Comment
`
`Page 1
`
`Allergan Inc.
`
`Reuters: AGN.N Bloomberg: AGN US NYSE: AGN
`
` Analysis of Sales/Earnings
`
`January 30, 2003
`
`Strong 4Q02; Botox Doesn't
`Disappoint
`• AGN reported 4Q02 operating EPS of $0.54, in line with our estimate
`Slightly lower than expected revenues were offset by a slightly higher
`than expected gross margin and lower then expected operating
`expenses, which led to the in-line quarter. On a 16% sales increase,
`operating income grew 19%, pretax income 24%, net income 25%, and
`EPS 27%.
`• We believe this was a strong quarter for AGN
`Positives: (1) Botox sales in the quarter beat our estimate, (2) AGN
`also provided Strong Botox guidance for next year, (3) the glaucoma
`franchise outperformed as well (specifically Lumigan and Alphagan
`P). Concerns: (1) the shortfalls for Tazorac and Other Eye Care
`Pharma sales and (2) reduced Alphagan franchise forecasts for 2003.
`• We maintain our Overweight stock rating and EPS estimates
`...of $2.33 for 2003. Our price target remains $72 based on a P/E
`multiple of 31x (PEG of 1.3x) on our 2003E earnings.
`• We maintain our Attractive view on the Specialty Pharma industry
`We believe our coverage universe (on a market-cap weighted basis)
`can outperform the market for the rest of the year.
`
`Fiscal Year Ends (Dec 31)
`EPS ($)
`Prior EPS Ests. ($)
`First Call Consensus ($)
`P/E
`P/E Rel. to (local index) (%)
`P/CE
`Price/Book
`EV/EBITDA
`Yield (%)
`Market Cap ($mn)
`Enterprise Value ($mn)
`Debt/Cap (12/01) (%)
`Return on Equity (12/01) (%)
`LT Est EPS Growth ('yy - 'yy) (%)
`P/E to Growth
`Shares Outstanding (mn)
`e = Morgan Stanley Research estimates
`
`2001
`1.48
`–
`1.96
`41.3
`–
`28.8
`8.4
`24.3
`–
`7,884.7
`8,499.2
`34.7
`24.3
`24.0
`1.72
`129.3
`
`2002e
`1.88
`–
`1.87
`32.4
`–
`24.8
`8.0
`20.8
`–
`2001
`actual
`0.35
`0.35
`0.35
`0.43
`
`Q'trly
`EPS
`Q1
`Q2
`Q3
`Q4
`
`2003e
`2.33
`–
`2.30
`26.2
`–
`19.6
`6.4
`16.7
`–
`
`2004e
`–
`–
`–
`–
`–
`–
`–
`–
`–
`
`2002e
`curr
`prior
`0.43
`0.00
`0.43
`0.00
`0.48
`0.00
`0.54e
`0.00e
`
`2003e
`curr
`prior
`0.53e
`0.00
`0.55e
`0.00
`0.58e
`0.00
`0.67e
`0.00
`
`Please see the important disclosures at the end of this report.
`
`Equity Research
`North America
`
`United States of America
`
`Pharmaceuticals, Specialty
`
`Marc Goodman
`+1 (1)212 761 8403
`Marc.Goodman@morganstanley.com
`Gary Nachman
`+1 (1)212 761 6389
`Gary.Nachman@morganstanley.com
`Amit Bhalla
`+1 (1)212 761 8043
`Amit.Bhalla@morganstanley.com
`OVERWEIGHT
`STOCK RATING
`$60.98
`Price (January 29, 2003)
`$72
`Price Target
`$70.24 - 49.10
`52-Week Range
`Stock ratings are relative to the analyst's industry (or
`industry team's) coverage universe.
`
`GICS SECTOR
`US Strategist Weight
`S&P 500 Weight
`
`HEALTH CARE
`16.6%
`15.1%
`
`Stock Price Performance
`
`Relative to S&P 500 Index (Right)
`Allergan Inc. (Left, U.S. Dollar)
`
`100
`90
`80
`70
`60
`50
`40
`30
`20
`10
`0
`
`400
`350
`300
`250
`200
`150
`100
`0
`
`05
`
`00
`
`01
`
`02
`
`98
`
`99
`
`Data Source: FactSet Research Systems Inc.
`
`Company Description
`Allergan is a global provider of specialty therapeutic
`eye care products with niche pharmaceutical
`products in skin care and movement disorders.
`Products areas include ophthalmology, skin care,
`intraocular lenses, and contact lens care products.
`
`1
`
`ALL 2050
`MYLAN PHARMACEUTICALS V. ALLERGAN
`IPR2016-01128
`
`

`

`Page 2
`
`Strong 4Q02; Botox Doesn't Disappoint
`
`Summary Thoughts on 4Q02 and the Stock
`Allergan (AGN) reported operating EPS for 4Q02 of $0.54
`versus $0.43 last year, in line with our estimate and $0.01
`above consensus. On a 16% sales increase, operating
`income grew 19%, pretax income 24%, net income 25%,
`and EPS 27%. Slightly lower than expected revenues were
`offset by a slightly higher than expected gross margin and
`lower then expected operating expenses, which led to the in-
`line quarter.
`
`Investor focus clearly has been on Botox, and Botox did
`not disappoint. Botox sales came in at the high end of the
`range, beat our forecast by $3 million and was about $18
`million above 3Q levels. This number should boost investor
`confidence in the seasonality feature of the product.
`Importantly, the company provided strong Botox sales
`forecasts for next year, which we believe should drive
`consensus sales estimates higher from the $540-550 million
`range. The two key glaucoma products ⎯ Lumigan and
`Alphagan P ⎯ also provided sales upside.
`
`The disappointments for the quarter, in our view, were
`shortfalls in Tazorac and the non-glaucoma eyecare
`products and the sales guidance for Alphagan P in 2003.
`Management addressed the issues. With respect to Tazorac,
`the market is clearly slowing and it appears that some of the
`competing products have begun to regain some share from
`incremental promotional activity. There was an inventory
`buy-in by wholesalers in 3Q02 that was above the
`company's previous expectations and that was corrected in
`4Q02. Our sales assumptions were a little high (roughly $3
`million) based on our Rx driven revenue model, and we had
`included $5 million of inventory stocking for Avage in 4Q,
`which was pushed out to 1Q03. Other Eye Care Pharma
`products will be buoyed with new product launches this
`year and our estimates were probably just too high in the
`quarter. And with respect to Alphagan P, the sales guidance
`is more a reflection of AGN’s strategy for the entire
`glaucoma franchise (only promoting Lumigan) and not a
`result of expected penetration of generic Alphagan on
`Alphagan P. We also believe that AGN is being very
`conservative to eliminate this product as an investor
`concern.
`
`We continue to be surprised by the level of investor
`skepticism with the stock. Even with the good quarter and
`solid 2003 guidance, the stock sold off a $1 on the day.
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`Perhaps there was some “selling on the news” after the
`stock had run up leading into the quarter in anticipation of
`strong results. We just wonder when AGN will get a little
`more respect. Management’s track record of success has
`been excellent. The company has multiple current growth
`drivers with Botox, Lumigan, Restasis, and Tazorac/Avage
`that should drive revenue growth in the 15-17% range. One
`of these products, Botox, has the potential to be a
`blockbuster, i.e. $1 billion product. And the most important
`near-term product in the pipeline (an oral version of
`Tazorac) is moving forward a little faster than expectations
`and should be an incremental growth driver by late next
`year.
`
`Additionally, we would note four areas that we believe
`are under-appreciated by investors.
`
`•
`
`•
`
`•
`
`First is the company’s financial flexibility, i.e.,
`operating leverage, which should begin to become
`more visible this year as AGN continues to grow
`earnings in the 22-25% range while repurchasing its
`Bardeen off balance-sheet partnership.
`
`Second, we don’t believe the biotech component of
`Allergan is well appreciated. Botox accounts for
`roughly one-third of revenues and a higher percentage
`of profits. We believe an important reason that biotech
`companies have higher P/E multiples than pharma
`companies and usually over 2x their growth rates is that
`there is no current pathway for generic biologics in the
`US, i.e., the annuity stream is longer for biotech drugs
`than typical pharma products. We don’t believe the
`stock accounts for this fact.
`
`Third is our belief that the product pipeline is also
`under-appreciated by investors and not appropriately
`factored in to the stock’s valuation. AGN has multiple
`product opportunities in multiple ophthalmic areas as
`well as several non-ophthalmic areas. AGN is
`spending 16-17% of revenues on R&D, which is
`similar to large-cap pharma companies and yet the
`stock trades at a P/E multiple barely above the
`company’s growth rate. Where is the multiple
`premium? We believe large-cap pharma trades at 2x
`their growth rates because of their significant R&D
`spending and investor confidence in the R&D
`productivity, which we view as reflected in the stocks’
`terminal multiples. We would argue that AGN has
`
`2
`
`

`

`Page 3
`
`been at least as productive as many of these larger
`companies.
`
`•
`
`And fourth is the company’s strength with product life
`cycle extension strategies. Last year was Alphagan to
`Alphagan P and this year should be Acular to a next
`generation version with a different formulation.
`
`Positives from the Quarter
`• Botox exceeds expectations. Botox sales of $128
`million increased 45% over sales in 4Q01 and exceeded
`our expectations by $3 million. Going into the
`conference call, there was heavy investor skepticism
`regarding Botox’s performance during the quarter, but
`given a seasonal increase in demand, a price increase on
`December 1 and strong growth in therapeutic uses, the
`product was able to exceed investor expectations.
`Management did indicate that the price increase was told
`to its customers on November 15, and thus, physicians
`had the opportunity to build inventories. However,
`management indicated that January sales have been
`strong, and it appears the buy-in had minimal impact.
`(This should not be surprising given that physicians
`don’t have the room for significant inventory levels and
`do not have sophisticated buying programs as do the
`wholesalers). Management also provided bullish sales
`guidance of $540-580 million for 2003, and reminded
`investors that sales are normally sequentially lower in
`1Q than the prior 4Q.
`
`• Management broke out Botox growth for both the
`therapeutic and cosmetic segments for the first time,
`and both are demonstrating strong growth.
`Management indicated that worldwide Botox therapeutic
`sales for 2002 increased over 30%. Even the most
`mature parts of the therapeutic segment (e.g., movement
`disorders) are still enjoying attractive growth. Much of
`this is due to geographic expansion ⎯ such as the
`cervical dystonia approval in Japan in the fall of 2001
`and focal spasticity approval in Europe in 2002. With
`respect to additional therapeutic indications,
`hyperhydrosis is already approved in the UK, Canada,
`Australia and the Netherlands, and should be approved
`across the EU in 2Q03 and rolled out to individual
`countries thereafter. With respect to cosmetic use, Botox
`sales for the full year increased by over 60%. Even
`though economic weakness has been felt in many
`markets where Botox Cosmetic is available,
`management indicated that sales of the product do not
`appear to be negatively impacted so far. In Europe,
`
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`management indicated that it anticipates cosmetic
`approval any day (marketed as Vistabel in France).
`France is acting as the reference member state for the
`European Union.
`
`• Lumigan continues to perform well. Lumigan sales of
`$35 million in the quarter slightly exceeded our
`expectations by $1 million. Lumigan has gained market
`share since the increased salesforce promotional
`attention and the publication of head-to-head data in the
`American Journal of Ophthalmology which
`demonstrated that Lumigan lowered IOP more than
`Pharmacia’s Xalatan (the market leader). Exhibit 7
`details Lumigan Rxs throughout 2002. With respect to
`the European Lumigan launch, management indicated
`that its launch trajectory has been the best of any
`glaucoma product launched thus far and that hyperemia
`(red eye), which in our view has been the major reason
`the product has not done even better in the US, has not
`been an issue in Europe. Lumigan was also approved in
`Australia in 4Q. Overall, we have been pleased with
`how Allergan has been able to successfully manage its
`entire glaucoma franchise.
`
`• Strong Alphagan franchise performance. Alphagan
`franchise (mostly Alphagan P) sales of $65 million in
`the quarter exceeded our expectations by $9 million.
`Management indicated that worldwide sales of Alphagan
`and Alphagan P, were down 2.5% (constant currency)
`versus 4Q01 mainly because of less use of Alphagan as
`first line therapy in the US. Management also indicated
`that in Europe, Alphagan is being only marginally
`impacted by the successful launch of Pharmacia’s
`Xalcom. Alphagan P has been launched in Brazil and
`India, and AGN expects to launch it across Latin
`America and Asia during 2003. AGN also continues to
`work on a European filing. With respect to the potential
`impact of a generic Alphagan on Alphagan P
`performance, management indicated that almost all
`Alphagan prescriptions have been switched over to
`Alphagan P, the product has over 90% formulary
`coverage, and there are only a handful of accounts that
`have any interest in replacing Alphagan P with a generic
`Alphagan on formularies.
`
`• Restasis early approval and expected launch in 2Q03.
`On December 24, AGN announced that Restasis was
`approved by the FDA for chronic dry eye. The approval
`came a lot sooner than we expected and is a significant
`positive as it provides another important growth driver
`to the company’s story. Restasis will be the first
`
`3
`
`

`

`Page 4
`
`prescription product for any form of dry eye on the
`market (all dry eye products sold today are OTC tears
`products), and the company believes that the therapeutic
`segment of the chronic dry eye market could grow to
`$300-500 million over the next three to five years.
`While management could not give specific details with
`respect to Restasis pricing, management did describe
`pricing in the lubricating tears OTC market for
`comparison. More specifically, the cost per day of
`lubricating tears is on the order of about $0.39 and
`AGN’s most recent launch, in the Refresh line (Refresh
`Endura, a premium product) costs in practice
`approximately $0.74 per day. Management indicated
`that Restasis will be priced at a multiple of Endura and
`will be “a very expensive product.”
`
`• Pipeline moving forward in 2003. Management noted
`a number of anticipated pipeline highlights for 2003
`which include the following: (1) Restasis is expected to
`be launched in 2Q03, (2) Gatifloxacin is expected to be
`launched in the US in 2Q03, (3) an improved version of
`Acular is expected to be launched in 2Q03, (4) Vitrase,
`AGN’s project with Ista Pharmaceuticals, will be going
`to an FDA advisory panel in March with a potential
`launch in 2003, and (5) Epinastine will complete the
`mutual recognition process in Europe in 1Q03, and
`should be approved in the US in 4Q03 with a 1Q04
`launch, (5) Avage is currently being launched in the US
`and Canada, and (6) Oral Tazorac for psoriasis is
`expected to be filed in 3Q03 (a quarter earlier than we
`expected).
`
`• Operating leverage. SG&A of $148 million for the
`quarter was $5 million below our expectations, and once
`again, demonstrated AGN’s ability to leverage operating
`expenses. Management indicated that its SG&A ratio of
`approximately 43% for 2002 is approximately 10 points
`higher than the industry average, thus it believes it has
`substantial opportunity to lower costs. Overall,
`management believes it will be able to realize an SG&A
`ratio of approximately 39-40% in 2003 which still leaves
`the company with room for further improvement relative
`to the industry.
`
`Concerns from the Quarter
`• Tazorac sales below expectations. Tazorac/Zorac
`(tazarotene cream) sales of $15 million in the quarter
`were $8 million below our expectations. We had
`included $5 million of stocking for the launch of Avage
`but this was pushed out to 1Q03. Management indicated
`
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`that the product was negatively impacted by inventory
`movement among US wholesalers. According to
`management, wholesaler buy-ins at the end of 3Q02
`ultimately corrected themselves in 4Q02. We would
`note that while sales fell on a sequential basis, year-
`over-year growth increased approximately 35%. Also,
`management pointed out that this market has been more
`challenging as of late, and admitted that maybe the weak
`economy has affected this business (although that did
`not seem to be a factor for Botox).
`
`• Bardeen repurchase not in the guidance. While it is
`anticipated that Bardeen will most likely be repurchased
`in April 2003, management’s current guidance does not
`include the potential earnings impact of the buyback.
`Even though management has indicated that the Bardeen
`repurchase should result in little or no dilution to EPS,
`we believe it will remain an investor concern until the
`partnership is eliminated.
`
`• Alphagan franchise guidance below expectations.
`Management’s guidance for the Alphagan family is
`down approximately $33-43 million versus 2002, and
`management indicated that the impact of a generic
`competitor is not the major reason for the downward
`guidance. Rather, management pointed to increased
`usage of the prostaglandin drugs as first line therapy and
`less use for Alphagan as a first-line agent (Alphagan is
`positioned now as more of a second line or add-on
`therapy), and hence, less promotional activity for
`Alphagan with the primary focus being on Lumigan.
`
`• Acular litigation. Even though AGN plans to introduce
`an improved version of Acular in 2Q03, management
`has previously indicated that litigation against Apotex
`over a generic version of Acular is set to begin in May.
`As background, Apotex filed an Acular ANDA in mid
`2001 and AGN sued Apotex in June 2001 to start the 30
`month clock. At issue between the two companies is the
`Acular formulation patent that is set to expire in May
`2009. Our models currently assume that Allergan’s
`formulation patent holds, but if Apotex is successful in
`its patent challenge, there could potentially be downside
`to our sales forecasts. However, we would note that this
`downside would probably not be significant enough to
`negatively impact the company’s bottom line.
`
`Management Guidance
`Exhibit 1 summarizes financial guidance management
`provided during the conference call.
`
`4
`
`

`

`Page 5
`
`faster-growing residual pharma business. We believe there
`are risks to the stock achieving our price target, including
`sustainability of the Botox and glaucoma franchises,
`significant delays in FDA product approvals, and
`competition from generic manufacturers.
`
`Our view of the specialty pharma industry remains
`Attractive as we believe our coverage universe — on a
`market-cap-weighted basis — can outperform the market
`for the rest of the year and into 2003.
`
`Upcoming Milestones & Events
`Exhibit 3 below details important upcoming milestones and
`events for Allergan.
`
`Exhibit 3
`AGN Expected Upcoming Events
`Date
`Product
`Milestone/Event
`2003
`2003
`3/03
`1Q03
`2Q03
`2Q03
`2Q03
`mid ‘03
`mid ‘03
`mid ‘03
`3Q03
`4Q03
`4Q03
`
`France approval for cosmetic use
`Botox
`FDA advisory panel
`Vitrase
`Approval through EU MRP process
`Epinastine
`FDA approval and launch
`Gatifloxicin
`Product launch
`Restasis
`Launch of reformulation
`Acular
`US filing for hyperhidrosis (excess sweat)
`Botox
`European approval for hyperhidrosis
`Botox
`NDA for dry eye
`INS365
`Filing for psoriasis
`Tazorac Oral
`Lumigan/timolol NDA filing
`Epinastine
`FDA approval for allergy
`
`2004
`2004
`1Q04
`mid ‘04
`late ‘04
`late ‘04
`late ‘04
`late ‘04
`
`2005
`1H05
`late ‘05
`
`Lumigan/timolol
`Epinastine
`Combigan
`Tazorac Oral
`Lumigan/timolol
`Tazorac Oral
`Botox
`
`EU filing
`Product launch
`NDA filing
`Filing for acne
`FDA approval & launch
`Approval for psoriasis
`US filing for spasticity
`
`Combigan
`Tazorac Oral
`
`Product approval
`Approval for acne
`
`Source: Company data, Morgan Stanley Research
`
`Variance Analysis and Additional Financial Highlights
`Exhibit 4 below details our income statement variance
`analysis from the quarter.
`
`Exhibit 1
`Financial Guidance
`
`1Q03 Revs.
`1Q03 diluted EPS
`
`Full Year 2003
`Total Revs.
`Diluted EPS
`Botox Revs.
`Alphagan franch. Revs.
`Lumigan Revs.
`Tazorac/Avage Revs.
`Restasis Revs.
`Contract Revs.
`Pharma Only Revs.
`
`Gross Margin**
`SG&A
`R&D
`Op. Profit
`DSO
`
`Current
`$375-395MM
`$0.52-0.53
`
`$1,610-1,690MM
`$2.29-2.31
`$540-580MM
`$205-215MM
`$175-195MM
`$75-85MM
`$20-40MM
`$60-80MM
`$1,550-1,610MM
`
`85.0%
`39-40%
`16-17%
`25-26%
`60-65 days
`
`NC = no change; NA = not applicable
`* = including Contract Revenue
`** = excluding Contract Revenue
`Source: Company data, Morgan Stanley Research
`
`MS
`Estimate
`$389MM
`$0.53
`
`$1,643MM
`$2.33
`$565MM
`$213MM
`$195MM
`$82MM
`$30MM
`$70MM
`$1,573
`
`81.8%*
`39.3%
`16.8%
`25.8%
`--
`
`Key Changes to MS Earnings Estimates
`Exhibit 2 below details key changes to our financial model.
`
`Exhibit 2
`Summary of Key Changes to Our Model
`Current
`
`2003
`Total Revenues
`SG&A
`R&D
`EPS
`
`Botox
`Alphagan franch.
`Lumigan
`Tazorac/Avage
`
`$1,643MM
`$646M
`$274M
`$2.33
`
`$565M
`$213M
`$195M
`$82M
`
`NC = no change
`Source: Company data, Morgan Stanley Research
`
`Previous
`
`$1,699M
`$681M
`$289M
`NC
`
`$547M
`$234M
`$197M
`$100M
`
`Company Stock Rating and Industry View
`We are making no changes to our Overweight stock rating
`or $72 price target. Our price target is based on a P/E
`multiple of 31x (PEG of 1.3x) on our 2003E earnings. Our
`investment thesis remains that AGN has (1) a diverse
`revenue base with several key growth drivers ⎯ Botox,
`Tazorac, the glaucoma franchise and now Restasis, (2) a
`strong pipeline for a company of its size that supports a
`five-year sustainable growth rate forecast of 24%, and (3)
`P/E multiple expansion as the AMO spin-out results in a
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`5
`
`

`

`Page 6
`
`share), (2) duplicate operating expenses associated with the
`AMO spin-off of $1.4 million pre-tax ($0.01 per share),
`(3) charge for the early extinguishment of convertible debt
`of $11.7 million pre-tax ($0.06 per share), and (4)
`restructure charge and asset write-off reversal of $2.3
`million pre-tax ($0.01 per share).
`
`2003 cash flow guidance. Management estimates cash
`flow of approximately $150-160 million including about
`$150 million of capital expenditures (e.g., R&D
`manufacturing facility improvements, additional Botox
`biologic capability, and manufacturing expenditures with
`respect to the Botox facility in Ireland) and roughly $50
`million of dividends. This guidance does not include the
`assumption of buying back the Bardeen Sciences
`partnership, which we estimate to be about $250 million.
`
`45
`8
`-8
`NM
`16
`
`-1
`21
`NM
`21
`24
`19
`
`NM
`NM
`NM
`NM
`
`24
`-19
`-4
`
`NM
`24
`1
`27
`
`124.8
`218.4
`26.7
`12.7
`382.6
`
`72.7
`309.9
`0.8
`153.0
`58.9
`98.8
`
`4.0
`-4.0
`0.1
`0.1
`
`98.9
`27.7
`28.0%
`
`0.0
`71.2
`130.7
`$0.54
`
`100.0%
`19.0%
`81.0%
`15.4%
`40.0%
`25.8%
`0.0%
`25.8%
`18.6%
`
`41
`12
`12
`NM
`17
`
`4
`21
`NM
`25
`16
`18
`
`NM
`NM
`NM
`NM
`
`23
`19
`-3
`
`NM
`25
`-2
`27
`
`128.2
`210.8
`21.9
`17.3
`378.2
`
`69.5
`308.7
`1.2
`148.0
`62.8
`99.1
`
`5.1
`-4.6
`-0.4
`0.1
`
`99.2
`27.7
`27.9%
`
`0.0
`71.5
`134.5
`$0.54
`
`100.0%
`18.4%
`81.6%
`16.6%
`39.1%
`26.2%
`0.0%
`26.2%
`18.9%
`
`3.4
`(7.6)
`(4.8)
`4.6
`(4.4)
`
`(3.2)
`(1.2)
`0.4
`(5.0)
`3.9
`0.3
`
`1.1
`(0.6)
`(0.5)
`0.0
`
`0.3
`(0.0)
`0.1%
`
`0.0
`0.3
`3.8
`(0.00)
`
`0.6%
`0.6%
`-1.2%
`0.9%
`0.4%
`0.0%
`0.4%
`0.3%
`
`Exhibit 4
`AGN 4Q02 Variance Analysis - Income Statement
` Estimate
` Actual
`($ Millions Except EPS)
`Y/Y
`Y/Y
`Amount %Chg Amount %Chg Variance
`
`Sales
`Botox
`Eye Care Pharma
`Skin Care Pharma
`Contract Rev
` Total Sales
`
`COGS
`Gross Profit
`Net R&D Svc. Revs.
`SG&A
`R&D
`Operating Income
`
`Interest Income
`Interest Expense
`Other Income
` Total Other Income
`
`Pretax Income
`Taxes
`Tax Rate
`
`Minority Interest
`Net Income
`Shares
`EPS - Diluted
`
`Margin Analysis
`Sales
`COGS
`Gross Profit
`R&D
`SG&A
`Operating Income
`Other Income
`Pretax Income
`Net Income
`
`Morgan Stanley Research Estimates NM = Not Meaningful
`
`NM = Not Meaningful NA = Not Available
`Source: Company data, Morgan Stanley Research
`
`Quarter once again included several non-operating, one
`time items. AGN reported 4Q02 earnings of $0.49 which
`included $9.8 million ($0.05 per share) of pre-tax non-
`recurring items. The one time items were as follows:
`(1) unrealized gain on mark-to-market adjustment to
`derivative investments of $1.0 million pre-tax (or $0.01 per
`
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`6
`
`

`

`Page 7
`
`Exhibit 5
`Eye Care Pharma Pipeline Products
`Product
`Clinical Phase
`Sales Est.
`Restasis
`Approved
`$30M in 2003
`$80M in 2004
`$110M in 2005
`$140M in 2006
`$160M in 2007
`
`What’s Changed
`--
`
`Description/Comments
`Prescription product for the treatment of dry eye.
`Phase III confirmatory study ongoing.
`
`Gatifloxicin
`
`NDA filed
`
`Epinastine
`
`Phase III
`
`Tazorac Oral
`
`Phase III
`
`$20M in 2003
`$45M in 2004
`$55M in 2005
`$62M in 2006
`$68M in 2007
`
`$10M in 2004
`$15M in 2005
`$20M in 2006
`$26M in 2007
`
`$20M in 2005
`$40M in 2006
`$60M in 2007
`
`--
`
`--
`
`--
`
`NA = Not Applicable
`Source: Company data, Morgan Stanley Research
`
`Ocular antibiotic in-licensed from Kyorin Pharma. NDA
`filed in 2Q02, launch expected 2Q03. Product should
`replace Ocuflox since Ocuflox loses its exclusivity in
`2004.
`
`Pipeline product for ocular allergies. US NDA filing
`expected 4Q02. EU approval expected 1Q03.
`
`Oral version of Tazorac for the treatment of psoriasis
`and acne. Filing expected 3Q03 for psoriasis. Acne
`indication is about 1 year behind.
`
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`7
`
`

`

`Page 8
`
` Worldwide Revs.
`Reported & Estimated
`Qtr.
`Annual
`
`$12.2
`
`$14.5
`
`$20.2
`
`$15.2
`
`$62.1
`
`Theoretical US Revenues (b)
`Weekly Quarterly
`Annual
`($ Mil.)
`($ Mil.)
`($ Mil.)
`$0.8
`$0.9
`$0.9
`$1.0
`$1.1
`$1.0
`$1.2
`$1.4
`$1.5
`$1.4
`$1.4
`$1.2
`$1.1
`
`$12.3
`
`$14.4
`
`$18.1
`
`$17.8
`
`$62.4
`
`39%
`35%
`27%
`28%
`24%
`22%
`27%
`28%
`29%
`34%
`17%
`19%
`21%
`24%
`25%
`21%
`
`$1.3
`$1.5
`$1.4
`$1.3
`$1.3
`$1.3
`$1.4
`$1.5
`$1.4
`$1.8
`$1.6
`$1.8
`$1.7
`$1.8
`$1.6
`$1.3
`
`$17.9
`
`$20.9
`
`$21.5
`
`$18.0
`
`$21.0
`
`$21.0
`
`$22.1
`
`$82.3
`
`$22.0
`
`$82.0
`
`Wk/Wk
`Change
`13%
`-5%
`-1%
`-4%
`3%
`-15%
`1%
`1%
`-5%
`-1%
`1%
`-12%
`-26%
`
`20%
`13%
`-5%
`-5%
`0%
`0%
`-4%
`6%
`-17%
`0%
`2%
`-5%
`0%
`-1%
`-13%
`-29%
`
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`96.2%
`
`Exhibit 6
`US Tazorac Weekly Retail & Mail Order Prescription Analysis
`(a)
`Weekly
`Weekly
`(a)
`Yr/Yr
`Long-Term Adjusted
`Total
`New
`Care Adj.
`Rxs Change
`Rx
`Rx
`8,161
`11,777
`98.7%
`11,932
`55%
`9,977
`13,100
`98.7%
`13,273
`53%
`9,967
`13,290
`98.7%
`13,465
`45%
`10,951
`14,401
`98.7%
`14,591
`44%
`11,460
`14,872
`96.2%
`15,459
`57%
`9,752
`13,325
`96.2%
`13,851
`44%
`12,550
`16,781
`96.2%
`17,444
`47%
`12,443
`16,556
`95.4%
`17,354
`46%
`13,758
`18,414
`95.4%
`19,302
`42%
`12,898
`17,293
`95.4%
`18,127
`42%
`13,052
`17,358
`95.2%
`18,233
`37%
`11,193
`15,249
`95.2%
`16,018
`10%
`9,247
`13,259
`95.2%
`13,928
`30%
`608,638
`812,761
`844,475
`11,046
`15,969
`16,600
`13,216
`18,069
`18,783
`12,828
`17,126
`17,802
`12,259
`16,345
`16,991
`12,259
`16,345
`16,991
`11,887
`15,850
`16,476
`13,361
`17,815
`18,518
`14,261
`19,014
`19,765
`12,899
`17,198
`17,878
`16,915
`22,553
`23,444
`14,635
`19,513
`20,284
`16,582
`22,110
`22,983
`15,867
`21,156
`21,992
`16,210
`21,613
`22,467
`14,413
`19,217
`19,976
`12,163
`16,217
`16,858
`760,332
`1,015,486
`1,055,599
`
`Week
`Ended
`*01/04/02
`*01/25/02
`02/22/02
`03/29/02
`04/26/02
`05/31/02
`06/28/02
`07/26/02
`08/30/02
`09/27/02
`10/25/02
`*11/29/02
`*12/27/02
`2002 Total
`*1/03/03
`01/10/03
`01/17/03
`*1/24/03
`01/31/03
`02/28/03
`03/28/03
`04/25/03
`*5/30/03
`06/27/03
`07/25/03
`08/29/03
`09/26/03
`10/31/03
`*11/28/03
`*12/26/03
`2003 Total
`
`Yr/Yr
`Wk/Wk
`Change Change
`14%
`46%
`-5%
`51%
`-3%
`41%
`-5%
`45%
`5%
`56%
`-18%
`39%
`-1%
`43%
`1%
`42%
`-6%
`35%
`0%
`37%
`1%
`33%
`-13%
`7%
`-30%
`29%
`
`19%
`20%
`-3%
`-4%
`0%
`0%
`-4%
`6%
`-17%
`0%
`2%
`-5%
`0%
`-1%
`-13%
`-29%
`
`35%
`27%
`22%
`23%
`18%
`20%
`22%
`24%
`32%
`35%
`18%
`21%
`23%
`26%
`29%
`32%
`
`Assumptions: Average Price per Rx is $68 through 3/29, $70 through 6/28, and $78 thereafter
` Weekly Revenues = Total weekly adjusted Rxs * price per Rx
` Annualized Revenues = Weekly Revenues * 52 weeks
`(a) Weekly data from IMS reflects only Mail and Retail (not Long-Term Care), so we have adjusted the weekly totals based on a full year
` "All Channel" report from IMS that also includes Long-Term Care (represented small 3.8% of Rxs in 2002).
`(b) Theoretical revenues do not account for revenues outside of the US
`*Holiday Week
`Note: Boxed data represents forecasted amounts.
`Source: IMS America, Company data and Morgan Stanley Research Estimates.
`
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`8
`
`

`

`Exhibit 7
`US Lumigan Weekly Retail & Mail Order Prescription Analysis
`Weekly
`Weekly
`Yr/Yr
`New Wk/Wk
`Total Wk/Wk
`(a)
`Rx Change Change
`Rx Change Adjustment
`6,277
`8%
`16,270
`9%
`94.3%
`7,628
`-3%
`17,149
`-3%
`94.3%
`7,879
`-3%
`18,257
`-1%
`94.3%
`8,393
`1% 5146%
`20,393
`1%
`94.3%
`8,818
`5%
`257%
`21,629
`2%
`92.3%
`8,113
`-13%
`90%
`21,345
`-9%
`92.3%
`9,326
`-1%
`59%
`23,999
`1%
`92.3%
`9,247
`2%
`57%
`23,945
`2%
`90.1%
`9,190
`4%
`47%
`24,706
`4%
`90.1%
`9,111
`-1%
`39%
`24,911
`1%
`90.1%
`9,511
`1%
`49%
`25,137
`0%
`90.3%
`9,103
`-17%
`26%
`24,228
`-13%
`90.3%
`8,489
`-29%
`46%
`24,079
`-20%
`90.3%
`472,218
`1,206,593
`9,324
`27,349
`10,920
`28,751
`10,998
`28,259
`11,438
`27,778
`11,367
`27,607
`11,771
`28,588
`12,161
`29,533
`12,776
`31,028
`11,755
`28,548
`13,512
`32,816
`14,289
`34,703
`14,201
`34,489
`14,079
`34,192
`15,645
`37,994
`14,067
`34,162
`13,118
`31,858
`705,246
`1,721,227
`
`Page 9
`
` Worldwide Revs
`Reported & Estimated
`Qtr.
`Annual
`
`$21.1
`
`$31.9
`
`$35.0
`
`$35.1
`
`$123.1
`
`Theoretical US Revenues (b)
`Yr/Yr Weekly Quarterly
`Annual
`Change
`($ Mil.)
`($ Mil.)
`($ Mil.)
`$1.3
`$1.4
`$1.5
`$1.7
`$1.9
`$1.9
`$2.1
`$2.1
`$2.2
`$2.2
`$2.4
`$2.3
`$2.3
`
`$19.7
`
`$25.6
`
`$28.1
`
`$33.4
`
`$106.8
`
`12470%
`757%
`333%
`212%
`172%
`130%
`108%
`99%
`56%
`66%
`
`73%
`66%
`64%
`67%
`61%
`48%
`49%
`45%
`35%
`38%
`43%
`37%
`35%
`41%
`39%
`31%
`
`$2.6
`$2.7
`$2.7
`$2.6
`$2.6
`$2.7
`$2.8
`$2.9
`$2.7
`$3.1
`$3.3
`$3.2
`$3.2
`$3.6
`$3.2
`$3.0
`
`$34.6
`
`$38.6
`
`$41.5
`
`$43.0
`
`$47.0
`
`$51.0
`
`$47.1
`
`$161.8
`
`$53.6
`
`$194.6
`
`Week
`Ended
`*01/04/02
`*01/25/02
`02/22/02
`03/29/02
`04/26/02
`*05/31/02
`06/28/02
`07/26/02
`08/30/02
`09/27/02
`10/25/02
`*11/29/02
`*12/27/02
`2002 Total
`*1/03/03
`01/10/03
`01/17/03
`*1/24/03
`01/31/03
`02/28/03
`03/28/03
`04/25/03
`*5/30/03
`06/27/03
`07/25/03
`08/29/03
`09/26/03
`10/31/03
`*11/28/03
`*12/26/03
`2003 Total
`
`(a)
`Adjusted
`Rxs
`17,253
`18,186
`19,361
`21,626
`23,433
`23,126
`26,001
`26,576
`27,421
`27,648
`27,837
`26,831
`26,666
`1,318,425
`29,890
`31,422
`30,884
`30,358
`30,171
`31,243
`32,276
`33,911
`31,200
`35,864
`37,927
`37,693
`37,369
`41,524
`37,336
`34,818
`1,881,122
`
`10%
`17%
`1%
`4%
`-1%
`7%
`4%
`5%
`-13%
`-1%
`2%
`4%
`-1%
`6%
`-17%
`-29%
`
`49%
`33%
`40%
`50%
`50%
`40%
`45%
`45%
`45%
`45%
`55%
`55%
`55%
`55%
`55%
`55%
`
`14%
`5%
`-2%
`-2%
`-1%
`7%
`4%
`5%
`-13%
`-1%
`2%
`4%
`-1%
`6%
`-17%
`-29%
`
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`91.5%
`
`Assumptions: Average Price per Rx is $75 beginning 3/8/02, $80 beginning 9/27/02, and $86 thereafter
` Weekly Revenues = Total weekly adjusted Rxs x Price per Rx
` Annualized Revenues = Weekly Revenues x 52 weeks (may be skewed due to seasonality)
`(a) Weekly data from IMS reflects only Mail and Retail (not Long-Term Care), so we have adjusted the weekly totals based on a full year
` "All Channel" report from IMS that also includes Long-Term Care (represented 8.5% of Rxs in 2002).
`(b) Theoretical revenues do not account for revenues outside of the US
`*Holiday Week
`Note: Boxed data represents forecasted amounts.
`Source: IMS America, Company data and Morgan Stanley Research Estimates.
`
`Allergan Inc. - January 30, 2003
`Please see the important disclosures at the end of this report.
`
`9
`
`

`

`Exhibit 8
`US Alphagan P Weekly Retail & Mail Order Prescription Analysis
`Weekly
`Weekly
`(a)
`(a)
`Long-Term Adjusted
`Yr/Yr
`New Wk/Wk
`Total
`Rx
`Change Change
`Care Adj.
`Rx
`Rxs
`
`Wk/Wk
`Change
`
`Week
`Ended
`
`Page 10
`
`Theoretical US Revenues (b)
`Yr/Yr Weekly Quarterly
`Annual
`Change ($ Mil.)
`($ Mil.)
`($ Mil.)
`
` Worldwide Revs. (c)
` Reported & Estimated
`Annual
`Qtr.
`
`*01/04/02
`*01/25/02
`02/22/02
`03/29/02
`04/26/02
`05/31/02
`06/28/02
`07/26/02
`08/30/02
`09/27/02
`10/25/02
`*11/29/02
`*12/27/02
`2002 Total
`*1/03/03
`01/10/03
`01/17/03
`*1/24/03
`01/31/03
`02/28/03
`03/28/03
`04/25/03
`*5/30/03
`06/27/03
`07/25/03
`08/29/03
`09/26/03
`10/31/03
`*11/28/03
`*12/26/03
`2003 Total
`
`6,784
`7,893
`8,779
`8,810
`9,554
`8,390
`10,030
`14,865
`24,701
`25,036
`22,229
`19,503
`17,265
`797,201
`19,214
`22,821
`21,548
`21,763
`21,981
`22,201
`21,302
`21,515
`22,612
`23,530
`22,803
`19,746
`20,143
`18,730
`19,107
`19,882
`
`9%
`-5%
`0%
`-2%
`1%
`-15%
`-1%
`14%
`NM
`7%
`1% 1193%
`-6%
`307%
`-18%
`145%
`-27%
`177%
`
`11%
`19%
`-6%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`
`183%
`161%
`161%
`176%
`163%
`134%
`142%
`125%
`170%
`135%
`53%
`-20%
`-20%
`-21%
`-2%
`15%
`
`12,168
`14,283
`16,870
`19,479
`21,637
`21,761
`25,258
`31,106
`46,347
`51,809
`53,393
`52,904
`51,852
`1,789,713
`59,084
`62,611
`59,245
`46,779
`47,247
`47,719
`45,787
`46,244
`48,603
`50,577
`49,014
`42,443
`43,297
`40,259
`41,068
`42,736
`2,390,661
`
`14%
`-1%
`1%
`2%
`3%
`-7%
`2%
`6%
`7%
`2%
`-1%
`-10%
`-18%
`
`14%
`6%
`-5%
`-21%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`1%
`2%
`
`95.0%
`95.0%
`95.0%
`95.0%
`92.8%
`92.8%
`92.8%
`85.2%
`85.2%
`85.2%
`85.1%
`85.1%
`85.1%
`
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`87.5%
`
`12,808
`15,035
`17,758
`20,504
`23,316
`23,449
`27,218
`36,509
`54,398
`60,809
`62,741
`62,167
`60,931
`2,046,528
`67,525
`71,555
`67,709
`53,462
`53,996
`54,536
`52,328
`52,851
`55,547
`57,802
`56,016
`48,507
`49,482
`46,010
`46,935
`48,841
`2,732,184
`
`$0.6
`$0.8
`$0.9
`$1.0
`$1.2
`$1.2
`$1.4
`$1.8
`$2.7
`$3.0
`$3.5
`$3.4
`$3.4
`
`$3.7
`$3.9
`$3.7
`$2.9
`$3.0
`$3.0
`$2.9
`$2.9
`$3.1
`$3.2
`$3.1
`$2.7
`$2.7
`$