Allergan, Inc. History

Company Perspectives:

Our Mission: To develop a unique level of understanding of our customers in order to implement operational strategies that provide the greatest value for our customers and stakeholders. We will become the partner of choice for ever better health care through the value of our technological innovation, industry leadership, partnering skills and relationships, worldwide infrastructure, research, and manufacturing capabilities. Our Vision: We're an innovative, technology driven, global health care company focused on eye care and specialty therapeutic products that deliver value to customers, satisfy unmet medical needs, and improve patients' lives.

Company History:

Allergan, Inc. is a global provider of eye care and specialty pharmaceutical products. In addition to its wide-ranging line of contact lens care products, Allergan also develops and markets products used in the treatment of glaucoma, cataracts, dry eye, psoriasis, acne, and various cancers. A full ten percent of revenues is generated by Botox, a pharmaceutical version of the toxic botulinum bacteria. Botox is used in Food and Drug Administration-approved treatment of crossed eyes and uncontrolled blinking, as well as in various unapproved ways, including the temporary erasure of facial wrinkles. Allergan markets its products in more than 100 countries around the world, with burgeoning sales in Japan as well as in such emerging markets as Brazil, India, and China.

Ophthalmic Beginnings

In 1948 Gavin S. Herbert, Sr., started a small ophthalmic 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 from the navy 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 Food and Drug Administration (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.

Contact Lens Care Market Beginning in 1960

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 ophthalmic 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 ophthalmic 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 & Lomb. Allergan's two lens products were Hydrocare (introduced in 1974) and its enzymatic cleaner. The company's international business flourished because of 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. ophthalmic 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 ten to 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 ophthalmics by 27 percent.

In 1977 Allergan was reincorporated in Delaware. In 1978 Gavin Herbert, Sr., Allergan's cofounder 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.

Purchase by SmithKline Beckman in 1980

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 lifespan (soft lens wearers replaced lenses every 15 months or so), and the advent of tinted lenses, used by more than 20 percent of wearers who had no vision problems. Finally, the availability and increased affordability of soft contact lenses for astigmatic wearers caused the traditional ten 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 & Lomb, 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 20 companies had folded in the 1970s, but the remaining 30 businesses were struggling to maintain their positions behind Bausch & Lomb and to take advantage of the unprecedented market potential of soft contacts. Billion-dollar companies such as Nestlé 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 voicemail 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 FDA 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.

Going Public: 1989

Allergan again became a public company in 1989, when SmithKline 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&mdashøok the industry lead. With ophthalmologists spending less, Allergan's diagnostic equipment business also was 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 Nestlé'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-pronged strategy: making more money available for research and development, containing costs, and implementing quality. Between 1989 and 1991, Allergan reduced employment by ten 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 that 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 could 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), helped 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. Allergan's shareholders, however, passed what became one of the first successful shareholder solicitations by a slight majority (52 percent) at the April 1993 annual meeting.

The early 1990s restructuring improved Allergan's growth, with sales increasing from $762 million in 1991 to $858 million in 1993. Acquisitions marked the years 1994 and 1995. In 1994 Allergan acquired the Ioptex Research global intraocular lens product line. Among the 1995 acquisitions were Optical Micro Systems, Inc., a maker of cataract surgery equipment; Laboratorios Frumtost, S.A., a Brazilian manufacturer of ophthalmic and other pharmaceutical products; and the worldwide contact lens care product operations of Pilkington Barnes Hind. The last of these included the Concept F cleaning and disinfecting system and significantly increased the company's contact lens care product operations in Japan. In late 1995 Allergan launched Azelex cream for the topical treatment of mild to moderate acne of the skin; the product was well received by the market.

Near Merger with Pharmacia & Upjohn in 1996

Increasing competition and acquisition-related costs led to sagging profits for Allergan in the mid-1990s. In early 1996 Allergan entered advanced merger discussions with Pharmacia & Upjohn Inc., but the merger was blocked by AB Volvo, which held a minority stake in Pharmacia & Upjohn. Soon thereafter, Allergan announced a restructuring that included the elimination of about 450 jobs and 1996 pretax charges of about $75 million. The company enhanced its research and development efforts through collaborative agreements in 1996 with SUGEN, Inc., for research into treatments for ophthalmic diseases, such as age-related macular degeneration and diabetic retinopathy, and with Cambridge NeuroScience, Inc., for research into new treatments for glaucoma and other serious ophthalmic diseases. Also in 1996 Allergan received FDA approval for the Alphagan ophthalmic solution for the treatment of open-angle glaucoma and ocular hypertension. By the late 1990s Alphagan was the company's largest selling eye care pharmaceutical product.

In 1997 Allergan expanded its burgeoning skin care line through the FDA approval of Tazorac for the treatment of plaque psoriasis and acne. Also receiving FDA approval in 1997 was Array, a multifocal intraocular lens used to help cataract patients see well over a range of distances--a global market leader since its debut. Although overall sales had surpassed the $1 billion mark in 1995, growth stalled in 1997, with net sales falling slightly, from $1.15 billion in 1996 to $1.14 billion in 1997. With the company's financial performance and stock price continuing to disappoint a number of institutional investors, Shepherd retired at the end of 1997 after 31 years with Allergan. Taking over as president and CEO at the beginning of 1998 was David Pyott, who had been head of Novartis AG's nutrition division, which included the Gerber Products Co. baby food unit. Taking over as chairman was Herbert W. Boyer, a biochemist, member of the Allergan board since 1994, and a founder of Genentech Inc.

Under the new leadership, Allergan began a three-year restructuring effort in 1998 whereby five of its ten plants would be closed and its workforce reduced by 550 people, or nine percent. Allergan subsequently posted a net loss of $90.2 million for the year, due to a restructuring charge of $74.8 million and asset write-offs of $58.5 million. The company in 1998 also contributed $200 million to a new subsidiary, Allergan Specialty Therapeutics, Inc. (ASTI), which was then spun off to shareholders as a dividend. ASTI was charged with conducting research into new pharmaceutical products in the area of retinoids, which held promise for treating such diseases as diabetes and cancer. Allergan retained first crack at any products developed by the quasi-independent ASTI; it had the option to buy the spinoff back, and was likely to do so. Offloading some of its R&D enabled Allergan to increase R&D expenditures without having its earnings-per-share dragged down. Meanwhile, in 1998 the company also entered into a multiyear alliance with the Parke-Davis Pharmaceutical Research Division of Warner-Lambert Company to investigate retinoids for the treatment of metabolic diseases. Among other late 1990s R&D efforts were the attempt to expand the approved uses of Botox to include treatment of migraine headaches, chronic tension headaches, lower back pain, cerebral palsy, and such cosmetic uses as brow furrows; the development of Restasis, a drug for the treatment of moderate to severe dry eye; and the development of Abrevia, a treatment for allergic conjunctivitis.

In April 1999 a seemingly revitalized Allergan announced a $70 million expansion of its R&D campus at the Irvine headquarters and the addition of 300 new research scientists and other professionals. The expansion was slated for completion in 2004. Although the company had been hurt by stagnating sales of its contact lens care lines, which accounted for about 28 percent of overall sales in 1998, large increases in the sales of Botox and of eye care pharmaceuticals, most notably Alphagan, led to an 11 percent increase in overall sales in 1998 and a nearly 17 percent increase for the first six months of 1998. Allergan appeared to be well positioned to thrive in the increasingly competitive pharmaceutical industry.

Principal Subsidiaries: Allergan Australia (Pty.) Ltd.; Allergan France S.A.; Allergan Inc. (Canada); Allergan K.K. (Japan); Allergan Limited (U.K.); Allergan-Lok Produtos, Farmaceuticos, Ltda. (Brazil); Allergan Pharmaceuticals (Ireland) Ltd., Inc.; Allergan S.A. de C.V. (Mexico); Allergan S.A.E. (Spain); Allergan S.p.A. (Italy); Pharm-Allergan GmbH (Germany).

Further Reading:

• "Allergan Inc.," Wall Street Journal, December 7, 1993, p. B4.
• "Allergan Pharmaceuticals," Wall Street Transcript, March 22, 1976, p. 1.
• "Allergan Shareholders Pass Proposal Forcing Vote on Poison Pill," Wall Street Journal, April 28, 1993, p. A6.
• Altman, Lawrence K., "Botulinum Toxin's Promise As Drug May Rival Its Potential As Weapon," New York Times, March 10, 1998, p. F7.
• Chen, Ingfei, "Toxin to the Rescue," Science News, January 19, 1991, pp. 42--43.
• Chernoff, Joel, and Patricia Limbacher, "3 Companies in Proxy Battles," Pensions and Investments, April 19, 1993, pp. 1, 34.
• "Companies Seek to Test Cancer Drug on People," Journal of Commerce, December 1, 1993, p. 5A.
• "Composition May Help in Treating Glaucoma," New York Times, May 11, 1991.
• Crabtree, Penni, "Irvine, Calif.-Based Eye Care Firm Awaits Results of Restructuring," Orange County (Calif.) Register, November 15, 1998.
• "Drugs and Biotech: New Hope for the Dead?," Fortune, November 29, 1993, p. 32.
• Filipowski, Diane, "Allergan's Structuring for Success," Personnel Journal, March 1991, pp. 56--57.
• Greene, Jay, "Allergan's Botox, Made from Toxin, Used to Fight Wrinkles," Orange County (Calif.) Register, February 16, 1998.
• Knap, Chris, "Irvine, Calif.-Based Allergan May Have New Migraine Remedy," Orange County (Calif.) Register, April 21, 1999.
• Lev, Michael, "Allergan Gains from a Reduction," New York Times, December 5, 1991, p. C8.
• Lipin, Steven, and Stephen D. Moore, "Pharmacia & Upjohn's Plan to Acquire Allergan Inc. Is Blocked by AB Volvo," Wall Street Journal, May 14, 1996, p. A3.
• Marcial, Gene G., "Allergan: Seeing Past the Myopia," Business Week, February 5, 1990, p. 78.
• McCusker, Tom, "Using Technology to Listen Better," Datamation, January 15, 1988, pp. 38--42.
• McMenamin, Brigid, "Blurred Vision," Forbes, March 23, 1998, p. 142.
• "1991 Optimas Awards," Personnel Journal, January 1991, p. 53.
• Rundle, Rhonda L., "Allergan CEO Shepherd Set to Retire, with Pyott from Novartis As Successor," Wall Street Journal, October 6, 1997, p. B7A.
• ----, "Allergan Opens Eyes with Cataract Ads," Wall Street Journal, March 8, 1999, p. B6.
• ----, "Allergan Plans Job Cuts, Charge of $103 Million," Wall Street Journal, September 16, 1998, p. B6.
• "SmithKline Beckman Unit to Acquire French Company," Wall Street Journal, February 2, 1984, p. 11E.
• "SmithKline Plans to Buy Allergan for $259 Million," Wall Street Journal, December 7, 1979, p. 14.
• "SmithKline: Reducing Its Dependence on Drugs," Business Week, November 14, 1983, pp. 211--12.
• "Takeover Defenses, One Step Backward in the Proxy Arena," Mergers & Acquisitions, September/October 1993, pp. 11--12.
• "Tale of a Topnotch Team," Insight Magazine, Irvine: Allergan, Inc., March 1994.
• Verespej, Michael, "Eye-to-Eye Combat," Industry Week, October 15, 1984, pp. 30--32.
• ----, "Nowhere to No. 2," Industry Week, October 1, 1984, pp. 87--88.
• Winters, Patricia, "Lens-Care Battle in Sight," Advertising Age, October 19, 1987, p. 12.

Source: International Directory of Company Histories, Vol. 30. St. James Press, 2000.

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