common Stock for each 20 shares of common
stock held as of the record date. Based on 65,453,805 shares of common stock
outstanding as of February 17, 1998, approximately 3,272,700 shares of ASTI
Class A Common Stock were issued in the distribution. The Company's shareholders
were not required to pay any cash or other consideration for the ASTI Class A
Common Stock received in the distribution. The distribution is taxable as a
dividend to each holder in the amount of the fair market value of ASTI Shares
distributed to such holder.
As the sole holder of ASTI's outstanding Class B Common Stock following
the Distribution, under the terms of ASTI's Restated Certificate of
Incorporation, the Company will have the option to repurchase all of the
outstanding ASTI Shares under specified conditions. Under the terms of a
technology license agreement and a license option agreement between the Company
and ASTI, the Company has also granted certain technology licenses and agreed to
make specified payments on sales of certain products in exchange for the payment
by ASTI of a technology fee and the option to independently develop certain
compounds funded by ASTI prior to the filing of an Investigational New Drug
application with the U.S. Food and Drug Administration with respect thereto and
to license any products and technology developed by ASTI. The Company will
recognize the technology fee as revenue as it is earned and received.
ASTI's technology and product research and development activities will
take place under a research and development agreement with the Company. The
Company will recognize revenues and related costs as services are performed
under such contracts. It is currently expected that substantially all of ASTI's
funds will be directed toward continuing the research and development of
products based on retinoid and neuroprotective technologies. In addition, ASTI
may fund the research and development of pharmaceutical products in therapeutic
categories of interest to the Company other than those based on
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retinoid and neuroprotective technologies, but that complement the Company's
product pipeline or otherwise are believed to provide a potential
commercialization opportunity for the Company.
In October 1996, the Company entered into an exclusive collaboration
agreement with SUGEN, Inc. to identify, develop and commercialize novel
pharmaceutical compounds utilizing SUGEN's proprietary small molecule signal
transduction inhibition technology for the treatment of ophthalmic neovascular
diseases, such as age-related macular degeneration and diabetic retinopathy. In
November 1996, the Company entered into a collaboration agreement with Cambridge
NeuroScience, Inc. ("CNSI") to develop new treatments for glaucoma and other
serious ophthalmic diseases. CNSI specializes in glutamate ion channel-blocker
and sodium channel technology. In September 1997, the Company entered into an
exclusive collaboration agreement with ACADIA Pharmaceuticals Inc. (formerly
Receptor Technologies) to identify receptor-selective compounds with respect to
certain targets, develop receptor arrays and probes specific for G-protein
coupled and other receptors and facilitate the establishment of drug discovery
programs.
The option agreement with Peptech (UK) Ltd. for the development and
commercialization of certain therapeutic products based on its GMDP (a synthetic
glucosaminyl muramyl dipeptide) compound for dermatology indications, such as
psoriasis, ophthalmology and oncology, expired unexercised in October 1997.
The continuing introduction of new products supplied by the Company's
research and development efforts and in-licensing opportunities is critical to
the success of the Company. There is no assurance that any of the research
projects or pending drug marketing approval applications will result in new
products that the Company can commercialize. Delays or failures in one or more
significant research projects and pending drug marketing approval applications
could have a material adverse impact on the future operations of the Company.
COMPETITION
Allergan faces strong competition in all of its markets worldwide.
Numerous companies are engaged in the development, manufacture and marketing of
health care products competitive with those manufactured by Allergan. Major eye
care competitors include Alcon Laboratories, Inc. (a subsidiary of Nestle),
Bausch & Lomb and its recently acquired businesses Chiron Vision and Storz
Ophthalmics, CIBA Vision Ophthalmics (a division of Novartis), Merck & Co., Inc.
and Pharmacia Ophthalmics (a subsidiary of Pharmacia & Upjohn). These
competitors have equivalent or, in most cases, greater resources than Allergan.
The Company's skin care business competes against a number of companies,
including, among others, Bristol-Myers Squibb, Schering-Plough Corporation,
Johnson & Johnson and Hoffman-La Roche Inc., which all have greater resources
than Allergan. In marketing its products to health care professionals, pharmacy
benefits management companies, health care maintenance organizations, and
various other national and regional health care providers and managed care
entities, the Company competes primarily on the basis of product technology,
value-added services and price. The Company believes that it competes favorably
in its product markets.
GOVERNMENT REGULATION
Drugs, biologics and medical devices, including intraocular lenses
(IOLs) and contact lens care products, are subject to regulation by the FDA,
state agencies and, in varying degrees, by foreign health agencies. Government
regulation of most of the Company's products generally requires extensive
testing of new products and filing
9
12
applications for approval by the FDA prior to sale in the United States and by
some foreign health agencies prior to sale as well. The FDA and foreign health
agencies review these applications and determine whether the product is safe and
effective. The process of developing data to support a premarket application and
governmental review is costly and takes many years to complete.
In general, manufacturers of drugs, medical devices and biologicals are
operating in an increasingly more rigorous regulatory environment than has been
the case in previous years. The total cost of providing health care services has
been and will continue to be subject to review by governmental agencies and
legislative bodies in the major world markets, including the United States,
which are faced with significant pressure to lower health care costs.
In 1996, Congress examined the regulatory burdens imposed on drug and
medical device manufacturers by the FDA in its product approval processes. In
1997, Congress enacted legislation intended to ameliorate those burdens. Among
other things, the Food and Drug Administration Modernization Act of 1997 ("FDA
Modernization Act") extends the Prescription Drug User Fee Act for another five
years; expands access to investigational drugs; authorizes FDA to approve a new
drug application on the basis of the results of one clinical trial, if the
results are sufficient to establish effectiveness; otherwise seeks to streamline
and facilitate the drug approval process; permits the dissemination of
scientific and medical information regarding a product's unapproved uses under
specific circumstances; and expands FDA inspectional authority over
non-prescription drugs. The FDA Modernization Act also seeks to improve the
regulation of medical devices. It is too soon to determine what if any effect
the FDA Modernization Act will have on Allergan.
Internationally, the regulation of drugs and medical devices is likewise
becoming increasingly complex. In Europe, the Company's products are subject to
extensive regulatory requirements. As in the United States, the marketing of
medicinal products has for many years been subject to the granting of marketing
authorizations by medicine agencies. Particular emphasis is also being placed on
more sophisticated and faster procedures for reporting of adverse events to the
competent authorities. Additionally, new rules are being introduced in several
areas such as the harmonization of clinical research laws and labeling and
patient package information, which are expected to assist companies such as
Allergan to bring products to market quickly once the first European approval is
received.
A new EU regulatory regime has been installed to cover medical devices.
This regulatory process is optional but will become mandatory in June 1998. It
requires that medical devices may only be placed on the market if they do not
compromise safety and health when properly installed, maintained and used in
accordance with their intended purpose. National laws conforming to this EU
legislation will regulate the Company's IOLs and contact lens care products
under the medical devices regulatory system rather than the more extensive
system for medicinal products under which they are currently regulated. The EU
regulatory system for cosmetics, which covers many of the Company's skin care
products, has been extended to include, among other aspects, formal maintenance
of a technical file, a safety assessment, data on undesirable effects, good
manufacturing practice and extended labeling requirements.
In the United States, a significant percentage of the patients who
receive the Company's IOLs are covered by the federal Medicare program. When a
cataract extraction with IOL implantation is performed in an ambulatory surgery
center ("ASC"), Medicare provides the ASC with a fixed facility fee which
includes a $150 allowance to cover the cost
10
13
of the IOL. When the procedure is performed in a hospital outpatient department,
the hospital's reimbursement is determined using a complex formula that blends
the hospital's costs with the $150 allowance paid to ASCs. In its effort to
reduce Medicare expenditures, Congress may lower the IOL allowance below $150.
The Medicare Technical Corrections Bill of 1994 directed the U.S. Health Care
Financing Administration ("HCFA") to establish a system through which the agency
would pay ASCs and hospitals a rate above $150 for "new technology IOLs." HCFA
has issued proposed rules which would implement this mandate. Allergan is
seeking "new technology" status for the AMO (R)Array (R) multifocal IOL.
The Company has orphan drug designations from the FDA for two indicated
uses for the marketed drug BOTOX (R) Purified Neurotoxin Complex: cervical
dystonia and juvenile cerebral palsy. Clinical trials are under way, and the
Company expects to seek supplemental approvals to market the drug for said uses.
If the Company gains approval for one or both uses before any other manufacturer
of the same designated drug, the Company will be entitled to seven years
exclusive marketing in the United States for those uses.
The Company cannot predict the likelihood or pace of any significant
legislative action in these areas, nor can it predict whether or in what form
health care legislation being formulated by various governments will be passed.
The Company also cannot predict exactly what effect such governmental measures
would have if they were ultimately enacted into law. However, in general, the
Company believes that such legislative activity will likely continue, and the
adoption of such measures can be expected to have some impact on the Company's
business.
PATENTS, TRADEMARKS AND LICENSES
Allergan owns, or is licensed under, numerous patents relating to its
products, product uses and manufacturing processes. It has numerous patents
issued in the United States and corresponding foreign patents issued in many of
the major countries in which it does business. Allergan believes that its
patents and licenses are important to its business, but that with the exception
of those relating to hydrogen peroxide disinfection systems, no one patent or
license is currently of material importance in relation to its overall sales.
Allergan markets its products under various trademarks and considers these
trademarks to be valuable because of their contribution to the market
identification of the various products.
11
14
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign
environmental laws and regulations. The Company believes that its operations
comply in all material respects with applicable environmental laws and
regulations in each country where the Company has a business presence. Although
Allergan continues to make capital expenditures for environmental protection, it
does not anticipate any significant expenditures in order to comply with such
laws and regulations which would have a material impact on the Company's capital
expenditures, earnings or competitive position. The Company is not aware of any
pending litigation or significant financial obligations arising from current or
past environmental practices that are likely to have a material adverse impact
on the Company's financial position. There can be no assurance, however, that
environmental problems relating to properties owned or operated by the Company
will not develop in the future, and the Company cannot predict whether any such
problems, if they were to develop, could require significant expenditures on the
part of the Company. In addition, the Company is unable to predict what
legislation or regulations may be adopted or enacted in the future with respect
to environmental protection and waste disposal.
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN AND ITS BUSINESSES
Certain disclosures made by the Company in this report and in other
reports and statements released by the Company are and will be forward-looking
in nature, such as comments which express the Company's opinions about trends
and factors which may impact future operating results. Disclosures which use
words such as the Company "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from expectations. Any such forward-looking statements,
whether made in this report or elsewhere, should be considered in context with
the various disclosures made by the Company about its businesses including the
factors discussed below.
- - The three largest parts of the Company's overall business in terms of
revenue -- eye care pharmaceuticals, ophthalmic surgical and contact lens
care -- have not experienced any significant overall revenue growth in the
past three years.
- - The pharmaceutical industry and other healthcare-related industries continue
to experience consolidation, resulting in larger, more diversified companies
with greater resources than the Company. Among other things, these larger
companies can spread their research and development costs over much broader
revenue bases than Allergan.
- - Two of the Company's largest ophthalmic pharmaceutical products, Betagan(R)
and Propine(R), are off patent in the U.S. and continue to face competition
from generic versions of these compounds as well as from recently introduced
new technology glaucoma products. Other significant products are also off
patent and may face similar generic competition.
- - The Company's Optical Contact Lens Care business continues to be impacted by
trends in the contact lens and lens care marketplace, including
technological and medical advances in surgical techniques for the correction
of vision impairment; the popularity of one-bottle chemical disinfection
systems among soft contact lens wearers instead of peroxide-based lens care
products which have historically been Allergan's strongest family of lens
care products; and the growing use and acceptance of daily
12
15
contact lenses which could have the effect of reducing demand for lens
care products generally.
- - Sales of the Company's surgical and pharmaceutical products have been and
are expected to continue to be impacted by continuing pricing pressures
resulting from various government initiatives as well as from the purchasing
and operational decisions made by managed care organizations. Failure of the
AMO(R)Array(R) multifocal IOL to be designated as an "advanced technology
IOL" by HCFA will adversely affect the Company's profit margin for the
product.
- - In the past two years, the Company has taken steps designed to improve its
gross profit margin, including continued emphasis on new products as well as
the closure of certain plants and other cost-cutting measures. Whether these
steps will succeed in improving gross profit margin depends in part on
whether sales of new products will result in a more favorable mix of
products, and on whether the anticipated cost savings can be achieved and
sustained.
- - The Company has allocated significant resources to the development and
introduction of new products. The regulatory approval and market acceptance
of the products cannot be assured.
- - There are intrinsic uncertainties associated with Research & Development
efforts and the regulatory process both of which are discussed in greater
details in the "Research and Development" and the "Government Regulation"
sections, respectively.
13
16
ITEM 2. PROPERTIES
Allergan's operations are conducted in owned and leased facilities
located throughout the world. Its primary administrative and research facilities
are located in Irvine, California. The following table describes the general
character of the major existing facilities as of March 1, 1998:
LOCATION PRIMARY FUNCTION INTEREST INTEREST
- -------- ------------------------- --------
Irvine, California Headquarters, research and development, Owned/Leased
manufacturing, administrative, warehousing
Costa Mesa, California Administrative Leased
Berkeley, California Administrative, manufacturing, warehousing Leased
Santa Ana, California Manufacturing, warehousing Owned
North Andover, Massachusetts Administrative, manufacturing Leased
Lenoir, North Carolina Administrative, manufacturing, warehousing Owned
Waco, Texas Manufacturing, warehousing Owned
Anasco, Puerto Rico Manufacturing, warehousing Leased
Hormigueros, Puerto Rico Manufacturing, warehousing Owned
Buenos Aires, Argentina Administrative, manufacturing, warehousing Owned
Sydney, Australia Administrative, warehousing Owned
Sao Paulo, Brazil Administrative, manufacturing, warehousing Owned/Leased
Guarulhos, Brazil Manufacturing, warehousing Owned
Markham, Canada Administrative, warehousing Leased
Hangzhou, China Manufacturing (when operational) Owned
Sophia Antipolis, France Administrative, warehousing Leased
Ettlingen, Germany Administrative, warehousing Owned
Hong Kong Administrative, warehousing Leased
Dublin, Ireland Administrative Leased
Westport, Ireland Administrative, manufacturing, warehousing Owned
Rome, Italy Administrative Owned
Osaka, Japan Administrative Leased
Tokyo, Japan Administrative, research and development Leased
Madrid, Spain Administrative, warehousing Owned
Johannesburg, South Africa Administrative, warehousing Leased
High Wycombe, U.K. Administrative, warehousing Leased
The Company believes its present facilities are adequate for its current
needs.
14
17
ITEM 3. LEGAL PROCEEDINGS
In October 1993, the Company disclosed to the U.S. Department of
Commerce Office of Export Enforcement (the "Commerce Department") that it had
been shipping its medicine, Botox(R) purified neurotoxin complex, under general
license authority to various foreign countries in the period since July 15,
1992, when the active ingredient in Botox(R), an attenuated form of botulinum
toxin, was reclassified to require validated export licensing. It is the
Company's position that the reclassification did not and could not apply to
medicines, such as Botox(R), that are exempt from validated export licensing by
statute and that have no potential application as biological warfare agents or
other undesired uses. After conducting a field investigation, in which the
Company cooperated, the Commerce Department advised the Company in the first
quarter of 1995 that it did not agree with the Company's position regarding the
export classification of Botox(R) and that it had referred the case to the
office of the U.S. Attorney in order to determine whether criminal charges might
be warranted. In August, 1995, the U.S. Attorney referred the matter back to the
Commerce Department, without levying any formal criminal charges, for its
evaluation of possible civil liability. In September, 1995, the Company was
advised by the Commerce Department that further field investigation would be
required. Such investigation occurred with the Company's cooperation.
It remained the Company's position that Botox(R) is a medical product
with no biological weapons potential and that it is, thus, exempt by statute and
regulation from export licensing control. Therefore, the Company believed, and
continues to believe, that as a matter of law and of fact it should not have
been charged with a violation and, if charged, that it would prevail on the
merits. The Company met with the Commerce Department in an effort to persuade
the Commerce Department that charges would be inappropriate. However, the
Commerce Department insisted that it would issue formal charges absent a
settlement.
Accordingly, to avoid exposure, attorneys' fees, and other expenses, the
Company settled the matter by entering into an agreement wherein the Company,
without admitting any liability, paid $824,000 as a civil penalty in full
resolution of all issues.
The Company and its subsidiaries are involved in various litigation and
claims arising in the normal course of business which Allergan considers to be
normal in view of the size and nature of its business.
Although the ultimate outcome of any pending litigation and claims
cannot be precisely ascertained at this time, Allergan believes that any
liability resulting from the aggregate amount of uninsured damages for
outstanding lawsuits, investigations and claims will not have a material adverse
effect on its consolidated financial position and results of operation. However,
in view of the unpredictable nature of such matters, no assurances can be given
in this regard.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the
fiscal year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
15
18
ITEM I-A. EXECUTIVE OFFICERS OF ALLERGAN, INC.
The executive officers of the Company and their ages as of March 1, 1998
are as follows:
David E.I. Pyott 44 President and Chief Executive Officer
F. Michael Ball 42 Corporate Vice President and
President, North America Region
Jeffrey B. D'Eliscu 47 Corporate Vice President,
Corporate Communications
Michael J. Donohoe 55 Corporate Vice President and
President, Europe/Africa/Middle East
Region
David A. Fellows 41 Corporate Vice President and
President, Asia Pacific Region
James H. Fuller 53 Corporate Vice President and
President, Latin America Region
Richard J. Hilles 55 Corporate Vice President,
Human Resources
Lester J. Kaplan, Ph.D. 47 Corporate Vice President,
Science and Technology
George M. Lasezkay, Pharm.D., J.D. 46 Vice President,
Corporate Development
Albert J. Moyer 54 Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Jacqueline Schiavo 49 Corporate Vice President,
Worldwide Operations
Francis R. Tunney, Jr., J.D. 50 Corporate Vice President,
General Counsel and Secretary
Dwight J. Yoder 52 Senior Vice President and Controller
(Principal Accounting Officer)
Officers are appointed by and hold office at the pleasure of the Board
of Directors.
Mr. Pyott became President and Chief Executive Officer in January 1998.
Previously, he was head of the Nutrition Division and a member of the executive
committee of Novartis AG during 1997 and had held a similar position at Sandoz
International AG, from 1995 to 1996, prior to the merger of Sandoz and Ciba to
form Norvartis. Also, while at Sandoz, Mr. Pyott was President and Chief
Executive Officer of Sandoz Nutrition Corp., Minneapolis, Minnesota (1992-1995),
General Manager of Sandoz
16
19
Nutrition, Barcelona, Spain (1990-1992) and held other positions within the
Sandoz Nutrition group from 1980.
Mr. Ball has been Corporate Vice President and President, North America
Region since April 1996. He joined the Company in 1995 as Senior Vice President,
U.S. Marketing after 12 years with Syntex Corporation, where he held a variety
of positions including President, Syntex Inc. Canada and Senior Vice President,
Syntex Laboratories. In November of 1995, Mr. Ball assumed management
responsibility for U.S. Eye Care Sales in addition to his responsibilities for
U.S. Eye Care Marketing.
Mr. D'Eliscu has been Corporate Vice President, Corporate Communications
since 1992 and was Vice President, Investor Relations and Public Communications
from 1991. Mr. D'Eliscu had been Senior Director, Investor Relations of the
Company from 1989 to 1991 and prior thereto, he had been Director of Business
Development from 1988 and Senior Product Manager from 1985. Mr. D'Eliscu first
joined the Company in 1979.
Mr. Donohoe has been Corporate Vice President and President,
Europe/Africa /Middle East Region since 1992. Prior thereto, he was Corporate
Vice President and President, Optical, Consumer/OTC Group from 1991. Mr. Donohoe
was Senior Vice President and General Manager, Contact Lenses from 1990 to 1991
and Area Vice President, Northern Europe from 1989 to 1990. Mr. Donohoe first
joined the Company in 1987.
Mr. Fellows has been Corporate Vice President of the Asia Pacific Region
since June, 1997 and prior thereto, was Senior Vice President, U.S. Eye Care
Marketing since June, 1996. From 1993 to 1996, he was Senior Vice President,
Therapeutics Strategic Marketing, and from 1991 until 1993, he was Vice
President, Pharmaceuticals Strategic Marketing. Mr. Fellows joined the Company
in 1980.
Mr. Fuller has been Corporate Vice President and President, Latin
America Region since May 1996, prior to which he had been Vice President of the
region from 1994, and Senior Vice President from February of 1996. From January
1992 to July 1994, he was Senior Vice President, Sales and Marketing. Mr. Fuller
first joined the Company in 1974.
Mr. Hilles has been Corporate Vice President, Human Resources since 1991
and prior thereto was Senior Vice President, Human Resources from 1986 to 1991.
Mr. Hilles first joined SmithKline Beckman Corporation, the Company's former
parent, in 1965.
Dr. Kaplan has been Corporate Vice President, Science and Technology
since July 1996 and had been Corporate Vice President, Research and Development
since 1992. He had been Senior Vice President, Pharmaceutical Research and
Development since 1991 and Senior Vice President, Research and Development since
1989. Dr. Kaplan first joined the Company in 1983. He is also a member of the
Board of Directors of ACADIA Pharmaceuticals Inc. and Allergan Specialty
Therapeutics, Inc.
Dr. Lasezkay has been Vice President, Corporate Development since July
1996. He had been Assistant General Counsel of the Company since 1995 and Senior
Counsel to the Company since 1989 when he first joined the Company.
Mr. Moyer joined the Company as Corporate Vice President and Chief
Financial Officer in July, 1995. From 1993 until 1995, he had been Senior Vice
President and Chief Financial Officer of Coldwell Banker Corporation. Through
Moyer and Associates, he offered management consulting services to a variety of
companies from 1990 to 1993.
17
20
Mr. Moyer served as Chief Financial Officer of Western Digital Corporation
(1986-1990) and has held various management positions since 1975 with companies
such as Westinghouse Electric Corporation, White Consolidated Industries, Inc.,
National Semiconductor Corporation and Enhansys, Inc.
Ms. Schiavo has been Corporate Vice President, Worldwide Operations
since 1992. She was Senior Vice President, Operations from 1991 and Vice
President, Operations from 1989. Ms. Schiavo first joined the Company in 1980.
Mr. Tunney has been Corporate Vice President, General Counsel and
Secretary of the Company since 1991 and prior thereto was Senior Vice President,
General Counsel and Secretary from 1989 through 1991. Mr. Tunney first joined
SmithKline Beckman Corporation, the Company's former parent, in 1979.
Mr. Yoder has been Senior Vice President and Controller of the Company
since July 1996, prior to which he had been Vice President and Controller since
joining the Company in 1990. He is also the Chief Financial Officer of Allergan
Specialty Therapeutics, Inc.
18
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Market Prices of Common Stock and Dividends" on
the inside back cover of the Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The table entitled "Selected Financial Data" on page 52 of the Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three Year Period Ended December 31,
1997" on pages 25-32 of the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, including the notes thereto, included on
pages 33-48 of the Annual Report, together with the sections entitled
"Independent Auditors' Report" and "Quarterly Results (Unaudited)" of the Annual
Report included on pages 50 and 51, respectively, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ALLERGAN, INC.
Information under this Item is included on pages 2-4 of the Proxy
Statement and such information is incorporated herein by reference. Information
with respect to executive officers is included on pages 15-17 of this Form 10-K.
The information required by Item 405 of Regulation S-K is included on
page 7 of the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation," and the subsection
entitled "Director Compensation" included in the Proxy Statement on pages 16-18
and page 6, respectively, are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The common stock information in the section entitled "Security
Ownership of Certain Beneficial Owners and Management" on pages 14-15 of the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "Other Matters" and "Compensation Committee
Interlocks and Insider Participation" on pages 6-7 and page 24, respectively,
of the Proxy Statement are incorporated herein by reference.
20
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements *
PAGE(S) IN
ANNUAL REPORT
1. Financial Statements included in Part II of this report:
Independent Auditors' Report .................................. 50
Consolidated Balance Sheets at December 31, 1997 and
December 31, 1996 ............................................. 33
Consolidated Statements of Earnings for Each of the Years
in the Three Year Period Ended December 31, 1997 .............. 34
Consolidated Statements of Stockholders' Equity for
Each of the Years in the Three Year Period
Ended December 31, 1997 ....................................... 35
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1997 .............. 36
Notes to Consolidated Financial Statements .................... 37-48
* Incorporated by reference from the indicated pages of the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1997 (and except
for the pages specifically incorporated by reference, the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1997, is not
deemed filed as part of this report).
2. Schedules Supporting the Consolidated Financial Statements:
PAGE IN
THIS REPORT
Schedule numbered in accordance with Rule 5-04 of Regulation S-X:
II Valuation of Qualifying Accounts........................... S-1
All other schedules have been omitted for the reason that the required
information is presented in financial statements or notes thereto, the
amounts involved are not significant or the schedules are not
applicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of 1997.
(c) Item 601 Exhibits
Reference is made to the Index of Exhibits beginning at page 23 of this
report.
(d) Other Financial Statements
There are no financial statements required to be filed by Regulation
S-X which
21
24
are excluded from the annual report to shareholders by Rule 14
a-3(b)(1).
22
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 6, 1998 ALLERGAN, INC.
By /s/ DAVID E.I. PYOTT
--------------------------------
David E.I. Pyott
President, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: March 6, 1998 By /s/ DAVID E.I. PYOTT
--------------------------------
David E.I. Pyott
President, Chief Executive
Officer
Date: March 6, 1998 By /s/ A. J. MOYER
--------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 6, 1998 By /s/ DWIGHT J. YODER
--------------------------------
Dwight J. Yoder
Senior Vice President and
Controller
(Principal Accounting Officer)
Date: March 6, 1998 By /s/ HERBERT W. BOYER, PH.D.
--------------------------------
Herbert W. Boyer, Ph.D.,
Chairman of the Board
Date: March 10, 1998 By /s/ TAMARA J. ERICKSON
--------------------------------
Tamara J. Erickson, Director
Date: March 9, 1998 By /s/ HANDEL E. EVANS
--------------------------------
Handel E. Evans, Director
Date: March 9, 1998 By /s/ WILLIAM R. GRANT
--------------------------------
William R. Grant, Director
23
26
Date: March 11, 1998 By /s/ HOWARD E. GREENE, JR.
--------------------------------
Howard E. Greene, Jr., Director
Date: March 9, 1998 By /s/ GAVIN S. HERBERT
--------------------------------
Gavin S. Herbert, Director and
Chairman Emeritus
Date: March 9, 1998 By /s/ LESTER J. KAPLAN, PH.D.
--------------------------------
Lester J. Kaplan, Ph.D.,
Director
Date: March 10, 1998 By /s/ LESLIE G. MCCRAW
--------------------------------
Leslie G. McCraw, Director
Date: March 10, 1998 By /s/ LOUIS T. ROSSO
--------------------------------
Louis T. Rosso, Director
Date: March 10, 1998 By /s/ LEONARD D. SCHAEFFER
--------------------------------
Leonard D. Schaeffer, Director
Date: March 11, 1998 By /s/ HENRY WENDT
--------------------------------
Henry Wendt, Director
24
27
INDEX OF EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
3.1 Restated Certificate of Incorporation of the Company as
filed with the State of Delaware on May 22, 1989
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1 No. 33-28855, filed
May 24, 1989)..............................................
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3 to the Company's Report on Form 10-Q for the
Quarter ended June 30, 1995)...............................
4.1 Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock as filed with the
State of Delaware on May 22, 1989 (incorporated by
reference to Exhibit 4.1 to Registration Statement on
Form S-1 No. 33-28855, filed May 24, 1989).................
10.1 Form of director and executive officer Indemnity
Agreement (incorporated by reference to Exhibit 10.4 to
the Company's Report on Form 10-K for the Fiscal Year
ended December 31, 1992)*..................................
10.2 Allergan, Inc. 1989 Nonemployee Director Stock Plan, as
amended and restated (incorporated by reference to
Exhibit 10.4 to the Company's Report on Form 10-Q for
the Quarter ended March 31, 1996)*.........................
10.3 Allergan, Inc. Deferred Directors' Fee Program
(incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-K for the Fiscal Year ended
December 31, 1991)*........................................
10.4 Allergan, Inc. 1989 Incentive Compensation Plan, as
amended and restated (incorporated by reference to
Exhibit A to the Company's Proxy Statement dated March
18, 1996, filed in definitive form on March 14, 1996)*.....
10.5 Restated Allergan, Inc. Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)............................................
10.6 First Amendment to Restated Allergan, Inc. Employee
Stock Ownership Plan (incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q for
the Quarter ended June 30, 1996)...........................
- --------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
25
28
10.7 Second Amendment to Restated Allergan, Inc. Employee
Stock Ownership Plan.......................................
26
29
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
10.8 Restated Allergan, Inc. Savings and Investment Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)............................................
10.9 First Amendment to the Allergan, Inc. Savings and
Investment Plan (incorporated by reference to Exhibit
10.4 to the Company's Report on Form 10-Q for the
Quarter ended June 30, 1996)...............................
10.10 Second Amendment to the Allergan, Inc. Savings and
Investment Plan............................................
10.11 Form of Allergan change in control severance agreement *...
10.12 $250,000,000 Credit Agreement dated as of December 22,
1993 and amended and restated as of May 10, 1996 among
the Company, as Borrower and Guarantor, the Eligible
Subsidiaries Referred to Therein, the Banks Listed
Therein, Morgan Guaranty Trust Company of New York, as
Agent and Bank of America National Trust and Savings
Association, as Co-Agent (the "Credit Agreement")
(incorporated by reference to Exhibit 10.7 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)............................................
10.13 Restated Allergan, Inc. Pension Plan (incorporated by
reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the Quarter ended March 31, 1996) *..........
10.14 First Amendment to the Allergan, Inc. Pension Plan *.......
10.15 Restated Allergan, Inc. Supplemental Retirement Income
Plan (incorporated by reference to Exhibit 10.5 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996) *.........................................
10.16 Restated Allergan, Inc. Supplemental Executive Benefit
Plan (incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-Q for the Quarter ended
March 31, 1996)*..........................................
10.17 Allergan, Inc. Management Bonus Plan*.....................
10.18 Distribution Agreement dated March 4, 1994 between
Allergan, Inc. and Merrill Lynch & Co. and J.P. Morgan
- --------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
27
30
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
Securities Inc. (incorporated by reference to Exhibit
10.14 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1993)......................
10.19 Allergan, Inc. Executive Deferred Compensation Plan
dated as of January 1, 1995 (incorporated by reference
to Exhibit 10.15 to the Company's Report on Form 10-K
for the fiscal year ended December 31, 1994)*.............
10.20 First Amendment to the Executive Deferred Compensation
Plan (incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the Quarter ended June
30, 1996)*................................................
10.21 Allergan, Inc. Stock Price Incentive Plan *................
10.22 Letter Agreement between Allergan, Inc. and William C.
Shepherd dated September 27, 1997 *........................
10.23 Technology License Agreement dated as of March 6, 1998
among Allergan, Inc. and certain of its affiliates and
Allergan Specialty Therapeutics, Inc. ("ASTI").............
10.24 Research and Development Agreement dated as of March 6,
1998 between Allergan, Inc. and ASTI.......................
10.25 License Option Agreement dated as of March 6, 1998
between Allergan, Inc. and ASTI............................
10.26 Distribution Agreement dated as of March 6, 1998 between
Allergan, Inc. and ASTI....................................
13 The Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 (with the exception
of the information incorporated by reference into Items
5, 6, 7, 8 and 14 of this report, the Annual Report to
Shareholders is not deemed to be filed as part of this
report)...................................................
21 List of Subsidiaries of the Company.......................
23 Report and consent of KPMG Peat Marwick, LLP to the
incorporation of their reports herein to Registration
Statements Nos. 33-29527, 33-29528, 33-44770, 33-48908,
33-66874, 333-09091, 333-04859, 333-25891, 33-55061 and
33-69746..................................................
27 Financial Data Schedule...................................
- --------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
28
31
SCHEDULE II
ALLERGAN, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN MILLIONS)
BALANCE AT BALANCE
BEGINNING AT END
OF YEAR ADDITIONS DEDUCTIONS OF YEAR
------- --------- ---------- -------
1997 $7.5 $1.8 (a) $2.5 (b) $6.8
---- ---- ---- ----
1996 $6.2 $4.1 (a) $2.8 (b) $7.5
---- ---- ---- ----
1995 $7.2 $1.7 (a) $2.7 (b) $6.2
---- ---- ---- ----
_________________
(a) Provision charged to earnings.
(b) Accounts written off.