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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, 1996
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) 752-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class 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 $1,900,000,000 on March 7, 1997, based upon
the closing price on the New York Stock Exchange on such date.
Common Stock outstanding as of March 7, 1997 - 65,549,936 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, 1996. 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 22, 1997, which proxy statement will be filed no later than
120 days after the close of the registrant's fiscal year ended December 31,
1996.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 14
Item I-A. Executive Officers of Allergan, Inc. . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 17
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 17
PART III
Item 10. Directors and Executive Officers of Allergan, Inc. . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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
specialty therapeutic eye care products throughout the world with niche
pharmaceutical products in skin care and movement disorders. 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.
On March 5, 1997, the Company announced that it expected, at that
time, that earnings for the first half of 1997 would be lower than those
reported for the first half of 1996, possibly as much as 20% below the
comparable 1996 period, excluding the impact of the special charges in the
second quarter of 1996. It attributed the expected decline in operating
results primarily to launch expenses for new products and the continuing
competitive pressures on the eye care business, as well as the impact of
foreign currency fluctuations. At the same time, the Company announced the
resumption of its stock repurchase plan approved by the Board of Directors in
1993. The existing Board approval permits repurchase of up to 2.9 million
shares. Further repurchases would require the approval of the Board.
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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
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1996 1995 1994
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(IN MILLIONS)
Eye Care
Pharmaceuticals $ 425.1 $ 415.1 $390.7
Surgical 184.0 188.7 144.3
Optical Lens Care 406.0 369.8 339.4
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Total Eye Care 1,015.1 973.6 874.4
Skin Care 64.7 44.7 37.3
Botox(R) 67.2 48.9 35.5
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Total Net Sales $1,147.0 $1,067.2 $947.2
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Domestic 41.4% 43.6% 47.3%
International 58.6% 56.4% 52.7%
The foregoing table does not include sales of discontinued operations. See
Note 12 of Notes to Consolidated Financial Statements on page 43 of the 1996
Annual Report for further information concerning foreign and domestic
operations.
Ophthalmic Pharmaceuticals Business
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 Betagan(R) ophthalmic solution, a topical beta blocker used in the
initial treatment of glaucoma. Allergan also markets and sells 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. In 1993, Allergan
entered into an agreement with Schein Pharmaceutical, Inc. ("Schein") whereby
Schein markets generic versions of Allergan's Betagan(R) and Propine(R)
products in the United States. Both Betagan(R) and Propine(R) currently face
generic competition from several companies including Bausch & Lomb and Alcon
Laboratories, Inc. (a division of Nestle). In September 1996, Alphagan(R)
(brimonidine) was approved in the United States for the treatment of open-angle
glaucoma and ocular hypertension; the period of new chemical entity exclusivity
for Alphagan(R) extends for five years from the date of approval. In March
1997, Alphagan(R) was also approved in the United Kingdom; the Company will
seek approval to market Alphagan(R) in the balance of the European community
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 several leading ophthalmic products to treat
ocular inflammation and infection. Pred Fort(R) and FML(R) Liquifilm(R)
suspensions are leading products in the ocular corticosteroid inflammation
market. Allergan's Acular(R)(1) ophthalmic
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(1) Acular , a registered trademark, is licensed from its developer Syntex
(U.S.A.) Inc.
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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. An application for U.S. marketing
approval for Acular(R) solution for corneal pain was filed with the U.S. Food
and Drug Administration ("FDA") in December 1996. 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 the United States, a marketing approval application for
Ocuflox(R) solution for the treatment of corneal ulcers was approved by the FDA
in May 1996.
Ophthalmic Surgical Business
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 10%, 12% and 11%
of total Company sales in 1994, 1995 and 1996, respectively. Intraocular
lenses marketed by Allergan for small incision cataract surgery include the
AMO(R)Phacoflex(R) small incision IOL, introduced in 1989, the AMO(R)
PhacoflexII(R)SI-30NB(R) foldable small incision IOL, introduced in April 1993,
the AMO(R)SI-40NB(R) foldable small incision IOL, introduced in 1995, and the
AMO(R)DuraLens(R) IOL, which was also introduced in 1995. The AMO(R)Array(R)
multifocal IOL is available in Brazil and several European countries including
Germany, France and Italy. An application for U.S. marketing approval was
filed with the FDA in August 1996. 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.
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(TM) phacoemulsification machine, launched in the U.S. by the
Company in November 1995, is the first OMS phaco-technology system introduced
since the acquisition. Allergan also markets AMO(R)Vitrax(R), a viscoelastic
used to maintain the anterior chamber and protect endothelial cells during
cataract surgery.
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Optical Business
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 proprietary enzymatic cleaners represented 10%,
9% and 6% of total Company sales in 1994, 1995 and 1996, respectively, and
sales of the Company's hydrogen peroxide disinfection systems represented 14%,
14% and 12% of total Company sales in 1994, 1995 and 1996, 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. However, the Company believes that an acceleration of these trends
could result in a material adverse impact on sales of the Company's contact
lens care products in the United States.
Skin Care Business
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. 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.
During the fourth quarter of 1996, the Company received approval from
the German Ministry of Health (Bfarm) to market Zora(R) (tazarotene) 0.05% and
0.1% topical gels to treat mild-to-moderate plaque psoriasis. The Company has
received an approvable letter for TazoracTM (the trade name for Zorac(R) in the
United States) for the treatment of plaque psoriasis and acne and is currently
in final labeling discussions with the FDA.
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.
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Botox(R)/Movement Disorder Business
Allergan's Botox(R) (Botulinum Toxin Type A) purified neurotoxin
complex injection is used in the treatment of certain movement 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 approval of a non-ophthalmic claim for
the treatment of a neck and shoulder movement disorder known as cervical
dystonia (spasmodic torticollis) affecting 160,000 people in the U.S. In March
1995, in response to a request from the FDA, Allergan initiated 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. Sales of Botox(R) have grown at the
rate of over 37% per year for the last two fiscal years.
EMPLOYEE RELATIONS
At December 31, 1996, 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 52.7%, 56.4% and 58.6% of total sales for the years
ended December 31, 1994, 1995 and 1996, respectively. Allergan believes that
its well-established international market presence provides it with a
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.
In 1993 and 1994, Allergan launched its Complet(R) brand contact lens
care products and two ophthalmic pharmaceutical products, 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. 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, 13 ophthalmic
pharmaceutical products and Botox(R) purified neurotoxin complex have been
approved for sale in India.
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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 utilizing its resources
increasingly with 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, 1996, the Company employed approximately 1,100 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, 1996, there were, in the aggregate, approximately 700
people involved in the Company's research and development efforts. The
Company's research and development expenditures associated with continuing
operations for 1994, 1995 and 1996 were $111.5 million, $116.7 million and
$118.3 million, respectively, excluding amounts spent by 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 prostaglandins. Unlike
beta-blockers and alpha2 agonists that decrease the inflow or production of
aqueous humor, prostaglandins 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)Clariflex(TM), an acrylic foldable IOL. The Company
filed for U.S. marketing approval for the the AMO(R)Array(R) multifocal IOL in
August 1996 and anticipates filing for U.S. marketing approval for the
AMO(R)Clariflex(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 and pain.
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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.
During 1992, the Company entered into a joint venture ("Joint
Venture") with Ligand Pharmaceuticals Incorporated ("Ligand") to combine
Ligand's knowledge of intracellular receptor technology with the Company's
experience in receptor-selective retinoids for topical use. In December 1994,
the Company and Ligand announced the formation of a new research and
development company, ALRT, to devote $100 million to accelerate the activities
of the Joint Venture related to the discovery and development of drugs based on
receptor selective retinoids. In May 1995, Allergan and Ligand funded ALRT, in
part, through a rights offering (the "Offering") of $32.5 million of ALRT Units
(consisting of one share of ALRT common stock and two warrants to purchase one
share each of Ligand common stock) to their respective shareholders. In June
1995, upon completion of the Offering, Allergan and Ligand contributed all
Joint Venture technology and assets to ALRT and made cash payments to ARLT of
$50 million and $17.5 million, respectively. Allergan accounted for its
contribution as a one-time charge to operating expense at the time of the
contribution. In connection with the Offering, the Joint Venture was dissolved
and Allergan Pharmaceuticals (Ireland) Ltd., Inc. ("Allergan Ireland"), a
wholly owned subsidiary of the Company, acquired an additional $6 million of
Ligand common stock. As a result, Allergan Ireland owns approximately 11% of
the outstanding common stock of Ligand.
Ligand, or if not exercised by Ligand then Allergan, has the option to
purchase all of the common stock of ALRT during a specified period in the
future. If Ligand exercises its option, Allergan has the right to acquire an
undivided one-half interest in ALRT technology and 50 percent of all other ALRT
assets. Additionally, after the earlier of a specified date or approval for
commercial sale, Ligand and Allergan have the option to acquire 9-cis retinoic
acid (known as ALRT 1057 or Panretin(TM)(2), one of the compounds under
development by ALRT, prior to the exercise of the option to acquire ALRT stock.
ALRT, Ligand and Allergan have entered into a commercialization agreement which
provides for the marketing, manufacture and sale by Ligand and/or Allergan of
the retinoid products developed by ALRT. In May 1995, the Company and Ligand
initiated a Phase IIb clinical trial program for oral PanretinTM (ALRT 1057) in
non-Hodgkin's lymphoma and, in combination with alpha interferon, in renal cell
carcinoma. Additional Phase IIb trials of oral PanretinTM (ALRT 1057) are
under way in other cancer indications and HIV related disorders. ALRT is also
conducting Phase III studies for topical PanretinTM (ALRT 1057) in Kaposi's
sarcoma.
In September 1995, the Company entered into an 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. 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.
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(2) Panretin(TM) is a trademark of Allergan Ligand Retinoid Therapeutics, Inc.
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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, although
these companies do not necessarily compete in all of Allergan's product lines.
Major eye care competitors include Alcon Laboratories, Inc. (a subsidiary of
Nestle), Bausch & Lomb, Chiron Vision (a subsidiary of Chiron Corporation),
CIBA Vision Ophthalmics (a division of Novartis), Merck & Co., Inc., Pharmacia
Ophthalmics (a subsidiary of Pharmacia & Upjohn) and Storz Ophthalmics (a
division of American Home Products Corporation). 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, 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 applications for approval by the FDA prior
to sale in the United States and by many foreign health agencies prior to sale
in many international markets. 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. Prices for some of the Company's products, specifically IOLs and
pharmaceutical products, accounting for approximately 48% of the Company's 1996
worldwide sales, are expected to come under increased pressure as governments
and managed care providers generally increase their efforts to contain health
care costs.
Several legislative and administrative measures to strengthen
government regulation of medical devices and drugs have recently been
implemented in the United
8
11
States, such as the Safe Medical Devices Act of 1990, which among other things,
increased reporting requirements of adverse events associated with medical
devices, and the Prescription Drug User Fee Act of 1992, which requires payment
of substantial fees to the FDA for the review of new drug applications. The
United States Congress is expected to consider mandating the application of
user fees to medical device applications as well. In the United States, the
impact of increased FDA scrutiny is felt by all companies in the pharmaceutical
and medical device industries.
Moreover, 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 bring products to market quickly once the first
European approval is received.
A new EU regulatory regime covers medical devices. This is currently
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 complex 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. The Company is working to ensure
that its operations remain in compliance with the regulatory requirements of
the FDA, its foreign counterparts, and other governmental agencies.
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 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 "advanced technology IOLs." Allergan intends
to seek "advanced technology" status for the AMO(R)Array(R) multifocal IOL.
The cost of prescription drugs is likely to receive some continuing
attention in the United States Congress. Legislation enacted in 1990, and
amended and strengthened in 1992, requires pharmaceutical manufacturers to
rebate to the government a portion of their revenues from drugs furnished to
Medicaid patients. In 1992, legislation was enacted that extends these
requirements to covered outpatient pharmaceuticals, and also mandates a
reduction in pharmaceutical prices charged to certain federally-funded
facilities as well as to certain hospitals serving a disproportionate share of
low-income patients. It is likely that some Congressional attention will
continue to focus on the costs of drugs generally, and particularly on
increases in drug prices in excess of the rate of inflation. A provision of
the
9
12
Omnibus Budget Reconciliation Act of 1993 limits tax benefits currently
realized by U.S. manufacturers as a result of the manufacture of certain
products in Puerto Rico, beginning in 1994. A provision of the Small Business
Job Protection Act of 1996 further limited these benefits by mandating the
elimination of all such tax benefits after the year 2005.
The Company has orphan drug designations from the FDA for two proposed
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. In Europe, to
date, there have been no special provisions relating to orphan drugs. However,
the European Commission is initiating action to foster research and providing
companies incentives for development in this area. On December 20, 1995, the
Council of Ministers adopted a Resolution calling on the European Commission to
look into the question of orphan drug policy, and a draft proposal for a
Council Regulation has now been proposed for comments. Although the draft is
not final, it is presently proposed that the criteria for designation of orphan
drug status will exclude a medicinal product that has already obtained orphan
drug benefits in the United States or in Japan.
In 1996, Congress examined the regulatory burdens imposed on drug and
medical device manufacturers by the FDA in its product approval processes. The
new Congress may consider legislation intended to ameliorate such problems.
Congress may also consider less sweeping health care reform legislation. In
Europe, on both a European Union level and at the local national level,
governments have implemented legislation directed at, among other things, cost
containment in the form of reference pricing (i.e., setting a fixed level of
reimbursement by drug category), removing various categories of drugs from
reimbursement programs and encouraging generic prescribing. Research is being
undertaken by the European Commission concerning the use of generic medicines
in the EU and may lead to new initiatives to harmonize legislation and
professional rules across the Community. In the meantime, national initiatives
aimed at encouraging generic prescription are increasing markedly the number of
prescriptions written generically in some Member States.
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 adverse 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 now 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.
10
13
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.
o The overall rate of revenue growth in several of the Company's major
product lines has moderated in recent years.
o The pharmaceutical industry and other healthcare-related industries
continue to experience consolidation, resulting in larger, more diversified
companies with greater resources than the Company.
o 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.
o The Company's Optical 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 disposable contact lenses which could
have the effect of reducing demand for lens care products generally.
o 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.
11
14
o In the Company's pharmaceuticals business, the Company has increased the
use of sales and promotional incentives to promote the sale of Allergan
pharmaceutical products to drug wholesalers. The practices can result in
fluctuations in buying patterns and the potential for unanticipated levels
of product returns and unanticipated reductions in order levels based on
prevailing inventory levels in the marketplace.
o The current sources of supply for the key ingredient of the Company's
Botox(R) product are limited, and the manufacturing process for the
production of future supplies of such ingredient is unusually challenging.
It is possible that sales of Botox(R) products could in the future be
constrained by these conditions.
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, 1997:
LOCATION PRIMARY FUNCTION INTEREST INTEREST
- -------- ------------------------- --------
Irvine, California Headquarters, research and development, Owned/Leased
manufacturing, administrative
Costa Mesa, California Administrative Leased
Phoenix, Arizona(3) Manufacturing, warehousing Leased
Berkeley, California Administrative, manufacturing, warehousing Leased
Irwindale, California(4) 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
Colonial Heights, Virginia(5) Administrative, 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
Guarulhos, Brazil Manufacturing, warehousing Owned
Markham, Canada Administrative, warehousing Leased
Hangzhou, China Manufacturing (when operational) Owned
Sophia Antipolis, France Administrative, warehousing Leased
- -------------------------
(3) Lease scheduled to end during 1997.
(4) Lease scheduled to end during 1997.
(5) Property is being sold, subject to a lease-back of a portion of the
property.
12
15
LOCATION PRIMARY FUNCTION INTEREST INTEREST
- -------- ------------------------- --------
Ettlingen, Germany Administrative, warehousing Owned
Hong Kong Administrative, warehousing Leased
Dublin, Ireland Administrative Leased
Westport, Ireland Administrative, manufacturing, warehousing Owned
Pomezia, Italy Administrative, manufacturing, Owned
research and development, warehousing
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.
ITEM 3. LEGAL PROCEEDINGS
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.
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.
The Company does not believe the imposition of a civil penalty is warranted.
Although the ultimate outcome of any pending litigation and claims, as
well as the current government investigation discussed above, 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. However, in view of the unpredictable
nature of such matters, no assurances can be given in this regard.
13
16
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.
ITEM I-A. EXECUTIVE OFFICERS OF ALLERGAN, INC.
The executive officers of the Company and their ages as of March 1,
1997 are as follows:
William C. Shepherd 58 Chairman of the Board,
President and Chief Executive Officer
F. Michael Ball 41 Corporate Vice President and
President, North America Region
Edward H. Danse 44 Corporate Vice President and
President, Asia Pacific Region
Michael J. Donohoe 54 Corporate Vice President and
President, Europe/Middle East/Africa Region
James H. Fuller 52 Corporate Vice President and
President, Latin America Region
Richard J. Hilles 54 Corporate Vice President,
Human Resources
Lester J. Kaplan, Ph.D. 46 Corporate Vice President,
Science and Technology
George M. Lasezkay, Pharm.D., J.D. 45 Vice President,
Corporate Development
Albert J. Moyer 53 Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Jacqueline J. Schiavo 48 Corporate Vice President,
Worldwide Operations
Francis R. Tunney, Jr., J.D. 49 Corporate Vice President,
General Counsel and Secretary
Dwight J. Yoder 51 Senior Vice President and Controller
(Principal Accounting Officer)
Officers are appointed by and hold office at the pleasure of the Board
of Directors.
Mr. Shepherd has been Chairman of the Board since January 1, 1996 and
President and Chief Executive Officer of the Company since 1992 and prior
thereto had been President and Chief Operating Officer from 1984 to 1991. Mr.
Shepherd first joined the Company in 1966.
14
17
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. Danse has been Corporate Vice President, and President, Asia
Pacific Region since July 1996, prior to which he had been Corporate Vice
President, and President, North East Asia Region since April of 1996. Mr.
Danse joined Allergan in 1988 as business development director, Americas, and
subsequently served briefly as director, Latin America. In early 1990, he was
named Vice President and Managing Director, Japan. In late 1993, Mr. Danse was
appointed Senior Vice President, North East Asia.
Mr. Donohoe has been Corporate Vice President and President,
Europe/Middle East/Africa 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. 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 SmithKline Beckman Corporation, the Company's former
parent, 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.
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. 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.
15
18
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 Ligand Retinoid Therapeutics, Inc.
16
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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 48 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,
1996" on pages 25-30 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 25-44 of the Annual Report, together with the sections entitled
"Independent Auditors' Report" and "Quarterly Results (Unaudited)" of the Annual
Report included on pages 46 and 47, respectively, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
20
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 14-16 of
this Form 10-K.
The information required by Item 405 of Regulation S-K is included on
page6 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 14-18
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 12-13 of the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" on pages 22-23 of the
Proxy Statement is incorporated herein by reference.
18
21
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 . . . . . . . . . . . . . . . . . . . . 46
Consolidated Balance Sheets at December 31, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Earnings for Each of the Years
in the Three Year Period Ended December 31, 1996 . . . . . . . . . . 32
Consolidated Statements of Cash Flows for Each of the Years
in the Three Year Period Ended December 31, 1996 . . . . . . . . . . 33
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 34-44
* Incorporated by reference from the indicated pages of the Company's Annual
Report to Shareholders for the fiscal year ended December 31, 1996 (and
except for the pages specifically incorporated by reference, the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1996, is
not deemed filed as part of this report).
2. Schedules Supporting the Consolidated Financial Statements:
PAGE IN
THIS REPORT
-----------
Independent Auditors' Report . . . . . . . . . . . . . . 25
Schedule numbered in accordance with Rule 5-04 of
Regulation S-X:
VIII Allowance for Doubtful 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 1996.
(c) Item 601 Exhibits
Reference is made to the Index of Exhibits beginning at page 22 of
this report.
(d) Other Financial Statements
There are no financial statements required to be filed by Regulation
S-X which are excluded from the annual report to shareholders by Rule
14a-3(b)(1).
19
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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 25, 1997 ALLERGAN, INC.
By /s/ WILLIAM C. SHEPHERD
---------------------------------
William C. Shepherd
President, Chief Executive Officer
and Chairman of the Board
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 25, 1997 By /s/ WILLIAM C. SHEPHERD
---------------------------------
William C. Shepherd
President, Chief Executive Officer
and Chairman of the Board
Date: March 25, 1997 By /s/ A. J. MOYER
---------------------------------
A. J. Moyer
Corporate Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 25, 1997 By /s/ DWIGHT J. YODER
----------------------------------
Dwight J. Yoder
Senior VicePresident and
Controller
(Principal Accounting Officer)
Date: March 21, 1997 By /s/ HERBERT W.BOYER
----------------------------------
Herbert W. Boyer, Ph.D., Director
Date: March 20, 1997 By /s/ TAMARA J. ERICKSON
----------------------------------
Tamara J. Erickson, Director
Date: March 25, 1997 By /s/ HANDEL E. EVANS
----------------------------------
Handel E. Evans, Director
Date: March 25, 1997 By /s/ WILLIAM R. GRANT
----------------------------------
William R. Grant, Director
20
23
Date: March 25, 1997 By /s/ HOWARD E. GREENE, JR.
----------------------------------
Howard E. Greene, Jr., Director
Date: March 25, 1997 By /s/ GAVIN S. HERBERT
----------------------------------
Gavin S. Herbert, Director and
Chairman Emeritus
Date: March 25, 1997 By /s/ DR. LESTER J. KAPLAN
----------------------------------
Lester J. Kaplan, Ph. D., Director
Date: March 25, 1997 By /s/ LESLIE G. MCCRAW
----------------------------------
Leslie G. McCraw, Director
Date: March 25, 1997 By /s/ LOUIS T. ROSSO
----------------------------------
Louis T. Rosso, Director
Date: March 25, 1997 By /s/ LEONARD D. SCHAEFFER
----------------------------------
Leonard D. Schaeffer, Director
Date: March 21, 1997 By /s/ HENRY WENDT
----------------------------------
Henry Wendt, Director
21
24
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) . . . . . .
4.2 Rights Agreement, dated as of May 18, 1989, between Allergan, Inc. and First Chicago
Trust Company of New York (as successor Rights Agent to Morgan Shareholder Services
Trust Company) (incorporated by reference to Exhibit 4.2 to Registration Statement on
Form S-1 No. 33-28855, filed May 24, 1989) . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Amendment to Rights Agreement, dated as of September 28, 1993 between Allergan, Inc. and
First Chicago Trust Company of New York (as successor Rights Agent to Morgan Shareholder
Services Trust Company) (incorporated by reference to Exhibit 4 to Form 8-K, filed
March 3, 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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)* . . . . . . . .
- -----------------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
22
25
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----------
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.7 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) . .
10.8 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.9 Form of Allergan change in control severance (incorporated by reference to Exhibit 10.1
to the Company's Report on Form 10-Q for the Quarter ended June 30, 1996)*. . . . . . . . .
10.10 $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) . . . . . . . . . . . . . . . . .
10.11 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)* . . . . . . . . . . .
- ---------------------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
23
26
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- -----------
10.12 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)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.13 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)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.14 Allergan, Inc. Management Bonus Plan* . . . . . . . . . . . . . . . . . . . . . . . . .
10.15 Distribution Agreement dated March 4, 1994 between Allergan, Inc. and Merrill Lynch &
Co. and J.P. Morgan 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) . . .
10.16 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)*. . . . . . . . . . . . . . . . . . . . . .
10.17 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)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Statement re Computation of Earnings Per Share . . . . . . . . . . . . . . . . . . . . .
13 The Company's Annual Report to Shareholders for the fiscal year ended December 31, 1996
(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 Consent of KPMG Peat Marwick, LLP to the incorporation of their reports herein to
Registration Statements Nos. 33-29528, 33-29527, 33-44770, 33-48908, 33-66874,
333-09091 and 333-04859 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
24
27
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Allergan, Inc.:
Under date of January 28, 1997, we reported on the consolidated
balance sheets of Allergan, Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 Annual Report to Stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the Annual Report on Form 10-K for the year 1996. In connection with our audit
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule in the Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, this schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Costa Mesa, California
January 28, 1997
25
28
SCHEDULE VIII
ALLERGAN, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN MILLIONS)
BALANCE AT BALANCE
BEGINNING AT END
OF YEAR ADDITIONS DEDUCTIONS OF YEAR
------- --------- ---------- -------
1996 $6.2 $4.1 (a) $2.8 (b) $7.5
==== ==== ==== ====
1995 $7.2 $1.7 (a) $2.7 (b) $6.2
==== ==== ==== ====
1994 $5.8 $3.5 (a) $2.1 (b) $7.2
==== ==== ==== ====
- -----------------------
(a) Provision charged to earnings.
(b) Accounts written off.
S-1