Allergan, Inc.

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Allergan, Inc.

2525 Dupont Drive
P.O. Box 19534
Irvine, California 92715
U.S.A.
(714) 752-4500 Fax:
(714) 955-6987

Public Company
Incorporated: 1948
Employees: 4,749
Sales: $858.9 million
Stock Exchanges: New York
SICs: 3851 Opthalmic Goods; 2834 Pharmaceutical Preparations; 3841 Surgical and Medical Instruments; 3842 Surgical Appliances and Supplies

Allergan, Inc. is a global provider of specialty therapeutic products, primarily in eye and skin care. Acknowledged as a world leader in eye care, Allergan also develops, manufactures, and markets new products for skin care and neuromuscular disorders.

In 1950, Gavin S. Herbert, Sr. started a small opthalmic business in a laboratory above one of his Los Angeles drugstores. Stanley Bly, who had only a bachelor’s degree in chemistry, created the business’s first product, an antihistamine eye drop named Allergan. Under the company name Allergan, Bly developed additional products, including a cortisone eye drop, Cortefrin. The small business was assisted by the salesmanship of Herbert’s son, Gavin Herbert, Jr., a 19-year-old student at the University of Southern California.

In 1953, Bly’s sudden death almost caused the company to close. Sales at that time were approximately $25,000, and many of Bly’s product formulas were undocumented. A young associate professor at the University of Southern California’s School of Pharmacy, John Biles, reformulated Allergan’s products and saved the company from failure. The next year, Allergan continued to struggle when Gavin Herbert, Jr. was drafted into the navy during the Korean War, and Herbert, Sr. was involved in an automobile accident and was hospitalized for several months. Herbert, Jr. kept the company alive by commuting from his station in San Diego to Los Angeles on weekends. In 1957, Gavin Herbert, Jr. was discharged, and Allergan sales had reached $100,000.

In the late 1950s, Allergan moved out of the upstairs laboratory into a 6,000-square-foot space in a converted Los Angeles theater. With the assistance of Jack Browning, an ad agency executive and former employee of SmithKline, Allergan also launched its first marketing plan. A key element of that plan was the advent of Allergan’s first national product, Prednefrin, a corticosteroid. By 1960, Allergan was a million dollar company and the company moved its operations to a 30,000-square-foot plant in Santa Ana, California.

Allergan continued to grow in the 1960s, with an increased focus on in-licensing products such as Herplex. Herplex, introduced by Allergan in 1965, was the first antiviral approved by the FDA for use in the United States, and the second drug of any type to be approved after the emergence of new FDA rules requiring that manufacturers prove the efficacy of all new drugs. The new FDA rules provided Allergan with a competitive advantage over larger companies, who were less adaptable. Dean McCann, who later became the company’s senior vice-president of legal affairs, began advising Allergan in compliance with the FDA rules as early as 1957.

In 1960, hard contact lenses first became available. Allergan demonstrated its propensity to take advantage of new technology when it entered the contact lens market that year. Liquifilm, a wetting solution for hard contact lenses, became an important vehicle for Allergan’s opthalmic products.

Allergan began to develop a global outlook in 1964, when it created its first foreign distributorships in Puerto Rico and Iraq. In 1965, Allergan established its first foreign subsidiary in Canada. The company’s only competition abroad was Alcon, and Allergan’s growth in the international market and the success of its hard contact lens care products combined to bring sales growth of 20 to 25 percent during the 1960s.

Allergan had achieved $10 million in sales by 1970, and was preparing to become a public company. To take the company public, a long-term plan for managing growth was developed. Toward the realization of that plan, Allergan purchased 24 acres from the Irvine Ranch Company and, in 1968, built its Von Karman production facility on that site. In 1971, Allergan went public, erecting its first office building in Irvine, California.

By the mid-1970s, the company had become a major opthalmic producer, meeting a growing demand for soft contact lens products. Soft contact lenses had become available in 1970, and Allergan became a contractual supplier of soft contact lens solutions to industry giant Bausch & Laumb. Allergan’s two lens products were Hydrocare (introduced in 1974) and its enzymatic cleaner. The company’s international business flourished due to the success of Allergan’s soft contact lens cleaner, which had become the focus of Allergan’s European sales since it required no regulatory approval. Allergan established its first manufacturing sites outside the United States in the 1970s, in Puerto Rico and Ireland. The company’s operations realized growth of 30 percent in net profits between 1970 and 1975, with total sales reaching $33 million in the latter year.

This period of growth was bolstered by a thriving U.S. opthalmic market, estimated at a value of $90 million at the manufacturer’s level in 1975. Business that year rose by 18 percent (an average increase would be 10-12 percent), due to price increases and an exacerbated allergy season. In 1975, Allergan held approximately 30 percent of the hard contact lens market, and increased its considerable share of prescription opthalmics by 27 percent.

In 1977., Allergan was reincorporated in Delaware. In 1978, Gavin Herbert, Sr., Allergan’s co-founder and chairman, died. Gavin Herbert, Jr. succeeded his father, adding chairman to his titles of president and chief executive officer. Growth continued in the latter half of the 1970s, with revenue rising from $46.4 million in 1978 to $62.6 million in 1979.

SmithKline Beckman Corporation purchased Allergan for $236 million, and Allergan became a wholly owned subsidiary in 1980. That year, Allergan approached $100 million in sales, a 20 percent increase for the decade. For Allergan, the association with a larger pharmaceutical company was a way to combat its dependence on in-licensing and development. As a subsidiary of SmithKline, Allergan was able to create new products through its first research program. For SmithKline, the purchase of Allergan was the first step in its implementation of a new strategy. In 1970, large profits generated by Thorazine had become a double-edged sword when the patent expired, due to SmithKline’s shortsighted lack of investment in research and its failure to develop new ventures. Ten years later, SmithKline’s president and CEO Henry Wendt recognized that the company was again becoming dependent on a single product, the anti-ulcer drug Tagamet, with a patent that would expire in 1993.

The purchase of Allergan was Wendt’s first step forward in a new strategy to link diagnostic and therapeutic products. In addition, the purchase was to be a catalyst for new partnerships resulting in lucrative research and innovation. Accordingly, SmithKline put Allergan scientists to work, seeking applications of the research knowledge that produced Tagamet to cures for eye or skin diseases.

The potential market for soft contact lenses was enormous. In 1984, according to Industry Week, 120 million Americans suffered from a vision problem, but only 12 percent wore soft contact lenses. Two additional factors made soft contacts a lucrative product: a shorter life span (soft lens wearers replaced lenses every 15 months or so), and the advent of tinted lenses, over 20 percent of whose wearers had no vision problems. Finally, the availability and increased affordability of soft contact lenses for astigmatic wearers caused the traditional 10 percent increase in new wearers to jump to 20 percent between 1982 and 1984, according to Industry Week.

In 1984, SmithKline strengthened its investment in Allergan— which then held 20 percent of the contact lens solutions market—when it acquired International Hydron, the number two maker of soft contact lenses (behind the industry giant Bausch & Laumb, which held 40 percent of the lens and solutions business). International Hydron became part of Allergan in 1987. At the time of SmithKline’s purchase, the contact lens market was reshuffling; some twenty companies had folded in the 1970s, but the remaining thirty businesses were struggling to maintain their positions behind Bausch & Laumb and to take advantage of the unprecedented market potential of soft contacts. Billion-dollar companies such as Nestle and Johnson & Johnson began eyeing the market as its potential became apparent.

By 1987, the $500 million contact lens care market was growing at about 20 to 25 percent annually, and Allergan and its competitors were locked in fierce competition. Allergan stepped forward with an innovative new product, Ultrazyme Enzymatic Cleaner, the first weekly enzymatic cleaner that could be used during disinfection. This product was responsive to an increased focus on better lens care, as studies began to demonstrate that unsanitary lenses led to eye problems. Between 1980 and 1989, Allergan’s sales increased from $100 million to $800 million.

Allergan employed two strategies to manage this rapid growth: updating its information systems and restructuring its human relations departments. Michael Garrison, who sold computers for General Electric prior to becoming Allergan’s director of information management, developed innovative information strategies for Allergan in the late 1980s. These computer-based systems included an in-house voice mail system that linked ophthalmologists directly to Allergan; a million dollar campaign to provide laptop computers for all 300 U.S. sales representatives to increase territory management; and the donation of computers and communication software to doctors’ offices, which made briefs written to support products being considered for Federal Drug Administration approval instantly available for downloading by Allergan researchers.

William C. Shepherd, who would become president of Allergan’s U.S. operations and later CEO, envisioned a strengthened human resources structure that would enable the company to manage and increase its sales and promote itself as the world’s leading eye care company. Supporting 20 percent annual growth and rapid expansion, Allergan restructured its human resources department, utilizing both centralized and decentralized models. Shepherd hired Rick Hilles, who later became Allergan’s senior vice-president of human resources, to create and implement this new structure. Hilles divided the company into six strategic operating areas (SOAs) and separated the responsibilities of the human resources department into two separate areas. A decentralized area focused on specific market segments and goals, while a centralized structure provided technological benefits, information flow, research and development, marketing, manufacturing, and overall management. The restructuring was publicly lauded when Allergan received the 1991 Optimas Award.

Allergan again became a public company in 1989, when Smith-Kline merged with Beecham Corporation, spinning off distribution of Allergan to shareholders. The transition period posed problems for Allergan, which had high costs, inefficient manufacturing systems, gaps in new product development, and large debt. The eye care market was no longer growing at the dramatic pace of the 1980s. Sales had moved away from traditional contact lenses, as disposable lenses and fashion glasses— neither of which were sold by Allergan—took the industry lead. With ophthalmologists spending less, Allergan’s diagnostic equipment business was also experiencing little profit.

Allergan’s business strategy had become unmanageable because it forced the company to compete over too broad a range of business sectors: from Pharmaceuticals to consumer products to diagnostic eye-care instruments. In 1990, Allergan was close to a billion dollar company, but its stock had fallen from $25 a share (at the time of its spinoff) to $15 a share. Investment analysts began to advise investors that Allergan was prime for a takeover, pointing to Nestle’s Alcon Laboratories as a potential purchaser.

Allergan changed its business strategy to reflect market needs in the early 1990s. Under the leadership of president and CEO William Shepherd, Allergan reshaped its operations with a three-prong strategy: making more money available for research and development, containing costs, and implementing quality. Between 1989 and 1991, Allergan reduced employment by 10 percent, consolidated some manufacturing operations, reduced its debt, and improved its cash flow, resulting in the elevation of its price on the stock market. In addition, in 1991 the company’s board of directors approved a plan to realign Allergan into market-focus business groups with a regional structure giving the company a global focus on the Americas, Europe, Pan-Asia, and Japan.

With a new focus on specialty Pharmaceuticals, Allergan began to emerge as a developer of therapeutic products. In 1991, Allergan acquired Oculinum, Inc., and gained an advantage as the only firm marketing Type A botulinum toxin, a product of the bacterium that causes botulism which had been shown to be safe and effective in treating neuromuscular disorders. Botox, the market name for the substance manufactured by Oculinum, Inc., generated $5 million in sales during its first year. Also in 1991, Allergan researcher David Woodward patented a composition that can be used in treating glaucoma. At that time, most glaucoma treatments inhibited the formation of fluids. The new Allergan composition, a derivative of protoglandin (a fat molecule produced in the eye), helps the eye drain, relieving fluid pressure.

A product generating less excitement was Allergan’s first one-bottle contact lens disinfecting solution, UltraCare Disinfectant/ Neutralizer. Allergan was late to enter the one-step market, and its solution was considered inferior to its competitors by analysts, according to the New York Times. In 1992, Allergan sold its North and South American contact lens business, and in 1993 the company sold its remaining contact lens business.

In 1993, Allergan became involved in a proxy battle, as a result of new rules adopted that year by the Securities and Exchange Commission. The State of Wisconsin Investment Board in Madison rallied support from other institutions to put Allergan’s “poison pill” shareholders’ rights plan to a vote by the holders. Allergan’s management position was that shareholder control of the plan would render the board impotent in case of a sudden takeover. However, Allergan’s shareholders passed what became one of the first successful shareholder solicitations by a slight majority (52 percent) at the April 1993 annual meeting.

The 1990s restructuring improved Allergan’s growth, with sales increasing from $762 million in 1991 to $858 million in 1993. In an interview with Fortune magazine, Samuel Isaly, manager of the Medical Research Investment Fund, indicated that investment in Allergan, “one of the world leaders in ophthalmological pharmaceuticals,” is an excellent value, with earnings and stock projected to rise at 15 percent a year.

As Allergan prepared to enter the twenty-first century, it focussed on new products. Research projects in the mid-1990s included a topical retinoid tarazotene for acne and psoriasis; a new multifocal interocular lens (IOL) that will allow cataract patients to see well over a range of distances; a joint venture for the anti-cancer usage of Retinoic acid with Ligand Pharmaceutical; the development of topical opthalmic uses for cyclosporine A (with Sandoz Pharmaceuticals Corporation in Japan); and collaborative projects with several academic institutions.

As the U.S. healthcare system is reviewed in the 1990s, Allergan must adjust to new regulations and industry challenges. The Safe Medical Devices Act of 1990 increased reporting requirements of adverse events associated with medical devices, and the Prescription Drug Law Fee Act of 1992 required payment of substantial fees to the FDA for new drug applications. Other regulatory measures are pending. In addition, the total cost of providing health care services is under governmental review, and there is serious pressure to lower the cost of health care. Allergan anticipates that products such as lOLs and pharmaceutical products may be targeted for price reductions. Because these products accounted for some 60 percent of Allergan’s 1993 sales, such a reduction would seriously impact Allergan’s profits.

Even though the changes in the healthcare industry may change the profitability of Allergan dramatically, Allergan has proven its ability to adapt to industry changes. In 1994, the company that began in a small laboratory above a drugstore was a world leader in eye care, with sales approaching $1 billion. Allergan’s ability to restructure itself to meet the needs of an ever-changing market should keep the company profitable into the future.

Principal Subsidiaries:

Allergan S.A.I.C. y F. (Argentina); Laboratorios Oftalmologicos Argentinos S.A.I.C.I.F.; Allergan Australia Pty. Ltd.; Allergan Holdings Pty. Ltd. (Australia); Allergan Warenvertriebsgesellschaft MbH (Austria); Allergan NV/SA, (Belgium); Allergan-Lok Produtos Farmaceuticos Ltda. (Brazil); Allergan Inc. (Canada); Allergan Laboratorios Limitada (Chile); Allergan de Colombia S.A.; Allergan ApS (Denmark); Allergan France S.A.; Allergan Sophia S.A. (France); Pharm-Allergan GmbH (Germany); Allergan Optical GmbH (Germany); Allergan Asia Limited (Hong Kong); Allergan Botox Limited (Ireland); Allergan Ireland (Sales) Limited; Allergan S.p.a. (Italy); Allergan K.K. (Japan); Allergan Hydron K.K. (Japan); Allergan Afrasia Limited (Malta); Allergan S.A. de C.V. (Mexico); Laboratoires Allergan Dulcis S.A.M. (Monaco); Pharmac, S.A.M. (Monaco); Allgergan B.V. (Netherlands); Allergan New Zealand Limited (New Zealand); Allergan A/S (Norway); Allergan Pakistan (Private) Limited; Allergan Inter America S.A. (Panama); Allergan Pharmaceuticals (Ireland) Ltd., Inc.; Allergan Singapore Pte., Ltd.; Allergan South Africa (Pty.), Ltd.; Allergan Pharmaceuticals (Pty.) Ltd. (South Africa); Allergan S.A.E. (Spain); Corlens S.A. (Spain); Allergan Norden AB (Sweden); Allergan AG (Switzerland); Allergan Optik Mamulleri Ve Ticaret Limited Sirketi (Turkey); Allergan Limited (United Kingdom); Allergan Holdings Limited (United Kingdom); Allergan Farnborough Limited (United Kingdom); Allertgan Research Centre Ltd. (United Kingdom); Allergan America; Allergan Medical Optics; Herbert Laboratories; Allergan Caribe, Inc.; Allergan Optical Inc.; Allergan Puerto Rico, Inc.; Allergan Retinoid Corporation; Allergan International Limited (U.S. Virgin Islands); Allergan de Venezuela, S.A.