Allergan Reports Fourth Quarter 2008 Operating Results and Announces Restructuring

  • Board of Directors Declares Fourth Quarter Dividend

IRVINE, Calif.--(BUSINESS WIRE)--Feb 4, 2009 - Allergan, Inc. (NYSE: AGN) today announced operating results for the quarter ended December 31, 2008. Allergan also announced that its Board of Directors has declared a fourth quarter dividend of $0.05 per share, payable on March 13, 2009 to stockholders of record on February 20, 2009.

Operating Results

For the quarter ended December 31, 2008:

  • Allergan reported $0.50 diluted earnings per share from continuing operations compared to $0.52 diluted earnings per share reported for the fourth quarter of 2007.
  • Allergan's adjusted diluted earnings per share from continuing operations were $0.76 in the fourth quarter of 2008, compared to adjusted diluted earnings per share of $0.60 in the fourth quarter of 2007, a 26.7 percent year-over-year increase.

Product Sales

For the quarter ended December 31, 2008:

  • Allergan's total product net sales were $1,041.0 million. Total product net sales decreased 3.2 percent as compared to total product net sales in the fourth quarter of 2007. On a constant currency basis, total product net sales increased 1.6 percent compared to total product net sales in the fourth quarter of 2007.
    • Total specialty pharmaceuticals net sales decreased 1.4 percent as compared to total specialty pharmaceuticals net sales in the fourth quarter of 2007. On a constant currency basis, total specialty pharmaceuticals net sales increased 3.3 percent compared to total specialty pharmaceuticals net sales in the fourth quarter of 2007.
    • Core medical devices net sales decreased 9.6 percent, or 4.8 percent at constant currency, compared to core medical devices net sales in the fourth quarter of 2007.

“Allergan continued to demonstrate an ability to apply discipline and execution in our core specialty businesses despite the challenging economic environment observed in the fourth quarter of 2008,” said David E.I. Pyott, Allergan's Chairman of the Board and Chief Executive Officer. “Our goal is to continue to focus on enhancing efficiencies and strengthening our position within our core specialty markets throughout 2009, as we look forward to the anticipated approvals and launches of new growth drivers from our rich R&D pipeline, including the recently approved LATISSE™ for enhanced eyelash prominence.”

Based on internal information and assumptions, full year 2008 therapeutic sales accounted for approximately 50% of total BOTOX® (botulinum toxin type A) sales and grew at a rate of approximately 8% compared to 2007. Full year 2008 cosmetic sales accounted for approximately 50% of total BOTOX® sales and grew at a rate of approximately 8% compared to 2007.

Restructuring

In order to concentrate Allergan's resources during this recessionary period on customer-facing activities and on building the strength of its R&D pipeline, while continuing to deliver on its earnings goals, Allergan conducted a worldwide review of its operations to improve efficiency. Furthermore, Allergan will focus its spending on programs and businesses that produce the highest returns. Consequently, Allergan will lay off approximately 460 employees, or approximately 5 percent of its global headcount, primarily in the United States and Europe.

The majority of the employees affected by the restructuring are in two areas: (1) U.S. urology sales and marketing personnel as a result of the Company's decision to focus on the urology specialty and to seek a partner to promote SANCTURA XR® to general practitioners, and (2) marketing personnel in the United States and Europe as Allergan adjusts its back-office structures to the reduced short-term sales outlook for some businesses. With the exception of the U.S. urology sales force and some low productivity sales territories in Europe, no other sales force positions are affected. Modest reductions are being made in other functions as Allergan re-engineers its processes and increases productivity.

Further, Allergan has reviewed its stock option-related cost structure. Allergan's 2008 full-round employee stock option grant took place in February 2008 with a strike price of $64.47 versus a current stock price of approximately $40. While Allergan does not intend to institute a stock option exchange or repricing program, the Company's Board of Directors has decided to accelerate the vesting and remove certain stock option expiration features for all employees holding the 2008 full-round employee stock options and to modify certain stock option expiration features for other stock options held by employees impacted by the restructuring. Allergan will incur a one-time charge in the first quarter of 2009 associated with these stock option grant modifications.

Allergan currently estimates that it will incur total non-recurring pre-tax charges of between $110 million and $117 million in connection with the restructuring, of which only $40 million to $45 million will be a cash charge. The remainder will be a non-cash accounting-related charge associated with the acceleration of previously unrecognized share-based compensation costs and any additional estimated costs associated with the modification of stock option grants as discussed above and certain other non-cash accounting adjustments. These charges will be incurred beginning in the first quarter of 2009 and are expected to continue up through and including the fourth quarter of 2009. The realized expense savings from the restructuring are expected to exceed the cash charges in less than one year.

Product and Pipeline Update

During the fourth quarter of 2008:

 

  • On October 15, 2008, Allergan and Clinique, the #1 prestige cosmetics brand in the United States, announced the nationwide availability of CLINIQUE MEDICAL. This new skin care line is scientifically designed and clinically proven to complement select in-office cosmetic procedures and is available only through skin care physicians' offices.
  • Allergan completed the initial analysis of data from its Phase III studies of POSURDEX® for macular edema associated with retinal vein occlusion (RVO). The data demonstrated that patients receiving either the 350 microgram or the 700 microgram dose of POSURDEX® had a statistically significant increase in vision based on a 3-line or better improvement in visual acuity compared to a sham treatment. In addition, both doses of POSURDEX® were well tolerated in the studies. Less than 7% of patients receiving 700 or 350 micrograms of POSURDEX® experienced an elevation of intraocular pressure (IOP) greater than 35 mm Hg at any time during the 6 month study, and at 6 months less than 1% of patients had an IOP above 25 mm Hg. In the fourth quarter, Allergan completed filing the last module of its new drug application (NDA) with the U.S. Food and Drug Administration (FDA) for the approval of POSURDEX® to treat macular edema associated with RVO. POSURDEX® is a novel formulation of dexamethasone in Allergan's proprietary, sustained-release drug delivery system that can be used to locally administer medications to the retina. Brimonidine in this drug delivery system is also currently being investigated as a treatment for retinal disease in Phase II clinical trials.
  • Allergan invested in BAROnova, Inc.'s Series B financing to further advance the development of BAROnova's new technology designed to meet an unmet need in obesity intervention. BAROnova's non-surgical, non-pharmacologic TransPyloric Shuttle (TPS) weight-loss technology uses a revolutionary mechanical approach that helps the patient's stomach to fill up more quickly and to stay full longer, triggering the body's natural intake-reduction processes.
  • Allergan entered into an exclusive discovery and license agreement with Polyphor Ltd whereby Allergan obtained the rights to discover, develop and commercialize compounds for the treatment of eye diseases.
  • On October 29, 2008, Allergan announced that Allergan and Spectrum Pharmaceuticals, Inc. signed an exclusive collaboration for the development and commercialization of apaziquone, an antineoplastic agent currently being investigated for the treatment of non-muscle invasive bladder cancer.
  • On December 26, 2008, Allergan announced FDA approval of LATISSE (bimatoprost ophthalmic solution) 0.03%, a novel treatment for eyelash hypotrichosis or inadequate eyelashes. LATISSE is the first and only science-based treatment approved by the FDA to enhance eyelash prominence as measured by increases in length, thickness and darkness of eyelashes.

Following the end of the fourth quarter of 2008:

 

  • GlaxoSmithKline received approval of BOTOX® (botulinum toxin type A) for the treatment of glabellar lines in Japan. They plan to launch in the first quarter of 2009.

Outlook

For the full year of 2009, Allergan estimates:

 

  • Total product net sales between $4,100 million and $4,300 million.
    • Total specialty pharmaceuticals net sales between $3,395 million and $3,510 million.
    • Total medical devices net sales between $705 million and $790 million.
    • ALPHAGAN® Franchise product net sales between $350 million and $370 million.
    • LUMIGAN® Franchise product net sales between $410 million and $430 million.
    • RESTASIS® product net sales between $490 million and $510 million.
    • SANCTURA® Franchise product net sales at approximately $70 million.
    • BOTOX® product net sales between $1,150 million and $1,190 million.
    • LATISSE product net sales between $30 million and $50 million.
    • Breast aesthetics product net sales between $265 million and $290 million.
    • Obesity intervention product net sales between $255 million and $285 million.
    • Facial aesthetics product net sales between $185 million and $215 million.
  • Adjusted cost of sales to product net sales ratio between 17.0% and 17.5%.
  • Other revenue between $60 million and $70 million.
  • Adjusted selling, general and administrative expenses to product net sales ratio at approximately 39%.
  • Adjusted research and development expenses to product net sales ratio at approximately 17%.
  • Amortization of acquired intangible assets at approximately $20 million. This guidance excludes the amortization of acquired intangible assets associated with the Inamed, Cornéal, EndoArt and Esprit acquisitions.
  • Adjusted diluted earnings per share guidance between $2.69 and $2.75.
  • Diluted shares outstanding between approximately 304 million and 306 million.
  • Effective tax rate on adjusted earnings at approximately 29%.

For the first quarter of 2009, Allergan estimates:

 

  • Total product net sales between $960 million and $1,000 million.
  • Adjusted diluted earnings per share guidance between $0.50 and $0.52.

Historical adjusted diluted earnings per share and guidance amounts for adjusted diluted earnings per share, adjusted cost of sales, adjusted selling, general and administrative expenses, adjusted research and development expenses, and effective tax rate on adjusted earnings as well as net sales reported in constant currency are presented as non-GAAP financial measures. A reconciliation of those measures to the most directly comparable GAAP financial measure is included in the financial tables of this press release. The reconciliation for the guidance amounts in the financial tables includes historical non-GAAP adjustments and an estimate of the future effect from amortization of acquired intangible assets and non-cash interest expense associated with amortization of convertible debt discount.

Forward-Looking Statements

In this press release, the statements regarding product development, market potential, expected growth, anticipated product filings and approvals, the statements by Mr. Pyott as well as the outlook for the state of the economy, Allergan's earnings per share, product net sales, revenue forecasts, future investment allocations, restructuring benefits or outcomes and any other future performance, among other statements above, are forward-looking statements. Because forecasts are inherently estimates that cannot be made with precision, Allergan's performance at times differs materially from its estimates and targets, and Allergan often does not know what the actual results will be until after a quarter's end and year's end. Therefore, Allergan will not report or comment on its progress during a current quarter except through public announcement. Any statement made by others with respect to progress during a current quarter cannot be attributed to Allergan.

Any other statements in this press release that refer to Allergan's expected, estimated or anticipated future results are forward-looking statements. All forward-looking statements in this press release reflect Allergan's current analysis of existing trends and information and represent Allergan's judgment only as of the date of this press release. Actual results may differ materially from current expectations based on a number of factors affecting Allergan's businesses, including, among other things, changing competitive, market and regulatory conditions; the timing and uncertainty of the results of both the research and development and regulatory processes; domestic and foreign health care and cost containment reforms, including government pricing and reimbursement policies; technological advances and patents obtained by competitors; the performance, including the approval, introduction, and consumer and physician acceptance of new products and the continuing acceptance of currently marketed products; the effectiveness of advertising and other promotional campaigns; the timely and successful implementation of strategic initiatives; the results of any pending or future litigation, investigations or claims; the uncertainty associated with the identification of and successful consummation and execution of external corporate development initiatives and strategic partnering transactions; and Allergan's ability to obtain and successfully maintain a sufficient supply of products to meet market demand in a timely manner. In addition, U.S. and international economic conditions, including higher unemployment, financial hardship, consumer confidence and debt levels, taxation, changes in interest and currency exchange rates, international relations, capital and credit availability, the status of financial markets and institutions, as well as the general impact of the current economic crisis, can materially affect Allergan's results. Therefore, the reader is cautioned not to rely on these forward-looking statements. Allergan expressly disclaims any intent or obligation to update these forward-looking statements except as required to do so by law.

Additional information concerning the above-referenced risk factors and other risk factors can be found in press releases issued by Allergan, as well as Allergan's public periodic filings with the Securities and Exchange Commission, including the discussion under the heading “Risk Factors” in Allergan's 2007 Form 10-K and Allergan's Form 10-Q for the quarter ended September 30, 2008. Copies of Allergan's press releases and additional information about Allergan is available at www.allergan.com or you can contact the Allergan Investor Relations Department by calling 714-246-4636.

About Allergan, Inc.

Founded in 1950, Allergan, Inc., with headquarters in Irvine, California, is a multi-specialty health care company that discovers, develops and commercializes innovative pharmaceuticals, biologics and medical devices that enable people to live life to its greatest potential – to see more clearly, move more freely, express themselves more fully. The Company employs more than 8,500 people worldwide and operates state-of-the-art R&D facilities and world-class manufacturing plants. In addition to its discovery-to-development research organization, Allergan has global marketing and sales capabilities with a presence in more than 100 countries.

® and ™ Marks owned by Allergan, Inc.

Clinique is a registered trademark of Clinique Laboratories, LLC

ALLERGAN, INC.

Condensed Consolidated Statements of Earnings and

Reconciliation of Non-GAAP Adjustments

(Unaudited)

 

 
    Three months ended
In millions, except per share amounts   December 31, 2008

 

  December 31, 2007

 

        Non-GAAP           Non-GAAP    
    GAAP   Adjustments   Adjusted   GAAP   Adjustments   Adjusted

 

Revenues                            
Product net sales   $ 1,041.0     $ --       $ 1,041.0     $ 1,075.1     $ --       $ 1,075.1  
Other revenues     15.6       --         15.6       15.5       --         15.5  
      1,056.6       --         1,056.6       1,090.6       --         1,090.6  
                             
Operating costs and expenses                            
Cost of sales (excludes amortization of acquired intangible assets)

 

    186.8

 

      (4.1

 

)

 

(a)

 

    182.7

 

      179.8

 

      (2.8

 

)

 

(l)

 

    177.0

 

 
Selling, general and administrative     426.5       (29.1

 

)

 

(a)(b)(c)(d)(e)

 

    397.4       465.0       (3.4

 

)

 

(m)

 

    461.6  
Research and development     215.0       (48.5

 

)

 

(f)(g)

 

    166.5       189.7       -         189.7  
Amortization of acquired intangible assets     40.9       (35.4

 

)

 

(h)

 

    5.5       35.2       (29.9

 

)

 

(h)

 

    5.3  
Restructuring charges     3.7       (3.7

 

)

 

(i)

 

    --       2.5       (2.5

 

)

 

(i)

 

    --  
                             
Operating income     183.7       120.8         304.5       218.4       38.6         257.0  
                             
Non-operating income (expense)                            
Interest income     5.5       --         5.5       16.7       --         16.7  
Interest expense     (15.9 )     --         (15.9 )     (17.9 )     --         (17.9 )
Unrealized gain on derivative instruments, net     10.4       (10.4

 

)

 

(j)

 

    --       0.9       (0.9

 

)

 

(j)

 

    --  
Other, net     12.5       --         12.5       (9.3

 

)     --         (9.3

 

)
      12.5       (10.4 )       2.1       (9.6 )     (0.9

 

)

 

      (10.5 )
                             
Earnings from continuing operations before income taxes and minority interest     196.2

 

      110.4

 

        306.6

 

      208.8

 

      37.7

 

        246.5

 

 
                             
Provision for income taxes     45.2       31.2

 

  (k)

 

    76.4       47.5       13.8

 

  (n)

 

    61.3  
Minority interest     0.4       --                                      

Posted: February 2009


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