2002annual report
`
`A Growing Focus
`
`APOTEX 1039, pg. 1
`
`

`

`AGN Contents
`2002
`
`2002annual report
`
`IFC
`
`Financial Overview
`
`22
`
`BOTOX / Neuromodulators
`
`1 Mission Statement
`
`30
`
`Skin Care
`
`2
`
`4
`
`8
`
`Business Strategy
`
`36
`
`Executive Committee
`
`Letter to Investors
`
`38
`
`Board of Directors
`
`Research and Development
`
`40
`
`Financials
`
`12
`
`Technology Pipeline
`
`14 Ophthalmic Pharmaceuticals
`
`47 Corporate Overview and
`Stockholders’ Information
`
`APOTEX 1039, pg. 2
`
`

`

`OUR VISION
`
`OUR MISSION
`
`To continue as an innovative, technology driven, global health care company focused on
`
`To become the partner of choice for ever better health care through the value of our
`
`pharmaceuticals in specialty markets that deliver value to customers, satisfy unmet medical
`
`technological innovation, industry leadership, partnering skills and relationships, worldwide
`
`needs and improve patients’ lives.
`
`infrastructure, research and manufacturing capabilities.
`
`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 stockholders.
`
`APOTEX 1039, pg. 3
`
`

`

`AGN Financial Highlights
`
`In millions, except per share data
`
`2002
`
`2001
`
`Year Ended December 31,
`2000
`
`1999
`
`1998
`
`In millions
`
`2002
`
`2001
`
`Year Ended December 31,
`2000
`
`1999
`
`1998
`
`NET SALES BY PRODUCT LINE
`
`Specialty Pharmaceuticals:
`Eye Care Pharmaceuticals
`Skin Care
`BOTOX/Neuromodulators
`
`Total Pharmaceutical Sales
`
`$ 827.3
`90.2
`439.7
`
`1,357.2
`
`$ 753.7
`78.9
`309.5
`
`1,142.1
`
`$683.9
`68.7
`239.5
`
`992.1
`
`$ 576.2
`76.6
`175.8
`
`828.6
`
`Other
`
`27.8
`
`–
`
`–
`
`–
`
`$510.1
`80.6
`125.3
`
`716.0
`
`–
`
`Total Net Sales
`
`$1,385.0
`
`$1,142.1
`
`$992.1
`
`$828.6
`
`$716.0
`
`PRODUCTS SOLD BY LOCATION
`
`Domestic
`International
`
`70.6%
`29.4%
`
`67.0%
`33.0%
`
`63.4%
`36.6%
`
`60.7%
`39.3%
`
`58.5%
`41.5%
`
`STATEMENT OF OPERATIONS HIGHLIGHTS
`
`Product net sales
`Product gross margin
`Research and development
`Earnings (loss) from continuing operations
`Earnings (loss) from discontinued operations
`Net earnings (loss)
`
`Basic earnings (loss) per share:
`Continuing operations
`Discontinued operations
`Diluted earnings (loss) per share
`Continuing operations
`Discontinued operations
`
`Dividends per share
`
`ADJUSTED AMOUNTS (a)
`
`$1,385.0
`1,163.3
`233.1
`64.0
`11.2
`75.2
`
`$1,142.1
`944.0
`227.5
`171.2
`54.9
`224.9
`
`0.49
`0.09
`
`0.49
`0.08
`
`0.36
`
`1.30
`0.42
`
`1.29
`0.40
`
`0.36
`
`$992.1
`794.4
`165.7
`165.9
`49.2
`215.1
`
`1.27
`0.38
`
`1.24
`0.37
`
`0.32
`
`$828.6
`658.2
`140.6
`143.7
`44.5
`188.2
`
`1.09
`0.33
`
`1.06
`0.33
`
`0.28
`
`$716.0
`545.5
`97.7
`(86.6)
`(3.6)
`(90.2)
`
`(0.66)
`(0.03)
`
`(0.66)
`(0.03)
`
`0.26
`
`Adjusted earnings from
`continuing operations
`Adjusted basic earnings per share
`from continuing operations
`Adjusted diluted earnings per share
`from continuing operations
`Pro Formadiluted earnings per share
`adjusted for dissynergies related to
`spin-off of Advanced Medical Optics, Inc.(b)
`
`252.3
`
`207.7
`
`166.6
`
`133.9
`
`102.4
`
`1.95
`
`1.92
`
`1.58
`
`1.55
`
`1.27
`
`1.25
`
`1.01
`
`0.99
`
`0.78
`
`0.76
`
`1.88
`
`1.48
`
`–
`
`–
`
`–
`
`(a) The adjusted amounts in 2002 exclude the after-tax effect of the following:
`1) $118.7 million in litigation settlement costs, 2) net cost of $100.3 million
`associated with the spin-off of the Company’s ophthalmic surgical and con-
`tact lens care businesses which consist of a restructuring charge and asset
`write-offs of $63.5 million, duplicate operating expenses of $42.5 million and
`gain of $5.7 million on sale of a facility, 3) $30.2 million loss on the perma-
`nent impairment of investments, 4) $1.7 million unrealized loss on derivative
`instruments, 5) net gain of $1.0 million from partnering agreements, and
`6) a $11.7 million charge for the early extinguishment of convertible debt.
`
`The adjusted amounts in 2001 exclude the $40.0 million one-time charge
`for in-process research and development related to the purchase of Allergan
`Specialty Therapeutics, Inc. (ASTI) and the after-tax effect of the following:
`1) $6.2 million restructuring charge and asset write-off reversals consisting
`of $1.7 million restructuring charge reversal and a $4.5 million gain on sale of
`a facility reducing the write-offs recorded in 1998, 2) income of $1.5 million
`from a partnering agreement, 3) $4.5 million loss on the permanent impairment
`
`of equity investments, 4) gain on the sale of divested pharmaceutical
`products in Brazil of $2.0 million, 5) $4.2 million unrealized gain on derivative
`instruments, and 6) $4.4 million associated with the spin-off of the
`Company’s ophthalmic surgical and contact lens care businesses.
`
`The adjusted amounts in 2000 exclude the after-tax effect of the following:
`1) a $0.2 million restructuring charge, 2) gain on the sale of investments of
`$1.3 million, and 3) expenses of $2.0 million from partnering agreements.
`
`The adjusted amounts in 1999 exclude the after-tax effect of the following:
`1) $3.6 million in restructuring charge reversals, 2) $0.8 million in asset
`gains, reducing write-offs recorded in 1998, 3) gain on sales of investments
`of $14.0 million, 4) the contribution to The Allergan Foundation of $6.9 million,
`5) income of $9.5 million, net of expenses of $5.7 million, from partnering
`agreements, and 6) other one-time costs totaling $1.1 million.
`
`APOTEX 1039, pg. 4
`
`

`

`Growth Rates in Local Currency for Combined Businesses
`
`Gross Margins as Percent of Sales for Combined Businesses
`
`Research and Development as Percent of Sales for Combined Businesses
`
`Earnings per Share Growth Rate
`
`+13.3% +14.2% +14.2% +11.5% +21.8%*
`
`+67.7% +71.1% +72.4% +75.5% +84.3%*
`
`+9.9% +11.6% +12.4% +12.8% +16.5%*
`
`—
`
`+30.3% +26.3% +24.0% +23.9%
`+27.0%**
`
`$1.88(b)
`
`$1.92
`
`$1.48(b)
`
`$1.55
`
`02
`
`01
`
`$1.55
`
`$1.92
`
`$1.25
`
`00
`
`$1.25
`
`$228.4
`
`$187.5$29.0
`
`$0.99
`
`$0.76
`
`01
`
`02*
`
`98
`
`99
`
`$0.99
`
`$0.76
`
`$216.5
`
`$163.7$29.9
`
`00
`
`$193.6
`
`$135.1$27.8
`
`$97.7 $27.7
`
`$1,167.0
`
`$331.0
`
`$944.0
`
`$794.4$339.1
`
`$658.2$341.6
`
`$545.5 $309.2
`
`$1,385.0
`
`02*
`
`98
`
`99
`
`00
`
`01
`
`02*
`
`98
`
`99
`
`$162.9
`
`$125.4
`
`$1,275.0
`
`$1,133.5
`
`$999.8
`
`$854.7
`
`$1,142.1$543.1
`
`01
`
`$1,685.2
`
`$992.1$570.5
`
`00
`
`$1,562.6
`
`$828.6$577.6
`
`$716.0 $545.7
`
`98
`
`99
`
`$1,406.2
`
`$1,261.7
`
`$1,385.0
`
`$1,167.0
`
`$228.4
`
`NET SALES
`In millions of dollars
`
`GROSS PROFIT, AS ADJUSTED (a)
`In millions of dollars
`
`RESEARCH AND DEVELOPMENT, AS ADJUSTED (a)
`In millions of dollars
`
`Contact Lens Care and Ophthalmic Surgical Device Businesses (AMO)
`Specialty Pharmaceuticals*
`
`Contact Lens Care and Ophthalmic Surgical Device Businesses (AMO)
`Specialty Pharmaceuticals*
`
`Contact Lens Care and Ophthalmic Surgical Device Businesses (AMO)
`Specialty Pharmaceuticals*
`
`DILUTED EARNINGS PER SHARE FROM
`CONTINUING OPERATIONS, AS ADJUSTED (a)
`In dollars
`
`The adjusted amounts for 1998 exclude $171.4 million in expense resulting
`from the dividend of ASTI common stock to Allergan’s stockholders, and the
`after-tax effect of the following: 1) $50.4 million in restructuring charges, 2) $31.9
`million in asset write-offs, 3) gain on sales of investments, net of write-offs of
`certain investments, of $54.1 million, 4) the contribution to The Allergan Foundation
`of $11.0 million, and 5) income of $12.9 million from partnering agreements.
`
`(b) Diluted earnings per share adjusted by $0.04 for the first six months of 2002
`and by $0.07 for the full year 2001 to reflect dissynergies related to the spin-off
`of Advanced Medical Optics, Inc.
`
`In this Annual Report, the Company presents certain non-GAAP
`financial measures, including constant currency growth rates,
`one-time items and pro forma adjustments. For a reconciliation
`of these non-GAAP financial measures to comparable GAAP
`financial measures, please refer to the Company’s web site at
`www.allergan.com and click on the Investors/ Media heading.
`
`* Continuing Operations
`** Growth rate is based on 2002 and 2001 pro formaearnings per
`share of $1.88 and $1.48 respectively.
`
`APOTEX 1039, pg. 5
`
`

`

`AGN Strategic Vision
`2002
`
`To be a premier multi-specialty pharmaceutical company and to leverage that position over the long term into larger markets.
`
`INNOVATION
`
`SERVING SPECIALIST MARKETS
`WITH SIGNIFICANT POSITION
`
`TOP QUARTILE
`FINANCIAL RETURNS
`
`GLOBAL LEVERAGE AND
`OPERATIONAL EXCELLENCE
`
`AGN Strategic Initiatives
`
`INNOVATE IN
`THE CORE BUSINESS
`
`BROADEN SPECIALTY FOCUS
`
`OPTIMIZE ASSETS
`
`Identify Products and Technology Opportunities
`Consistent and Complementary to Therapeutic Area Priorities
`
`Align R&D Resources with Therapeutic Areas and Focus
`
`Enhance R&D Competencies
`Beyond Topicals and Injectables
`
`Improve Financial Flexibility
`
`Evaluate External Opportunities to
`Augment the Business Model
`
`AGN 4 2
`
`Refine Resource Allocation
`and Asset Optimization
`
`APOTEX 1039, pg. 6
`
`

`

`
`
`APOTEX 1039, pg. 7
`
`APOTEX 1039, pg. 7
`
`

`

`To Our Investors
`
`David E. I. Pyott
`
`TRANSFORMATION INTO A HIGH-GROWTH SPECIALTY PHARMACEUTICAL COMPANY
`
`At the beginning of 2002, we announced the spin-off of our optical medical device businesses, the
`contact lens care and ophthalmic surgical product lines, into a separate, publicly traded company
`called Advanced Medical Optics, Inc. (AMO). This created the second largest company in the world
`in the field of optical medical devices and took place in the form of a tax-free distribution to
`Allergan’s stockholders on July 1, 2002. This was the most important event in the history of Allergan
`since our founding in 1950, and completed our journey on which we embarked five years ago when
`50% of the Company’s sales were still from optical medical devices, to transform the Company into
`a focused high-growth, high-innovation specialty pharmaceutical company. We made this momentous
`decision, as it had become increasingly clear that the pharmaceutical and optical medical device
`businesses were fundamentally different, in terms of market growth rates, research and development
`(R&D) intensity, technological know-how, regulatory processes and product life cycles. For AMO, this
`has enabled an independent management team and Board of Directors to focus on the needs of
`the optical medical device business and invest appropriately in sales and marketing and new
`technologies, freed from the constraints of competing for these resources with Allergan’s high-growth
`pharmaceutical businesses. For Allergan, undivided management attention solely on attractive
`pharmaceutical opportunities has quickly paid dividends.
`
`AGN 4 4
`
`It is a tribute to the hard work and competence of the Allergan and AMO management teams and
`associates that the extremely complex global transaction of spinning-off AMO was completed without
`any negative surprises, on time and below budget and with no service issues for any of our customers.
`Even during the period of potential confusion immediately prior to the spin-off, the sales growth
`trajectory of both companies accelerated. Reactions from our ophthalmologist and optometry/optician
`customers have been universally positive, as they have correctly perceived the advantage of being
`served by two companies dedicated to their particular product and service needs.
`
`STRONG OPERATING PERFORMANCE
`
`At the time of the spin-off, we set even higher growth aspirations for the mid-term of mid-to-upper
`teens for sales growth and earnings per share growth in the range of 22% to 25%. For 2002, we
`have exceeded this goal with sales and profits on a pro formabasis growing in excess of 20%. Sales
`for the pharmaceutical-only businesses grew by 22% in local currencies and earnings per share on
`a full-year comparable pro forma basis, excluding the impact of the AMO spin-off and other one-time
`items, grew by 27%. Sales of our focus products in local currencies increased particularly dramatically:
`BOTOX up 43%, LUMIGAN up 245% and TAZORAC up 37%.
`
`APOTEX 1039, pg. 8
`
`

`

`Careful attention to detail and strong management of operations are hallmarks of Allergan’s success.
`Further expansion of gross margins to 84.3%, up from 82.7% in 2001, as adjusted for one-time items,
`for the Allergan pharmaceutical-only businesses, was achieved due to focus on the growth of our
`highest margin, strategic products and control of our cost of goods in a network of only three
`manufacturing plants. Since 1997 we have been able to raise gross margins from 64.9% on a
`combined business basis to 84.3%, as adjusted for one-time items, for the pharmaceutical business
`alone. We have increased earnings per share in 2002 by over 25% compared to 2001 on a comparable
`pro formabasis, even after heavily investing in the long-term drivers of success in the pharmaceutical
`industry: R&D and Sales and Marketing. In fact, Allergan has one of the highest Selling, General &
`Administrative (SG&A) and R&D reinvestment rates in the pharmaceutical industry. Expenditure on
`R&D, as adjusted for one-time items, for the pharmaceutical-only businesses increased by 22% to
`$228 million with R&D accounting for 17% of pharmaceutical-only sales. With several important products
`receiving regulatory approvals from the relevant authorities around the world, namely, BOTOX
`COSMETIC in the United States and Australia; and LUMIGAN in Europe, Canada, Australia and various
`Asian countries; we made substantial investments in product launches in 2002. In the United States,
`we also established a specialist pediatric sales force to detail our existing products to this new group
`of customers. For these reasons, SG&A expenditures, as adjusted for one-time items, reached a
`record 43% of sales. We have again leveraged General & Administrative (G&A) expenditures after the
`
`spin-off of AMO, which entailed some dis-economies of scale, and finished the year with G&A
`returning to almost 8% of sales in 2002, as adjusted for one-time items.
`
`Compared to almost all of our specialty pharmaceutical industry peers and large biotechnology companies,
`Allergan is unique in terms of our leading market positions in specialist markets, global presence and
`fully integrated, in-house R&D capabilities.
`
`DELIVERING PHARMACEUTICAL INNOVATION TO THE WORLD
`
`BOTOX
`
`Undoubtedly the most important approval of the year was BOTOX COSMETIC by the U.S. FDA on April
`15, 2002. This marked the first ever approval for an injectable pharmaceutical and non-topical biologic
`for cosmetic use. Shortly afterwards we received the same approval for BOTOX COSMETIC in
`Australia. BOTOX COSMETIC was approved under the trade name of VISTABEL in Switzerland in
`late 2002 and in early 2003 in France, acting as the Reference Member State under the mutual
`recognition process in the European Union.
`
`The media coverage around the approval of BOTOX COSMETIC in the United States was intense,
`making it the second most widely publicized launch in the history of the pharmaceutical industry.
`Media coverage, in fact, flowed from the United States around the world. The public’s interest
`
`APOTEX 1039, pg. 9
`
`

`

`AGN To Our Investors
`2002
`
`in BOTOX COSMETIC transcends all continents, cultures, languages and socio-economic classes as
`self-esteem and the desire to improve one’s appearance are universal human needs. The fascination
`for BOTOX and BOTOX COSMETIC is based on the utility of this potent neuromodulator in potentially more
`than 100 indications ranging from therapeutic neuromuscular disorders to cosmetic facial aesthetics, its
`localized treatment effect, and approximately 20 years of safety experience in large patient groups.
`
`invested heavily in expanding our sales forces and in 2002, commanded the largest sales force in
`the world dedicated to ophthalmologists. Furthermore, we had the largest ophthalmology sales
`force in North America, Europe, Latin America and Asia, outside Japan. We are also proud that our
`customers rated Allergan as the best sales force in the United States for the fifth straight year.
`We enjoyed successes particularly in the segments of glaucoma and artificial tears.
`
`Despite the enormous growth and success of BOTOX COSMETIC, there is much more breadth and
`depth to BOTOX than simply its cosmetic indications. The therapeutic indications for BOTOX, including
`the treatment for such debilitating maladies as cervical dystonia, juvenile cerebral palsy, strabismus
`(crossed eyes), and blepharospasm (uncontrollable blinking), account for almost 60% of worldwide
`sales of the combined BOTOX and BOTOX COSMETIC franchise. Sales relating to therapeutic
`indications grew over 30% as a group worldwide.
`
`SKIN CARE
`
`In dermatology, Allergan has chosen to focus on the high-growth and high-potential segments of
`acne and psoriasis and to concentrate on the dermatology markets in the United States and Canada.
`In this field, thanks to the strong growth of our flagship product, TAZORAC, Allergan recorded the highest
`in-market growth amongst the major dermatology companies in the United States. In 2002 TAZORAC
`was, in fact, the third most frequently prescribed product for acne by U.S. dermatologists and was the
`fastest growing retinoid product.
`
`At the end of the year, we also received approval in the United States and Canada for AVAGE, a new
`member of the tazarotene family, indicated for the topical treatment of facial fine wrinkling, mottled
`hypo- and hyper-pigmentation and benign facial lentigines. AVAGE, coupled with our offering of BOTOX
`COSMETIC and MD FORTE, a physician dispensed line of skincare products, positions Allergan as the
`premier partner for aesthetically oriented physicians. Looking to the future, Allergan is investing in clinical
`trials for the use of oral tazarotene in acne and psoriasis, conditions with significant unmet patient needs.
`
`OPHTHALMOLOGY
`
`According to IMS data for the first three quarters of 2002, Allergan was the fastest growing global
`ophthalmology company in terms of in-market sales, marking further progress in our goal to attain
`world leadership in this core franchise. We were able to make further market share gains due to the
`quality and efficacy of our products and our high levels of service to our physicians. Allergan has
`
`AGN 4 6
`
`In the important field of glaucoma, Allergan offers two very significant products to ophthalmologists
`around the world: ALPHAGAN and LUMIGAN. ALPHAGAN is today the second largest glaucoma product
`in the world. LUMIGAN, which was launched in the U.S. in 2001 and in 2002 in Europe, Canada and
`certain Asian countries, achieved $123 million in sales in its first full year of commercialization and
`has excellent potential. In a multi-center study, comparing LUMIGAN against the world’s currently
`best selling glaucoma medication, it was shown that LUMIGAN had better intraocular pressure lowering
`at every study visit and every time point during the day. ALPHAGAN P, a superior version of the original
`ALPHAGAN, was received extremely favorably by ophthalmologists from the day of its launch in the
`United States, thanks to a reduced incidence of ocular allergy whilst offering comparable efficacy.
`During 2002 ALPHAGAN P was approved in many Latin American countries, and we are pursuing
`registration in other countries around the world.
`
`At the end of the year, we entered into a settlement of patent disputes in the United States and
`Europe with Pharmacia Corporation regarding LUMIGAN and agreed to pay $120 million and royalties
`on future sales of LUMIGAN. Whilst we continue to feel very strongly about the correctness of
`our legal position as it relates to the non-infringement of Pharmacia’s patents, and the uniqueness
`of our compound LUMIGAN and its potent intraocular pressure lowering properties, this was a prag-
`matic conclusion of major litigation where the outcome would have been decided by jury trial.
`The cash payment did not materially impact our liquidity and we were able to avoid years of costly
`litigation around the world. With this patent dispute behind us, we can now dedicate our full efforts
`to ensuring the success of LUMIGAN in the marketplace.
`
`In the area of artificial tears, our broad product line, led by the REFRESH family of products, enjoyed
`a double digit increase in sales and further market share gains. REFRESH ENDURA, a breakthrough
`emulsion formulation, was launched in the United States. At the end of the year, we were delighted
`to receive FDA approval for RESTASIS, the first pharmaceutical in the world to treat the underlying
`causes of dry eye symptoms. Allergan, as the clear market leader in artificial tears in the world outside
`Japan, is excellently positioned to market this unique product.
`
`APOTEX 1039, pg. 10
`
`

`

`2002 was a year of momentous change for Allergan
`
`As a full-line supplier of ophthalmic pharmaceuticals, we are tremendously excited about our business
`prospects in 2003 as we have many new products that have been recently approved or are in final
`product registration. In the first half of 2003, we hope to introduce a powerful ophthalmic anti-infective,
`gatifloxacin, which will be the first 4th generation fluoroquinolone in the market, as well as an
`improved version of our non-steroidal anti-inflammatory, ACULAR, which is the leading product in
`its class worldwide. In 2003 we expect the approval of epinastine, an ocular antihistamine in both
`Europe and the United States.
`
`OUTLOOK FOR 20 03
`
`As a streamlined mid-sized pharmaceutical company, with only three manufacturing plants and a
`tight network of four global R&D centers, focused only on specialty areas, we look to the future
`with great optimism. In 2003 we have many opportunities as we launch a stream of new products
`from our R&D pipeline. Turnover amongst our employees, and especially in the ranks of management,
`has been low due to the entrepreneurial culture of the company and the ability of individuals, up
`and down the organization, to take responsibility and to make a difference, both to the Company
`and, most importantly, to patients.
`
`We continue to make major commitments to R&D, having increased our staff of scientists by 48%
`since 1997. During 2002 we dedicated a new R&D facility in the south of France and are currently
`constructing a major new R&D building in Irvine, California, costing about $75 million. This will
`address our expansion plans and space requirements over the coming five years. Historically, Allergan’s
`expertise lay in the development of topical pharmaceuticals for ophthalmology and dermatology. In
`recent years, with the great importance of BOTOX, we have significantly built up our expertise in all
`aspects of biologicals from process development to quality assurance to manufacturing. As we draw
`upon our scientific discovery platforms and our ambitions turn to new and larger opportunities, we
`are building up new competencies in the design and clinical investigation of oral drugs. Such examples
`are oral tazarotene for psoriasis and acne, and memantine, the first oral approach to the treatment
`of glaucoma. In the coming years we see a convergence of interests in various fields of neurology
`as BOTOX is used in more and more neurological conditions, and we develop new approaches for the
`treatment of glaucoma, which is in its essence a neuro-degenerative disorder.
`
`As we weigh our opportunities for growth and strive to establish Allergan as the very best company
`in the field of specialty pharmaceuticals, we are fortunate that Allergan generates strong free cash
`flow and has a strong balance sheet. Taking advantage of the current low interest rates at the end
`of 2002, we placed a new convertible bond offering, raising $500 million and then retired a substan-
`tial portion of a higher cost convertible bond issued in 2000. In addition, the Company renewed its
`primary credit line for a five-year term and put in place a new medium-term note program.These activ-
`ities have significantly improved Allergan’s liquidity and most likely moved any significant financing
`related requirements out to the end of 2007.
`
`With heightened scrutiny of public Boards of Directors and many new regulations, we have conducted
`rigorous reviews of the charters of our Board and its committees and every member of our Board
`has engaged in questioning our practices, agenda and interaction. In fact, in a recent Institutional
`Shareholder Services (ISS) study on Boards and Corporate Governance, Allergan outperformed
`approximately 85% of the companies in the S&P 500. We are pleased that our governance practices
`have always been very strong and we will continue to foster a culture dedicated to full compliance
`with all regulations issued by the SEC and other governmental bodies. We will furthermore strive to
`improve the workings of our Board from year to year.
`
`2002 was a year of momentous change for Allergan. We not only executed the changes quickly and
`efficiently – never losing sight of our mission to serve our customers and patients – but we again
`produced strong operating results. This is a tribute to the quality and dedication of our employees
`all around the world and a testament to our ability to rise to a challenge. The Board of Directors and
`I wish to thank and recognize the great contributions of so many individual employees.
`
`David E. I. Pyott
`Chairman of the Board, President and Chief Executive Officer
`
`APOTEX 1039, pg. 11
`
`

`

`AGN R & D
`2002
`
`Allergan augments its internal research and development efforts with industrial
`and academic collaborations
`
`Allergan continues to be committed to research and development focused
`
`on innovative new products that address unmet medical needs in specialty
`
`markets. Over time, Allergan has added additional core competencies to its
`
`expertise in developing topical treatments for diseases of the eye and skin,
`
`with the addition of a world-class team of researchers in the area of biologics.
`
`Further investment is being made for the development of oral medications
`
`related to our world class retinoid, alpha agonist and sodium channel
`
`blocker programs. To meet the needs of a 48% increase in the number of
`
`research and development employees over the last five years and to handle
`
`the Company’s future needs, a new R&D building, costing approximately $75
`
`million, is under construction and expected to be completed in 2004.
`
`AGN 4 8
`
`Allergan’s fully integrated in-house research and development capabilities are unique among its specialty
`pharmaceutical and large biotech peers. In the last five years, Allergan has increased its investment
`in R&D by over $100 million, dedicating approximately 20 percent of its research investment to the
`discovery of new compounds. Allergan facilitates global drug approvals with a coordinated development
`network that has centers in the United Kingdom, France and Japan, in addition to Irvine, California.
`The Company has embarked on a new era by expanding its development efforts into disease areas
`with larger market opportunities, which may require additional levels of complexity in clinical study
`design. Allergan augments its internal research and development efforts with industrial and academic
`collaborations and the in-licensing of compounds at various stages of clinical development. At year end,
`the Company employed approximately 1,000 research and development personnel.
`
`Allergan’s strategy has been to expand its leadership role in the science of neuromodulators,
`develop new potential compounds for sight-threatening diseases like glaucoma and age-related
`macular degeneration and build on its leadership position in therapeutic dry eye products. Allergan
`is also focusing on the more severe end of the spectrum of the dermatological diseases of acne
`and psoriasis with oral tazarotene.
`
`APOTEX 1039, pg. 12
`
`

`

`
`
`-:-'.'
`:'
`.'
`4.339
`APOTEX1039, pg. 13
`
`.
`
`APOTEX 1039, pg. 13
`
`

`

`AGN R & D
`2002
`
`GLAUCOMA
`
`Glaucoma, which is the world's second leading cause of blindness, is characterized by a slow
`progressive loss of visual function related to damage of the optic nerve. The current medications on
`the market are approved to treat elevated intraocular pressure (IOP), which is the major risk factor for
`this disease, not the neuro-degenerative disorder, which is the root cause of the disease. Allergan
`continues to work on improved agents for lowering intraocular pressure as well as drugs that may
`directly protect the optic nerve.
`
`Allergan has shown in laboratory studies that ALPHAGAN and other alpha-2 receptor agonists
`upregulate cell survival resulting in neuroprotection of retinal ganglion cells, the cells that die
`selectively in glaucoma.
`
`Allergan is exploring another approach to neuroprotection of the retinal ganglion cells with memantine.
`In laboratory studies, memantine, an antagonist of the N-methyl-D-aspartate (NMDA) type of glutamate
`receptor, has been shown to block glutamate’s ability to activate the NMDA receptor and protect retinal
`ganglion cells from dying. Enrollment of over 2,000 patients in a pioneering memantine Phase III
`program is now complete. These studies will evaluate memantine’s ability to prevent vision loss in
`glaucoma patients and could take three to five years to complete since visual function is the end
`point and vision is lost slowly over many years. This is the longest and most expensive clinical study
`in the history of ophthalmology. If proven to work, memantine would be the first and only oral
`medication that directly protects the optic nerve in the treatment of glaucoma.
`
`DRY EYE
`
`At the end of 2002, with much anticipation from patients who suffer from dry eye disease, the FDA
`approved RESTASIS (cyclosporine ophthalmic emulsion, 0.05%), the first and only therapy for
`patients with keratoconjunctivitis sicca (KCS), whose tear production is presumed to be suppressed
`due to ocular inflammation. Until now, physicians have been limited to using lubricating tears as
`a sub-optimal way to treat this severely debilitating disease.
`
`Tears are secreted by the lacrimal and accessory glands and perform vital functions in the eye such
`as lubrication of the eyelids and surface of the eye, defense against bacteria, and flushing away
`foreign particles.
`
`AGN 4 10
`
`Dry eye disease is a painful and irritating condition involving abnormalities and deficiencies in the
`tear film initiated by a variety of causes. Moderate-to-severe dry eye can be associated with or
`can lead to inflammation and may result in serious damage to the ocular surface. The incidence
`increases markedly with age and after menopause in women and in people with systemic diseases
`such as Sjögren’s syndrome, rheumatoid arthritis, lupus and diabetes.
`
`During 2002, a Phase II study evaluating a topical formulation of androgen for KCS was fully
`enrolled. Rounding out our leadership position in dry eye treatments is our collaboration with
`Inspire Pharmaceuticals for INS365, a novel tear stimulating agent in Phase III development.
`
`RETINAL DISEASE
`
`Age-related macular degeneration (ARMD) is the leading cause of blindness in people over the age
`of 50. Each year, approximately 10% of the estimated 13 million people with macular degeneration
`will suffer severe central vision loss due to the wet or advanced form of ARMD. Allergan is developing
`several novel approaches for the treatment of this devastating disease. One program focuses on
`identifying small molecule inhibitors of growth factor signaling, tyrosine kinase inhibitors.
`Another is a collaborative effort with EntreMed, Inc. to develop Panzem (2-methoxyestradiol),
`a small molecule angiogenic inhibitor used to block abnormal blood vessel formation in the back of
`the eye. A key part of this alliance will be the combination of Panzem with Oculex Pharmaceuticals’
`novel drug delivery technology to provide localized administration of Panzem to the back of the
`eye. These programs are still in pre-clinical development, but Allergan is committed to rapidly
`moving these technologies into early human testing.
`
`OTHER EYE CARE
`
`Allergan continued to support its long-term commitment to eye care by filing three new drug
`applications for topical products with the FDA in 2002: topical gatifloxicin, a fourth generation
`fluoroquinilone anti-infective for bacterial conjunctivitis; topical epinastine, an ocular antihista-
`mine; and a line extension for Allergan’s leading non-steroidal anti-inflammatory ketorolac. These
`round out the Company’s strategy to provide a full range of best-in-class ophthalmic medications.
`
`APOTEX 1039, pg. 14
`
`

`

`Allergan continued to file new drug applications around the world in 2002,
`enhancing its promising pipeline of innovative products in specialty markets
`
`NEUROMODULATORS
`
`Allergan continued to invest heavily to maintain its global leadership position in the research and
`development of neuromodulators, primarily BOTOX. Allergan’s strategy is focused on both expanding
`the approved indications for the current product, BOTOX, and pursuing new neuromodulator-based
`therapeutics. In the last few years, Allergan has significantly increased its investment in the areas
`of biologic process development and manuf