`
`A L L E RG A N
`03 A N N U A L
`R E P O R T
`d i sc ov e ry d e d i cat e d to pat i e n t s
`
`
`
`APOTEX1049, pg. 1
`
`APOTEX 1049, pg. 1
`
`

`

`conte nts
`
`1 Company Profile
`
`3
`
`4
`
`Vision and Mission Statements
`
`Financial Overview
`
`6 Reconciliation of Selected Non-GAAP Financial Measures
`
`8
`
`Shareholders’ Letter
`
`12 Research and Development
`
`16
`
`Technology Pipeline
`
`18 Ophthalmology
`
`24 Neuromodulators
`
`30 Dermatology
`
`36
`
`38
`
`Products At-A-Glance
`
`Executive Committee
`
`40 Board of Directors
`
`42 Condensed Consolidated Balance Sheets
`
`43 Condensed Consolidated Statements of Operations
`
`44 Condensed Consolidated Statements of Stockholders’ Equity
`
`46 Condensed Consolidated Statements of Cash Flows
`
`48
`
`Independent Auditors’ Report / Report of Management
`
`49 Corporate Overview and Stockholders’ Information
`
`APOTEX 1049, pg. 2
`
`

`

`company profile
`
`Allergan, Inc., with headquarters in Irvine, California, is a global specialty
`
`pharmaceutical company that develops and commercializes innovative products for
`
`the ophthalmology, neuromodulator, dermatology and other specialty markets.
`
`In addition to its discovery-to-development research programs, Allergan has
`
`global marketing and sales capabilities in over 100 countries that deliver value
`
`to our customers, satisfy unmet medical needs and improve patients’ lives. Driven
`
`by technology and innovation, Allergan addresses the needs of patients around
`
`the world with approximately 4,900 employees, a global research and development
`
`infrastructure and three state-of-the-art manufacturing plants.
`
`APOTEX 1049, pg. 3
`
`

`

`
`
`APOTEX 1049, pg. 4
`
`APOTEX 1049, pg. 4
`
`

`

`our vision / our mission
`
`To continue as an innovative, technology driven, global health care company
`
`focused on pharmaceuticals in specialty markets that deliver value to customers,
`
`satisfy unmet medical needs and improve patients’ lives. To 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. To develop a level of
`
`understanding of our customers in order to implement operational strategies that
`
`provide the greatest value for our customers and stockholders.
`
`APOTEX 1049, pg. 5
`
`

`

`N ET SALES
`In millions of dollars
`Growth rates in local currencies for continuing operations*
`
`G ROSS PROFIT AS A PE RCE NTAG E OF
`PHAR MACE UTICAL-ON LY SALES
`
`99
`
`00
`
`01
`
`02
`
`03
`
`$828.6
`
`+21.3%
`
`$992.1
`
`+22.6%
`
`$1,142.1
`
`+18.0%
`
`$1,385.0
`
`+21.8%
`
`$1,755.4
`
`+23.4%
`
`99
`
`00
`
`01
`
`02
`
`03
`
`79.4%
`
`80.1%
`
`82.7%
`
`85.9%
`
`85.5%
`
`R ESEARCH AN D DEVE LOPM E NT, AS ADJ USTE D (a)
`In millions of dollars
`Percentage of pharmaceutical-only sales
`
`DI LUTE D EAR N I NGS PE R SHAR E FROM
`CONTI N U I NG OPE RATIONS, AS ADJ USTE D (a)
`In dollars
`
`99
`
`00
`
`01
`
`02
`
`03
`
`$135.1
`
`16.3%
`
`$163.7
`
`16.5%
`
`$187.5
`
`16.4%
`
`$228.4
`
`16.8%
`
`$305.5
`
`18.3%
`
`99
`
`00
`
`01
`
`02
`
`03
`
`$0.99
`
`+30.3%
`
`$1.25
`
`+26.3%
`
`$1.55
`$1.48(b)
`
`+24.0%
`
`$1.92
`$1.88(b)
`
`$2.31
`
`+23.9%
`
`+27.0%**
`
`+20.3%
`
`+22.9%***
`
`* Growth rate in local currency is a non-GAAP financial measure.
`** Growth rate is based on 2002 and 2001 adjusted pro forma earnings per share of $1.88 and $1.48, respectively.
`*** Growth rate for 2003 is based on 2002 adjusted pro forma earnings per share of $1.88.
`
`(a) The adjusted amounts in 2003 exclude the after-tax effects of the following: 1) $179.2 million
`charge for in-process research and development related to the purchase of Oculex
`Pharmaceuticals, Inc., 2) $278.8 million charge for in-process research and development relat-
`ed to the purchase of Bardeen Sciences Company, LLC, 3) $0.4 million reversal of restructur-
`ing charge and asset write-offs, net related to the 2002 spin-off of the Company’s ophthalmic
`surgical and contact lens care businesses, 4) $0.3 million unrealized loss on derivative instru-
`ments, and 5) $0.9 million charge for the early extinguishment of convertible debt.
`The adjusted amounts in 2002 exclude the after-tax effects of the following: 1) $118.7 million
`in litigation settlement costs, 2) net costs of $100.3 million associated with the 2002 spin-off
`of the Company’s ophthalmic surgical and contact lens care businesses to Advanced Medical Optics
`
`which consist of 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 other than temporary impairment of equity investments, 4) $1.7 million unrealized loss
`on derivative instruments, 5) net gain of $1.0 million from partnering agreements, and
`6) $11.7 million charge for the early extinguishment of convertible debt.
`The adjusted amounts in 2001 exclude the $40.0 million charge for in-process research and
`development related to the purchase of Allergan Specialty Therapeutics, Inc. and the after-tax
`effects of the following: 1) $6.2 million restructuring charge and asset write-off reversal
`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
`
`APOTEX 1049, pg. 6
`
`

`

`financial ove rview
`
`In millions, except per share data
`
`2003
`
`2002
`
`2001
`
`2000
`
`1999
`
`Year Ended December 31,
`
`STATE M E NT OF OPE RATIONS H IG H LIG HTS
`(As reported under U.S. GAAP)
`Product net sales
`Gross profit
`Research and development
`Earnings (loss) from continuing operations
`Earnings 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)
`
`$1,755.4
`1,435.1
`763.5
`(52.5)
`–
`(52.5)
`
`$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
`
`(0.40)
`–
`
`(0.40)
`–
`
`0.36
`
`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
`
`$828.6
`658.2
`140.6
`143.7
`44.5
`188.2
`
`1.09
`0.33
`
`1.06
`0.33
`
`0.28
`
`Adjusted earnings from continuing operations
`
`305.2
`
`252.3
`
`207.7
`
`166.6
`
`133.9
`
`Adjusted basic earnings per share
`from continuing operations
`Adjusted diluted earnings per share
`from continuing operations
`Pro forma diluted earnings per share from continuing
`operations adjusted for dissynergies related to
`spin-off of Advanced Medical Optics, Inc.(b)
`
`2.34
`
`2.31
`
`1.95
`
`1.92
`
`1.58
`
`1.55
`
`1.27
`
`1.25
`
`1. 01
`
`0.99
`
`2.31
`
`1.88
`
`1.48
`
`–
`
`–
`
`N ET SALES BY PRODUCT LI N E
`Specialty Pharmaceuticals:
`Eye Care Pharmaceuticals
`BOTOX/Neuromodulators
`Skin Care
`
`Total Pharmaceutical Sales
`Other
`Total Net Sales
`
`PRODUCTS SOLD BY LOCATION
`Domestic
`International
`
`$ 999.5
`563.9
`109.3
`
`1,672.7
`82.7
`1,755.4
`
`$ 827.3
`439.7
`90.2
`
`1,357.2
`27.8
`$1,385.0
`
`$ 753.7
`309.5
`78.9
`
`1,142.1
`–
`$1,142.1
`
`$683.9
`239.5
`68.7
`
`992.1
`–
`$992.1
`
`$576.2
`175.8
`76.6
`
`828.6
`–
`$828.6
`
`70.4%
`29.6%
`
`70.6%
`29.4%
`
`67.0%
`33.0%
`
`63.4%
`36.6%
`
`60.7%
`39.3%
`
`agreement, 3) $4.5 million loss on the permanent impairment of equity investments, 4) $2.0
`million gain on the sale of divested pharmaceutical products in Brazil, 5) $4.2 million unrealized
`gain on derivative instruments, and 6) $4.4 million associated with the 2002 spin-off of the
`Company’s ophthalmic surgical and contact lens care businesses.
`The adjusted amounts in 2000 exclude the after-tax effects of the following: 1) a $0.2 million
`restructuring charge, 2) $1.3 million gain on the sale of investments, and 3) $2.0 million in
`expenses from partnering agreements.
`The adjusted amounts in 1999 exclude the after-tax effects 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) $14.0 million gain on sales of investments, 4) $6.9 million contribution to The
`
`Allergan Foundation, 5) $3.8 million of income, net of expenses of $5.7 million, from partnering
`agreements, and 6) $1.1 million in certain one-time costs.
`(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.
`
`The foregoing presentation contains certain non-GAAP financial measures, including con-
`stant currency growth rates, and non-GAAP and pro forma adjustments. For a reconciliation
`of these non-GAAP financial measures to comparable GAAP financial measures, please refer
`to pages 6 and 7 of this Annual Report.
`
`APOTEX 1049, pg. 7
`
`

`

`In millions, except per share amounts
`
`Year Ended December 31, 2003
`
`Year Ended December 31, 2002
`
`GAAP
`
`Non-GAAP
`Adjustments
`
`Adjusted
`
`GAAP
`
`Non-GAAP
`Adjustments
`
`Adjusted
`
`PRODUCT SALES
`Net sales – pharmaceutical only
`Non-pharmaceutical sales (primarily contract sales)
`Total
`
`Cost of sales – pharmaceutical only
`Cost of sales – non-pharmaceutical
`Product gross margin
`
`Research services margin
`
`Selling, general and administrative
`Research and development
`Technology fees from related party
`Legal settlement
`Restructuring charge (reversal) and asset write-offs, net
`Operating income (loss)
`
`Interest income
`Interest expense
`Gain (loss) on investments, net
`Unrealized gain (loss) on derivative instruments, net
`Contribution to The Allergan Foundation
`Other, net
`
`$1,672.7
`82.7
`
`1,755.4
`
`242.5
`77.8
`
`1,435.1
`
`1.5
`
`693.6
`763.5
`–
`–
`(0.4)
`
`(20.1)
`
`13.0
`(15.6)
`–
`(0.3)
`–
`(6.5)
`
`$ –
`–
`
`–
`
`–
`–
`
`–
`
`–
`
`–
`(458.0)(a)
`–
`–
`0.4(b)
`
`457.6
`
`–
`–
`–
`0.3(c)
`–
`0.9(d)
`
`$1,672.7
`82.7
`
`1,755.4
`
`242.5
`77.8
`
`1,435.1
`
`1.5
`
`693.6
`305.5
`–
`–
`–
`
`437.5
`
`13.0
`(15.6)
`–
`–
`–
`(5.6)
`
`$1,357.2
`27.8
`
`1,385.0
`
`191.4
`30.3
`
`1,163.3
`
`3.7
`
`629.5
`233.1
`–
`118.7
`62.4
`
`123.3
`
`15.8
`(17.4)
`(30.2)
`(1.7)
`–
`–
`
`$ –
`–
`
`–
`
`(3.7)(f)
`–
`
`3.7
`
`–
`
`(39.2)(g)
`(4.7)(h)
`–
`(118.7)(i)
`(62.4)(b)
`
`228.7
`
`–
`–
`30.2(j)
`1.7(c)
`–
`1.0(k)
`
`$1,357.2
`27.8
`
`1,385.0
`
`187.7
`30.3
`
`1,167.0
`
`3.7
`
`590.3
`228.4
`–
`–
`—
`
`352.0
`
`15.8
`(17.4)
`–
`–
`–
`1.0
`
`(9.4)
`
`1.2
`
`(8.2)
`
`(33.5)
`
`32.9
`
`(0.6)
`
`Earnings (loss) from continuing operations before income
`taxes and minority interest
`
`Provision for income taxes
`
`Minority Interest
`
`(29.5)
`
`22.2
`
`0.8
`
`458.8
`
`101.1(e)
`
`–
`
`429.3
`
`123.3
`
`0.8
`
`89.8
`
`25.1
`
`0.7
`
`261.6
`
`73.3(e)
`
`–
`
`351.4
`
`98.4
`
`0.7
`
`Earnings (loss) from continuing operations
`
`$ (52.5)
`
`$ 357.7
`
`$ 305.2
`
`$ 64.0
`
`$188.3
`
`$ 252.3
`
`Basic earnings (loss) per share from continuing operations
`
`Diluted earnings (loss) per share from continuing operations
`
`($0.40)
`
`($0.40)
`
`$2.74
`
`$2.71
`
`$2.34
`
`$2.31
`
`$0.49
`
`$0.49
`
`$1.46
`
`$1.43
`
`$1.95
`
`$1.92
`
`Total net sales
`
`$1,755.4
`
`$ (45.9)(v)
`
`$1,709.5
`
`$1,385.0
`
`$
`
`6.5(v)
`
`$1,391.5
`
`“GAAP” refers to financial information presented in accordance with generally accepted accounting
`principles in the United States.
`
`In this Annual Report, Allergan included historical non-GAAP financial measures, as defined in Regulation
`G promulgated by the Securities and Exchange Commission, with respect to the year ended December
`31, 2003, as well as the corresponding periods for 2002 through 1999. Allergan believes that its pres-
`entation of historical non-GAAP financial measures provides useful supplementary information to
`investors. The presentation of historical non-GAAP financial measures is not meant to be considered in
`isolation from or as a substitute for results prepared in accordance with accounting principles generally
`accepted in the United States.
`
`In this Annual Report, Allergan reported the non-GAAP financial measure “adjusted earnings” and related
`“adjusted diluted earnings per share.” Allergan uses adjusted earnings to enhance the investor’s overall
`understanding of the financial performance and prospects for the future of Allergan’s core business
`
`activities. Specifically, Allergan believes that a report of adjusted earnings provides consistency in its
`financial reporting and facilitates the comparison of results of core business operations between its
`current, past and future periods. Adjusted earnings is one of the primary indicators management uses
`for planning and forecasting in future periods. Allergan also uses adjusted earnings for evaluating
`management performance for compensation purposes.
`
`In this Annual Report, Allergan also reported sales performance using the non-GAAP financial measure of
`constant currency sales. Constant currency sales represent current period reported sales adjusted for the
`translation effect of changes in average foreign exchange rates between the current period and the
`corresponding period in the prior year. Allergan calculates the currency effect by comparing adjusted
`current period reported amounts, calculated using the monthly average foreign exchange rates for the
`corresponding period in the prior year, to the actual current period reported amounts. Management refers
`to growth rates at constant currency so that sales results can be viewed without the impact of changing
`
`APOTEX 1049, pg. 8
`
`

`

`reconciliation of selected non-gaap financial measures
`
`Year Ended December 31, 2001
`
`Year Ended December 31, 2000
`
`Year Ended December 31, 1999
`
`GAAP
`
`Non-GAAP
`Adjustments
`
`Adjusted
`
`GAAP
`
`Non-GAAP
`Adjustments
`
`Adjusted
`
`GAAP
`
`Non-GAAP
`Adjustments
`
`Adjusted
`
`$1,142.1
`–
`
`1,142.1
`
`198.1
`–
`
`944.0
`
`4.2
`
`481.1
`227.5
`(0.7)
`–
`(1.7)
`
`242.0
`
`$ –
`–
`
`–
`
`–
`–
`
`–
`
`–
`
`(2.9)(n)
`(40.0)(l)
`–
`–
`1.7 (m)
`
`41.2
`
`$1,142.1
`–
`
`1,142.1
`
`198.1
`–
`
`944.0
`
`4.2
`
`478.2
`187.5
`(0.7)
`–
`–
`
`283.2
`
`$992.1
`–
`
`$ –
`–
`
`$ 992.1
`–
`
`$828.6
`–
`
`$ –
`–
`
`$828.6
`–
`
`992.1
`
`197.7
`–
`
`794.4
`
`3.5
`
`409.2
`165.7
`(3.1)
`–
`0.2
`
`225.9
`
`–
`
`–
`–
`
`–
`
`–
`
`1.3(p)
`(2.0)(q)
`–
`–
`(0.2)(r)
`
`0.9
`
`992.1
`
`197.7
`–
`
`794.4
`
`3.5
`
`410.5
`163.7
`(3.1)
`–
`–
`
`226.8
`
`23.9
`(16.2)
`0.8
`–
`–
`1.2
`
`828.6
`
`170.4
`–
`
`658.2
`
`2.9
`
`332.2
`140.6
`(6.1)
`–
`(4.4)
`
`198.8
`
`14.3
`(8.6)
`14.0
`–
`(6.9)
`(0.4)
`
`–
`
`–
`–
`
`–
`
`–
`
`8.2(u)
`(5.5)(q)
`–
`–
`4.4(s)
`
`(7.1)
`
`–
`–
`(14.0)(p)
`–
`6.9(t)
`–
`
`828.6
`
`170.4
`–
`
`658.2
`
`2.9
`
`340.4
`135.1
`(6.1)
`–
`–
`
`191.7
`
`14.3
`(8.6)
`–
`–
`–
`(0.4)
`
`30.6
`(18.1)
`(4.5)
`4.2
`–
`6.1
`
`18.3
`
`260.3
`
`88.5
`
`0.6
`
`–
`–
`4.5(j)
`(4.2)(c)
`–
`(6.5)(o)
`
`(6.2)
`
`35.0
`
`(1.5)(e)
`
`–
`
`30.6
`(18.1)
`–
`–
`–
`(0.4)
`
`12.1
`
`295.3
`
`87.0
`
`0.6
`
`23.9
`(16.2)
`0.8
`–
`–
`1.2
`
`9.7
`
`235.6
`
`69.1
`
`0.6
`
`–
`–
`–
`–
`–
`–
`
`–
`
`0.9
`
`0.2(e)
`
`–
`
`9.7
`
`236.5
`
`69.3
`
`0.6
`
`12.4
`
`(7.1)
`
`5.3
`
`211.2
`
`67.4
`
`0.1
`
`(14.2)
`
`(4.4)(e)
`
`–
`
`197.0
`
`63.0
`
`0.1
`
`$ 171.2
`
`$ 36.5
`
`$ 207.7
`
`$165.9
`
`$ 0.7
`
`$ 166.6
`
`$143.7
`
`$ (9.8)
`
`$133.9
`
`$1.30
`
`$1.29
`
`$0.28
`
`$0.26
`
`$1.58
`
`$1.55
`
`$1.27
`
`$1.24
`
`–
`
`$0.01
`
`$1.27
`
`$1.25
`
`$1.09
`
`$1.06
`
`$(0.08)
`
`$(0.07)
`
`$1.01
`
`$0.99
`
`$1,142.1
`
`$ 28.8(v)
`
`$1,170.9
`
`$992.1
`
`$24.1(v)
`
`$1,016.2
`
`$828.6
`
`$ 40.0(v)
`
`$868.6
`
`foreign currency exchange rates, thereby facilitating period-to-period comparisons of Allergan’s sales.
`Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant
`currency rates will be higher or lower, respectively, than growth reported at actual exchange rates.
`
`(a) In-process research and development charge related to the acquisition of Bardeen Sciences
`Company, LLC and Oculex Pharmaceuticals, Inc. (b) Restructuring charge (reversal) and asset write-offs,
`net related to the spin-off of Advanced Medical Optics. (c) Unrealized loss on the mark-to-market
`adjustment to derivative instruments. (d) Loss on early extinguishment of debt. (e) Tax effect for non-
`GAAP adjustments. (f) Duplicate operating expenses of $2.6 million and restructuring charge and
`asset write-offs of $1.1 million related to the spin-off of Advanced Medical Optics. (g) Duplicate oper-
`ating expenses incurred related to the spin-off of Advanced Medical Optics. (h) Duplicate operating
`expenses of $0.7 million and partnering collaboration expense of $4.0 million. (i) Legal settlement
`regarding LUMIGAN. (j) Marked-to-market loss on investments and related third party collaborations.
`
`(k) Partnering deal settlement of $5.0 million, gain on sale of facility (spin-related) of $5.7 million and
`loss on early extinguishment of debt of $11.7 million. (l) In-process research and development charge
`related to the acquisition of Allergan Specialty Therapeutics, Inc. (m) Restructuring charge reversal
`related to the 1998 restructuring charge. (n) Duplicate operating expenses of $4.4 million related to
`the spin-off of Advanced Medical Optics., net of income of $1.5 million from a partnering agreement.
`(o) Gain on sale of facility (1998 restructuring-related) of $4.5 million and $2.0 million gain on the sale
`of divested pharmaceutical products in Brazil. (p) Gain on sale of investments. (q) Partnering agreement
`expenses. (r) Final restructuring charge adjustment related to the 1996 restructuring charge.
`(s) Restructuring charge reversal of $3.6 million and $0.8 million of asset gains, reducing write-offs
`recorded related to the 1998 restructuring charge (t) Contribution to The Allergan Foundation.
`(u) $9.3 million of income, net of expenses of $0.2 million, from partnering agreements and $1.1 of
`certain one-time costs. (v) The adjustment to measure sales using constant currency.
`
`APOTEX 1049, pg. 9
`
`

`

`Allergan – the only true specialty pharmaceutical company in the world.
`
`Since the successful spin-off of our optical medical device businesses in mid-2002, Allergan has focused all of its
`management and financial resources on growth and innovation in its pharmaceutical businesses. From 1997 through 2003,
`Allergan’s pharmaceutical businesses have more than doubled in size driven by the strength of our scientific innovations
`and sales and marketing capabilities.
`
`Allergan is truly unique in the pharmaceutical industry. We combine revenue diversity through a broad proprietary product
`portfolio and global R&D development capability similar to the large, fully integrated pharmaceutical companies with the
`high growth and lean operating models of specialty pharmaceuticals and the strong pipeline characteristics of biotech.
`Furthermore, Allergan is small enough for flexible decision making and nimble execution whilst being large enough to
`command sufficient economies of scale to succeed in the specialty markets in which we compete. This uniquely
`attractive business model has enabled us to build a depth of managerial and scientific talent, and has provided financial
`resources to generate sufficient profit streams for reinvestment back into breakthrough R&D. Key aspects of our business
`model include:
`
`INTEGRATED GLOBAL R&D: Allergan is one of the few mid-sized pharmaceutical companies with a strong, internal
`discovery capability spanning multiple, strategically targeted therapeutic areas and that possesses small molecule
`and biologics assets. Our internal discovery know-how is further supplemented by a global network of discovery part-
`nerships. With the 2003 acquisition of Oculex Pharmaceuticals, Inc., Allergan has enhanced its expertise in drug delivery.
`
`LEADING SALES AND MARKETING CAPABILITIES: As a true specialty company, we market to limited numbers of
`physicians, typically 10,000 or less, in the United States. This allows us to service our customers with manageable
`sales forces that are among the largest in their competitive segments.
`
`HIGHLY LEVERAGED ASSETS: As a relatively small player in the overall pharmaceutical industry, we have streamlined
`our structures to achieve economies of scale by concentrating manufacturing into three world-class plants and clinical
`development into four global units.
`
`EFFICIENT AND EFFECTIVE: Allergan has one of the best track records in the industry for success measured in
`terms of the number of compounds entering the clinic relative to the number of market approvals and is in the top
`quartile of benchmark performance for speed and costs of clinical development. Our large, well-trained sales forces are
`managed according to tight performance metrics and customer satisfaction, utilizing state-of-the-art information
`technology tools. In manufacturing, we utilize Six Sigma and Lean Manufacturing techniques. A mantra for maintaining
`flexibility is to maintain a lean overhead structure – in 2003 our general and administrative expenses were below 8
`percent of sales – driven by our ability to leverage strong, common processes and our investment in a single world-
`wide SAP information technology platform.
`
`STRONG GROWTH DRIVEN BY INNOVATION. In an industry challenged by declining pharmaceutical growth rates, Allergan
`again delivered superior results in 2003, posting 23 percent growth in our core pharmaceutical products. Driven by a multitude of
`new product introductions and new indications for BOTOX, sales in dollars increased in excess of 20 percent in every business:
`ophthalmology, neuromodulators and dermatology, with us gaining market share in each of these areas.
`
`APOTEX 1049, pg. 10
`
`

`

`share holde r s’ lette r
`
`APOTEX 1049, pg. 11
`
`

`

`In ophthalmology, we launched multiple innovative products: RESTASIS, which is the world’s first and only therapeutic dry eye
`product that relieves the symptoms of dry eye disease by restoring natural tear production; ZYMAR, the first fourth-generation
`fluoroquinolone anti-infective; and ACULAR LS, an optimized formulation of the world’s largest topical non-steroidal anti-
`inflammatory. In the BOTOX area, we launched VISTABEL, the trade name for BOTOX Cosmetic in Europe. BOTOX also
`received approval for hyperhidrosis, a chronic condition of excessive sweating, in the European Union. Although famous both
`in the United States and across the world as the wrinkle treatment, 60 percent of BOTOX sales are related to applications
`for chronic therapeutic conditions. In using BOTOX, the physician seeks to temporarily relax a muscle or reduce the activity
`of an overactive gland. Today, BOTOX is approved by regulatory agencies in 73 countries around the world and for use in up
`to 20 different indications, depending on the country. This points to the enormous versatility of BOTOX. With a large number
`of clinical studies and scientific papers exploring new BOTOX treatments, other uses continue to be reported. These include
`new therapeutic areas such as migraine and pain related to neuromuscular disorders.
`
`STRONG OPERATING PERFORMANCE AND KEY TRANSACTIONS. Earnings per share in 2003 increased by 23 percent
`on a recurring basis, adjusting principally for the write-off of in-process R&D relating to two transactions that occurred
`during the year: the exercise of our option to purchase Bardeen Sciences Company, LLC and the acquisition of Oculex
`Pharmaceuticals, Inc. These two transactions further increased the depth and breadth of Allergan’s R&D pipeline. The
`Bardeen transaction enabled us to secure the sole rights to such important ophthalmology programs such as memantine,
`LUMIGAN in a fixed combination with timolol, androgen tears and the tazarotene oral program for acne. The Oculex acquisition
`accelerated our entry into the next key market in ophthalmology, therapeutics to treat diseases of the retina, by several years.
`Specifically, we obtained POSURDEX, a steroid implant for the treatment of macular edema, as well as the Oculex bioerodable
`delivery platform. This proprietary bioerodable device is capable of supplying minute amounts of drug to the back of the eye
`for a period of as long as six months and will serve as the delivery vehicle for Allergan’s early stage proprietary anti-VEGF,
`tazarotene, Panzem and other compounds. Market leadership in the retinal disease market will be determined by relative efficacy
`of the competing drugs, as well as the ability to deliver the drugs safely and effectively to the back of the eye in a low number
`of treatment cycles per year. The acquisition of the Oculex technology places Allergan at the forefront of this opportunity.
`
`We also again fulfilled our goal of providing earnings performance in the top quartile of the best specialty pharmaceutical
`and biotech companies. As evidence of our financial and operational strength, we generated $326 million of operating
`cash flow prior to dividend payments and share repurchases. This was after investing $110 million into new fixed assets,
`principally in a new BOTOX facility in Ireland, which addresses our foreseeable expanding demand for BOTOX for the coming
`decade, and a state-of-the-art, 170,000 square foot R&D facility at our Irvine campus that will address our laboratory space
`requirements for roughly the next five years. We managed our working capital even tighter than in prior years with inven-
`tory days on hand (DOH) declining by 14 days to 78 days and receivables holding constant, even as our sales expanded
`strongly. Days of Sales outstanding finished the year at a record low of 42 days. At year end we held a cash position of
`$508 million, granting us flexibility for future strategic transactions.
`
`Reinvestment into the two key drivers of growth in the pharmaceutical industry, R&D and Sales and Marketing, remained
`at very high levels and at the top of the benchmarks for the best companies in our peer group of specialty pharmaceutical
`and large biotech companies. Our selling, general and administrative (SG&A) expenditures increased 17 percent over
`2002, as adjusted for one-time items, given the investments in launches of multiple new products and were 41.5 percent
`of pharmaceutical-only sales. Expenditures on R&D, adjusted for the in-process R&D charges referenced above, increased
`34 percent to $306 million, or 18.3 percent of pharmaceutical-only sales.
`
`HIGH MARKET SHARES AND STRONG GROWTH IN EVERY BUSINESS. In 2003, with both the cosmetic and therapeutic
`franchises growing at approximately the same rate, BOTOX sales increased by 28 percent to $564 million. As a result, the
`therapeutic share of total sales remained at approximately 60 percent of the total, consistent with the 2002 mix. The
`unique versatility of BOTOX is the key strategic driver for the long-term growth sustainability of this product. The BOTOX
`therapeutic franchise is made up of a great diversity of indications ranging from mature ophthalmic movement disorders
`such as blepharospasm, to cervical dystonia, to emerging use in hyperhidrosis, migraine headaches, pain associated with
`movement disorders and overactive bladder. With 15 years of history in the United States, approval in 73 countries around
`the world and over 1 million patients treated with BOTOX in 2002 alone, BOTOX has a virtually unparalleled record in the
`pharmaceutical industry of use for many serious medical conditions. Allergan continues to invest heavily in BOTOX R&D –
`over $200 million in the past three years – to investigate and secure regulatory approval for new indications for BOTOX as
`well as to further improve the product.
`
`APOTEX 1049, pg. 12
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`share holde r s’ lette r
`
`In ophthalmology, Allergan was again the fastest growing global company in the world, increasing in-market sales by 19
`percent in the first nine months of 2003, according to IMS global data. In fact, Allergan has been the fastest growing global
`company since 2002 and is poised to capture the No. 2 global position in 2004. Strong market share gains were recorded in
`all of the key segments of the ophthalmology market where we compete. In particular, glaucoma, which accounts for 43
`percent of the world ophthalmology market, saw significant share gains thanks to major sales increases for LUMIGAN as
`well as continuing growth of our ALPHAGAN franchise, given the strong market acceptance of our enhanced ALPHAGAN P
`formula in the United States. Market share gains were also made with anti-infectives, based on the successful introduction
`of ZYMAR, and in the non-steroidal anti-inflammatory market, aided by the launch of ACULAR LS, as well as in the artificial
`tears market, where Allergan is the market leader with our broad range of REFRESH tears products.
`
`In our third platform business, dermatology in North America, excellent progress was again made in 2003 with sales increasing
`by 21 percent. Sales of TAZORAC/AVAGE expanded by 29 percent to $80 million, securing Allergan’s leadership position in the
`specialty market for topical treatments for acne and psoriasis, and we continue to be one of the fastest growing competitors in
`this area. This strength may be used as leverage in the Company’s next major product introduction, tazarotene oral for psoriasis,
`which was filed with the FDA during the third quarter of 2003. We currently expect to launch this product at the end of 2004.
`Psoriasis is a market characterized by significant unmet medical needs, as evidenced by a flurry of activity to launch new
`biological agents by several biotechnology companies. Tazarotene oral will compete indirectly with these new agents and some
`older products on the basis of its convenient once-per-day oral dosing and relative efficacy combined with a good side effect
`profile. In addition, it should appeal to managed care companies with its lower pricing compared to the new biologicals.
`
`OUTLOOK FOR THE FUTURE. Today Allergan is already acknowledged as a leader in ophthalmology, neuromodulators with
`BOTOX and dermatology. Our strategy for the future is to continue to bolster our strengths in these existing areas and, by
`following the technology being developed in our laboratories, to add positions in neurology, gastroenterology and potentially
`another therapeutic area. This will establish Allergan as a multi-platform specialty company.
`
`We have one of the best drug pipelines in the industry relative to our size. With an exceptional portfolio of early and mid-stage
`pipeline compounds, coupled with no fewer than ten projects in Phase III, and the integration of the Oculex programs,
`there is a requirement for continuing high investment rates in R&D – some $330 million to $350 million in 2004. In addition,
`in 2004 we plan to file no fewer than five Investigational New Drug applications (INDs) with the FDA.
`
`The richness, breadth and depth of our pipeline – unusual in our industry at this time – mean that we have the good fortune
`of deciding among many exciting strategic options. Faced with these many options, we have developed processes for
`disciplined resource allocation and rigorous portfolio planning so that we may concentrate our resources on the highest
`return projects for long-term shareholder value creation. In this context, we selected retinal diseases as the next large
`potential market in ophthalmology and acquired the Oculex technology. We have decided to avoid the costs of building a
`sales infrastructure overseas by out-licensing tazarotene oral outside North America for psoriasis and out-licensing LUMIGAN
`in Japan, thus leveraging partners’ existing sales forces. Also in the discovery area we must focus our prolific efforts on the
`highest potential areas. As a consequence, we currently plan to spin out our early stage retinoid technology in 2004.
`
`For all of our accomplishments in 2003, I wish to recognize the hard work, creativity and dedication of talented Allergan employees
`around the world. As the Company has grown and evolved, many new demands have been placed on our management and all
`of our associates. Fortunately, these demands also yielded many opportunities for professional and personal development. In
`developing a new strategic plan for the next phase in growth of Allergan, I wish also to acknowledge the support and counsel
`of our strong Board of Directors, whose rich experience covers many aspects of the health care field and global business.
`I want to thank our shareholders for your continuing loyalty and support. Above all, I wish to make a tribute to the patients
`whom we serve, whose stories make our work so vital and to whom we dedicate our discovery efforts to meet unmet needs.
`
`David E. I. Pyott
`Chairman of the Board, President and Chief Executive Officer
`
`APOTEX 1049, pg. 13
`
`

`

`
`
`
`
`APOTEX 1049, pg. 14
`
`

`

`re search and deve lopme nt
`
`Allergan is proud of its legacy of applying innovative science and technology to unmet
`
`medical needs in specialty markets – ophthalmology, neuromodulators and dermatology.
`
`This legacy began, and continues today, with scientists, researchers and development
`
`specialists dedicated to creating products and technologies to enhance patients’ quality
`
`of life. We are looking ahead to important developments in our specialty areas.
`
`OPHTHALMOLOGY – RETINAL DISEASE. Age-related
`macular degeneration (ARMD) is the leading cause of blind-
`ness in people over the age of 50. Each year, approximately
`10 percent of the estimated 13 million people worldwide with
`macular degeneration will suffer severe central vision loss
`due to the wet or advanced form of ARMD.
`
`Allergan is advancing several novel approaches for the
`treatment of this devastating disease. One program focuses
`on identifying small molecule inhibitors of growth factor
`signaling called tyrosine kinase inhibitors. Another is a
`collaborative effort with EntreMed,