1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
COMMISSION FILE NUMBER
0-23641
ALLERGAN SPECIALTY THERAPEUTICS, INC.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION
33-0779207
2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92612
TELEPHONE NUMBER 714/246-4500
Indicate by a 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) X yes no
--- ---
(2) X yes no
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of August 4, 2000, there were 3,272,690 shares of callable Class A common
stock outstanding, and 1,000 shares of Class B common stock outstanding.
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ALLERGAN SPECIALTY THERAPEUTICS, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
Page
------
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations 3
Condensed Balance Sheets 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-10
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN
SPECIALTY THERAPEUTICS, INC. AND ITS BUSINESSES 12-15
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
Signature 17
Exhibits
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PART I - FINANCIAL INFORMATION
Allergan Specialty Therapeutics, Inc.
(a development stage company)
Condensed Statements of Operations
(unaudited)
(In thousands, except share data)
Inception
Quarter Ended Six Months Ended (November 12,
June 30, June 30, 1997) to
-------------------------- -------------------------- June 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
Revenues $ 861 $ 2,342 $ 1,841 $ 4,492 $ 17,994
Costs and expenses:
Research and development 14,066 11,957 30,006 22,646 115,092
Technology fees 1,375 1,375 2,750 2,750 14,770
General and administrative 175 327 551 611 2,682
----------- ----------- ----------- ----------- -----------
Total costs and expenses 15,616 13,659 33,307 26,007 132,544
----------- ----------- ----------- ----------- -----------
Loss before income taxes (14,755) (11,317) (31,466) (21,515) (114,550)
Provision for taxes 344 874 796 1,475 7,326
----------- ----------- ----------- ----------- -----------
Net loss $ (15,099) $ (12,191) $ (32,262) $ (22,990) $ (121,876)
=========== =========== =========== =========== ===========
Basic and diluted loss per share $ (4.61) $ (3.72) $ (9.85) $ (7.02) $ (37.23)
=========== =========== =========== =========== ===========
Basic and diluted shares outstanding 3,273,690 3,273,690 3,273,690 3,273,690 3,273,690
See accompanying notes to condensed financial statements.
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Allergan Specialty Therapeutics, Inc.
(a development stage company)
Condensed Balance Sheets
(unaudited)
(In thousands, except share data)
June 30, December 31,
2000 1999
--------- ------------
ASSETS
Cash $ 94 $ 47
Investments 74,013 105,252
Prepaid technology fees 4,192 5,292
Other assets 739 1,431
--------- ---------
$ 79,038 $ 112,022
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Allergan, Inc. $ 4,781 $ 6,047
Accounts payable and accrued liabilities 1 --
--------- ---------
Total liabilities 4,782 6,047
Stockholders' equity:
Callable Class A Common stock, $.01 par value;
6,000,000 shares authorized, 3,272,690 issued
and outstanding 33 33
Class B Common stock, $1.00 par value; 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 196,753 196,753
Accumulated other comprehensive loss (655) (1,198)
Deficit accumulated during development stage (121,876) (89,614)
--------- ---------
Total stockholders' equity 74,256 105,975
--------- ---------
$ 79,038 $ 112,022
========= =========
See accompanying notes to condensed financial statements.
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Allergan Specialty Therapeutics, Inc.
(a development stage company)
Condensed Statements of Cash Flows
(unaudited)
(In thousands)
Inception
Six Months Ended (November 12,
June 30, 1997) to
-------------------- June 30,
2000 1999 2000
-------- -------- -------------
OPERATING ACTIVITIES:
Net loss $(32,262) $(22,990) $(121,876)
Noncash item included in net loss:
Deferred income tax 53 (335) (167)
Changes in operating assets and liabilities:
Other assets 267 301 (123)
Prepaid technology fees 1,100 (600) (4,192)
Payable to Allergan, Inc. (1,266) (371) 4,781
Accounts payable and accrued liabilities 1 3 1
-------- -------- ---------
Net cash used in operating activities (32,107) (23,992) (121,576)
INVESTING ACTIVITIES:
Purchases of investments (2,092) (4,373) (194,617)
Sales and maturities of investments 34,246 28,430 119,500
-------- -------- ---------
Net cash provided by/(used in)
investing activities 32,154 24,057 (75,117)
FINANCING ACTIVITIES:
Issuance of common stock -- -- 200,001
Offering costs -- -- (3,214)
-------- -------- ---------
Net cash provided by financing
activities -- -- 196,787
-------- -------- ---------
Net increase in cash 47 65 94
Cash - beginning of period 47 -- --
-------- -------- ---------
Cash - end of period $ 94 $ 65 $ 94
======== ======== =========
Supplemental disclosure of cash paid for taxes $ 471 $ 1,772 $ 7,551
======== ======== =========
See accompanying notes to condensed financial statements.
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Allergan Specialty Therapeutics, Inc.
Notes to Condensed Financial Statements
1. Basis of Presentation and Significant Accounting Policies
Allergan Specialty Therapeutics, Inc. ("ASTI" or "the Company") was
incorporated in Delaware on November 12, 1997 and commenced operations on
March 10, 1998. ASTI was formed for the purpose of conducting research and
development of potential human pharmaceutical products, and to commercialize
such products, most likely through licensing to Allergan, Inc. (Allergan).
The Company is subject to risks associated with development stage companies.
All of the Company's efforts to date have been limited to obtaining capital
and conducting research and development. The Company does not yet generate
any revenues from product sales or royalties. Research and development is
performed by Allergan and the costs incurred are reimbursed by ASTI.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial information contained
therein. These statements do not include all disclosures required by
generally accepted accounting principles. The results of operations for the
six month period ended June 30, 2000 and for the period from inception to
June 30, 2000 are not necessarily indicative of the results to be expected
for the year ending December 31, 2000.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Per share information
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," (EPS) requires calculations for "basic earnings per share" including
only actual weighted shares outstanding and "diluted earnings per share"
including the effect of any common equivalent shares or other items that are
dilutive. The Company has no common equivalent shares or other items that
are dilutive. The reconciliations of the numerators and denominators of the
basic and diluted loss per share computations for the six month periods
ended June 30, 2000 and 1999 and for the period from inception to June 30,
1999 are as follows:
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Allergan Specialty Therapeutics, Inc.
Notes to Condensed Financial Statements
1. Basis of Presentation and Significant Accounting Policies (Continued)
Inception
Quarter Ended Six Months Ended (November 12,
June 30, June 30, 1997) to
------------------------- ------------------------- June 30,
2000 1999 2000 1999 2000
--------- --------- --------- --------- ------------
Loss during period
(in thousands) $ (15,099) $ (12,191) $ (32,262) $ (22,990) $(121,876)
Basic and diluted shares
outstanding 3,273,690 3,273,690 3,273,690 3,273,690 3,273,690
Per share loss during period $ (4.61) $ (3.72) $ (9.85) $ (7.02) $ (37.23)
2. Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income," established standards for
reporting comprehensive income and its components. Other comprehensive
income (loss) for the quarters and six months ended June 30, 2000 and 1999
were comprised of unrealized gains (losses) on investments. Other
comprehensive income (loss) for the quarters and six month periods ended
June 30, 2000 and 1999 and for the period from inception to June 30, 2000
are as follows:
Quarter Ended June 30,
-------------------------------------------------------------------------------------
(in thousands) 2000 1999
---------------------------------------- -------------------------------------
Tax Tax
Before-tax (expense) Net-of-tax Before-tax (expense) Net-of-tax
amount or benefit amount amount or benefit amount
---------- ---------- ---------- ---------- ---------- ----------
Unrealized holding gain (loss)
arising during period $735 $(299) $ 436 $(764) $303 $ (461)
==== ===== ===== ====
Net loss (15,099) (12,191)
-------- --------
Total comprehensive loss $(14,663) $(12,652)
======== ========
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Allergan Specialty Therapeutics, Inc.
Notes to Condensed Financial Statements
2. Comprehensive Income (Loss) (Continued)
Six Months Ended June 30,
---------------------------------------------------------------------------------------
(in thousands) 2000 1999
---------------------------------------- ---------------------------------------
Tax Tax
Before-tax (expense) Net-of-tax Before-tax (expense) Net-of-tax
amount or benefit amount amount or benefit amount
---------- ---------- ---------- ---------- ---------- ----------
Unrealized holding gain
(loss) arising during period $915 $(372) $ 543 $(1,723) $720 $ (1,003)
==== ===== ======= ====
Net loss (32,262) (22,990)
--------- --------
Total comprehensive loss $(31,719) $(23,993)
======== ========
(in thousands) Inception to June 30, 2000
------------------------------------------------
Before-tax Tax (expense) Net of
amount or benefit tax amount
---------- ------------- ----------
Unrealized holding loss
arising during period $(1,104) $449 $ (655)
======= ====
Net loss (121,876)
---------
Total comprehensive loss $(122,531)
=========
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ALLERGAN SPECIALTY THERAPEUTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2000
This Quarterly Report on Form 10-Q may contain certain projections, estimates
and other forward-looking statements that involve a number of risks and
uncertainties. While this outlook represents management's current judgment on
the future direction of the business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
The Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.
The following should be read in conjunction with the section entitled "--Risks
and Uncertainties" included in the Company's annual report on Form 10-K for the
year ended December 31, 1999 and the Company's Financial Statements and notes
thereto in Item 1 above.
RESULTS OF OPERATIONS
Net interest and investment income earned on investments were $861,000 and
$1,942,000 for the quarters ended June 30, 2000 and 1999, respectively, and
$1,841,000 and $4,092,000 for the six month periods ended June 30, 2000 and
1999, respectively. ASTI earned investment income of $17,094,000 for the period
from inception through June 30, 2000. Interest and investment income were earned
subsequent to March 10, 1998, the date Allergan contributed $200 million to
ASTI. In the future, as ASTI's funds are used pursuant to the R&D Agreement and
to pay the Technology Fee pursuant to the Technology Agreement, lower cash
balances will be available for investment and therefore interest and investment
income is expected to decrease.
Research and development expenses were $14,066,000 and $11,957,000 for the
quarters ended June 30, 2000 and 1999, respectively, and $30,006,000 and
$22,646,000 for the six month periods ended June 30, 2000 and 1999,
respectively. Research and development expenses were $115,092,000 for the period
from inception through June 30, 2000. ASTI has paid technology fees of $825,000
and $1,675,000 to Allergan during the quarters ended June 30, 2000 and 1999,
respectively, and $1,650,000 and $3,350,000 for the six month periods ended June
30, 2000 and 1999, respectively. ASTI has paid technology fees of $18,962,000
for the period from inception to June 30, 2000.
Provision for taxes were $344,000 and $874,000 for the quarters ended June 30,
2000 and 1999, respectively and $796,000 and $1,475,000 for the six month
periods ended June 30, 2000 and 1999, respectively. Provision for taxes for the
period from inception through June 30, 2000 was $7,326,000. ASTI expects to have
taxable income as a result of the requirement to capitalize technology fees and
its election to capitalize research and development expenses for tax purposes.
The results of operations of ASTI are expected to reflect primarily interest and
investment income on the funds contributed by Allergan, and research and
development expenses related to development of ASTI Products and the Technology
Fee. ASTI's net loss for the quarters ended June 30, 2000 and 1999 were
$15,099,000 or $4.61 per share and $12,191,000 or $3.72 per share, respectively.
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Allergan Specialty Therapeutics, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2000 (Continued)
RESULTS OF OPERATIONS (Continued)
For the six month periods ended June 30, 2000 and 1999, ASTI's net losses were
$32,262,000 or $9.85 per share and $22,990,000 or $7.02 per share, respectively.
ASTI's net loss for the period from inception through June 30, 2000 was
$121,876,000 or $37.23 per share. ASTI is expected to continue to record
significant net losses in future periods, as expenses under its agreements with
Allergan are expected to continue to exceed investment income.
LIQUIDITY AND CAPITAL RESOURCES
On March 9, 1998, Allergan contributed $200 million in cash to ASTI in exchange
for all of the issued and outstanding shares of callable Class A Common Stock of
ASTI. On March 10, 1998, Allergan distributed the Class A shares to holders of
Allergan common stock and ASTI commenced operations. The funds contributed by
Allergan, plus investment income earned thereon, will be used primarily to fund
the research and development of ASTI Products and to conduct related activities.
Funds not immediately required for research and development activities will be
invested in investment grade securities.
At June 30, 2000, ASTI had $74,013,000 in investments. The Company invests its
excess cash in money market funds, equity securities and debt instruments of
financial institutions and corporations with strong credit ratings. The Company
has established guidelines with respect to diversification and maturities in
order to maintain safety and liquidity of its investment portfolio.
Additionally, ASTI classifies all investments as available-for-sale securities
with net unrealized holding gains or losses as a component of other
comprehensive income. ASTI liquidates investments to pay for operating expenses
as needed.
At the time of its formation, ASTI was projected to spend its funds over a
five-year period. The Board of Directors of ASTI recently approved a research
and development plan for the year ending December 31, 2000 which, if executed in
its entirety, would represent an acceleration in spending on ASTI's research and
development programs. This potential accelerated spending is the result of the
acceptance by ASTI of more research and development projects as well as more
rapid research and development of compounds than anticipated at the time of
ASTI's formation. ASTI anticipates the acceleration of spending could result in
the use of substantially all of the funds available for research and development
remaining in ASTI in the first half of 2001. Pursuant to ASTI's Restated
Certificate of Incorporation and Allergan's rights as the sole holder of all of
the ASTI Class B Common Stock, Allergan has certain rights (but no obligation)
to purchase all of the ASTI Class A Common Stock. Allergan's purchase rights,
which expire if not exercised by the 90th day after the date on which Allergan
receives notice that the amount of cash and marketable securities held by ASTI
is less than $15 million, are summarized in ASTI's Prospectus dated March 6,
1998.
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ALLERGAN SPECIALTY THERAPEUTICS, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASTI does not use derivative financial instruments in its non-trading investment
portfolio. The Company's primary investment objective is preservation of capital
in order to fund research and development of potential pharmaceutical products
incurred pursuant to the Company's agreement with Allergan, Inc. As such, the
Company invests its excess cash in investment grade securities consisting of
money market funds, equity securities and debt instruments. Interest and
investment income earned on the Company's investment portfolio is most sensitive
to fluctuations in the general level of U.S. interest rates. The Company
mitigates interest rate risk by a program of diversification so that exposure to
risks relating to a single security or investment manager is minimal. Further,
the Company invests in money market funds and debt instruments with varying
maturity dates to correspond to anticipated research and development expenses.
These securities typically bear minimal credit risk and ASTI has not experienced
any losses on its investments to date due to credit risk.
The Company's investments in equity securities, which are subject to price risk,
are generally invested in companies that have a history of paying dividends. The
Company addresses price risk by a program of diversification so that exposure to
risks relating to a single security is minimal.
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ALLERGAN SPECIALTY THERAPEUTICS, INC.
CERTAIN FACTORS AND TRENDS AFFECTING ASTI AND ITS BUSINESSES
The Company believes that certain statements made by the Company in this report
and in other reports and statements released by the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, 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 that
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 in its
press releases and publicly filed reports such as the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, which disclosures are
incorporated herein by this reference. In addition to those risks identified
elsewhere in this report on Form 10-Q and those risks described in the Company's
press releases and publicly filed reports, the Company's business and results of
operations are subject to other risks, including the following risk factors:
o ASTI commenced operations in 1998 and is subject to the risks inherent in
the establishment of a new business enterprise in the biotechnology
industry. ASTI will incur substantial losses for several years due to the
long-term nature of the research and development of pharmaceutical products
through clinical testing and the regulatory process, which losses may never
be recovered.
o There can be no assurance that the ASTI Board of Directors will continue the
funding of the research and development of all of the current ASTI Products
or Pre-Selection Work, or that any ASTI Products can be successfully
researched, developed and/or commercialized within the anticipated cost
estimates or time frames, if at all. Certain of the ASTI Products are at
critical stages of research and development, and technical and clinical
outcomes are impossible to predict. Because of the long-range nature of any
pharmaceutical product research and development plan, research and
development of a particular product or project could accelerate, slow down
or be discontinued, and other unforeseen events could occur, all of which
would significantly affect the timing and amount of ASTI's expenditures on a
particular product, or in total. As a result, estimates of costs and timing
of research and development programs and for the use of Available Funds may
not be accurate.
o All ASTI Products, Developed Technology Products and Pre-Selection Products
will require FDA clearance before such products may be lawfully marketed in
the United States. Applications for FDA clearance must be based on costly
and extensive clinical trials designed to demonstrate safety and efficacy.
Clearance to market such products will also be required from corresponding
regulatory authorities in foreign countries before such products may be
marketed in those countries. There can be no assurance that the necessary
regulatory clearances and approvals will be obtained in a timely fashion or,
if obtained, that such clearances and approvals will not be revoked or
withdrawn.
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Allergan Specialty Therapeutics, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ASTI AND ITS BUSINESSES (Continued)
o Allergan has contributed $200 million in cash to ASTI. Allergan has no
obligation to contribute additional funds to ASTI, and, to the best of
ASTI's knowledge, has no present intention to do so. For the foreseeable
future, ASTI's only ongoing source of revenue will be investment income and
certain milestone payments. There can be no assurance that ASTI will have
sufficient funds to complete the research and development of any or all of
the ASTI Products.
o Allergan is not obligated to exercise the License Option for any ASTI
Product or to exercise the Purchase Option, and Allergan will exercise any
such option only if it is in Allergan's best interest to do so. The timing
of the exercise of the Purchase Option is within Allergan's sole discretion.
The timing of the exercise of the License Option with respect to any
Licensed Product is also within Allergan's sole discretion and thereafter
research, development and funding of any such product will be controlled by
Allergan.
o ASTI Products, Developed Technology Products and Pre-Selection Products are
likely to face competition from other therapies for the same indications.
Competitors potentially include any of the world's pharmaceutical and
biotechnology companies. A number of companies have developed and are
developing competing technologies and products.
o Patent protection generally has been important in the pharmaceutical
industry. Therefore, ASTI's financial success may depend in part upon
Allergan obtaining patent protection for the technologies incorporated in
ASTI Products. Allergan will determine which patent applications to pursue,
and the expense of obtaining and maintaining patents covering Developed
Technology will be paid by ASTI during the term of the Research and
Development Agreement.
However, there can be no assurance that patents will be issued covering any
products, or that any existing patents or patents issued in the future will
be of commercial benefit. In addition, it is impossible to anticipate the
breadth or degree of protection that any such patents will afford, and there
can be no assurance that any such patents will not be successfully
challenged in the future. If Allergan is unsuccessful in obtaining or
preserving patent protection, or if any products rely on unpatented
proprietary technology, there can be no assurance that others will not
commercialize products substantially identical to such products.
Patents have been issued to third parties covering various therapeutic
agents, products and technologies. There can be no assurance that any ASTI
Products, Developed Technology Products or Pre-Selection Products will not
infringe patents held by third parties. In such event, licenses from such
third parties would be required, or their patents would have to be designed
around. There can be no assurance that such licenses would be available or
that they would be available on commercially attractive terms, or that any
necessary redesign could be successfully completed.
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Allergan Specialty Therapeutics, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ASTI AND ITS BUSINESSES (Continued)
Allergan licenses certain intellectual property from third parties which it
will sublicense to ASTI pursuant to the Technology License Agreement. Under
the terms of certain of its license agreements, Allergan may be obligated to
exercise diligence and make certain royalty and milestone payments as well
as incur costs related to filing and prosecuting the underlying patents.
Each agreement is terminable by either party upon notice if the other party
defaults in its obligations. Should Allergan default under any of its
agreements, Allergan and therefore ASTI may lose their rights to market and
sell products based upon such licensed technology. In addition, there can be
no assurance that Allergan's licensors will meet their obligations to
Allergan pursuant to such licenses. In such event, ASTI's results of
operations and business prospects would be materially and adversely
affected.
o Because Allergan may develop and/or market products (including Developed
Technology Products and Pre-Selection Products) for its own account,
independent of ASTI, that compete directly with ASTI Products, Allergan and
ASTI may have conflicting interests with respect to certain products and/or
certain markets. In addition, ASTI Products, Developed Technology Products
and Pre-Selection Products may compete with one another. Allergan Technology
excludes, and ASTI will have no rights with respect to, any topical
formulation of Tazarotene. Allergan is currently marketing a topical
formulation of Tazarotene for the treatment of psoriasis and acne in the
United States and Canada under the brand name "Tazorac" and outside of the
United States and Canada under the brand name "Zorac."
o The terms of the Allergan/ASTI Agreements and ASTI's Restated Certificate of
Incorporation were not determined on an arm's-length basis and certain terms
may limit ASTI's activities and its market value. ASTI's Restated
Certificate of Incorporation prohibits ASTI from taking or permitting any
action that might impair Allergan's rights under the Purchase Option. Prior
to the expiration of the Purchase Option, ASTI may not, without the consent
of the holders of ASTI Class B Common Stock, merge or liquidate, or sell,
lease, exchange, transfer or dispose of any substantial assets, or amend its
Restated Certificate of Incorporation to alter the Purchase Option, ASTI's
authorized capitalization, or the provisions of the Restated Certificate of
Incorporation governing ASTI's Board of Directors. Because Allergan owns all
of the outstanding Class B Common Stock, Allergan is able to influence
significantly or control the outcome of any of the foregoing actions
requiring approval by the Class B stockholders of ASTI. The ability of
Allergan to significantly influence or control such matters, together with
the provisions of ASTI's Restated Certificate of Incorporation eliminating
the right of the ASTI stockholders to call special meetings of stockholders,
could affect the liquidity of the ASTI Shares and have an adverse effect on
the price of the ASTI Shares, and may have the effect of delaying or
preventing a change in control of ASTI, including transactions in which
stockholders might otherwise receive a premium for their shares over the
current market price. Neither the terms of the ASTI/Allergan Agreements nor
ASTI's Restated
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Allergan Specialty Therapeutics, Inc.
CERTAIN FACTORS AND TRENDS AFFECTING ASTI AND ITS BUSINESSES (Continued)
Certificate of Incorporation prohibit Allergan from transferring its ASTI
Class B Common Stock. The special rights accorded to the holder or holders
of the ASTI Class B Common Stock will expire upon expiration of the Purchase
Option.
So long as the Purchase Option is exercisable, the market value of the ASTI
Shares will be limited by the Purchase Option exercise price. The Purchase
Option exercise price was not determined on an arm's-length basis. The
Purchase Option exercise price was determined by Allergan, giving
consideration to the structure of the Distribution, ASTI's planned business,
the Allergan/ASTI Agreements, advice given by Merrill Lynch, Pierce, Fenner
& Smith Incorporated, and such other factors as Allergan deemed appropriate.
The existence of the Purchase Option and Allergan's rights as holder of the
ASTI Class B Common Stock may inhibit ASTI's ability to raise capital.
Additional capital raised by ASTI, if any, would most likely reduce the per
share proceeds available to holders of ASTI Shares if the Purchase Option
were exercised. The existence of the Purchase Option and Allergan's rights
as the holder of the ASTI Class B Common Stock may inhibit a change of
control and may make an investment in ASTI Shares less attractive to certain
potential stockholders, which could adversely affect the liquidity and
market value of ASTI Shares.
If Allergan exercises its License Option for any ASTI Product, Allergan will
have the right to commercialize the product with third parties on such terms
as Allergan deems appropriate. In such event, payments from Allergan to ASTI
with respect to the ASTI Products will be based solely on sublicensing
revenues received from such third parties.
o Each of the current executive officers of ASTI is employed by or retained as
a consultant to Allergan and receives compensation solely from Allergan,
which may further contribute to Allergan's ability to influence
significantly or control the outcome of actions taken by ASTI.
o ASTI has granted Allergan the License Option, which is exercisable on a
product-by-product and country-by-country basis. During the term of the
License Option for each ASTI Product, ASTI will not be able to license such
ASTI Product to any party other than Allergan. Furthermore, ASTI may perform
research with respect to product candidates which become ASTI Products only
if recommended by Allergan and accepted by ASTI. In particular, Allergan
performs Pre-Selection Work with respect to various product candidates. If
such product candidates do not become ASTI Products, ASTI will have no
rights with respect thereto except the right to receive limited royalties
from Allergan on commercial sales of such products, if any.
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Allergan Specialty Therapeutics, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the registrant was held on April 28,
2000. At such meeting, five directors, constituting the entire Board of
Directors, were re-elected to serve on the Board of Directors until the next
annual meeting of stockholders. The names of the persons elected as directors
are:
William C. Shepherd
Lester J. Kaplan, Ph.D.
Alan J. Lewis, Ph.D.
Gary L. Neil, Ph.D.
Marvin E. Rosenthale, Ph.D.
The only other matter considered by the stockholders at the annual meeting
was ratification of the selection of KPMG LLP as independent auditors of the
registrant for the fiscal year ended December 31, 2000.
The holders of the Class B Common Stock, voting as a class, were entitled
to elect one director, and the holders of the Class A Common Stock, voting as a
class, were entitled to elect four directors. The holders of both Class A and
Class B Common Stock voted together as a single class on all other matters.
In the election of directors, Lester J. Kaplan, Ph.D. received 1,000 votes
of the Class B Common Stock, representing 100% of the issued and outstanding
shares of such class. The holders of the Class A Common Stock voted as follows:
Broker
Election of Directors For Withheld Non-Votes
- --------------------- --- -------- ---------
William C. Shepherd 2,721,175 3,437 0
Alan J. Lewis, Ph.D. 2,720,137 4,475 0
Gary L. Neil, Ph.D. 2,721,285 3,327 0
Marvin E. Rosenthale, Ph.D. 2,720,112 4,500 0
With respect to the ratification of KPMG LLP as independent auditors for
the year ending December 31, 2000, the Class A and Class B shares voted together
as a single class, as follows:
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
2,723,456 668 1,488 0
Item 6. Exhibits and Reports on Form 8-K
- Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
27.1 -- Financial Data Schedule
- Reports on Form 8-K. None.
16
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SIGNATURE
Pursuant to the requirements 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: August 11, 2000 ALLERGAN SPECIALTY THERAPEUTICS, INC.
/s/ James M. Hindman
-------------------------------------
James M. Hindman
Chief Financial Officer
and Duly Authorized Officer
17
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27.1 Financial Data Schedule