`Allergan, Inc. Form 10K Year Ended 12/31/02
`10K 1 a87937e10vk.htm FORM 10K YEAR ENDED DECEMBER 31, 2002
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`Mylan Pharmaceuticals Inc. et al. v. Allergan, Inc.
`IPR2016-01127, -01128, -01129, -01130, -01131, & -01132
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`Allergan, Inc. Form 10K Year Ended 12/31/02
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`Table of Contents
`
`SECURITIES AND EXCHANGE COMMISSION
`
`Washington, D.C. 20549
`Form 10K
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
`
`OF THE SECURITIES EXCHANGE ACT OF 1934
`
`For The Fiscal Year Ended December 31, 2002
`
`Commission File No. 110269
`
`Allergan, Inc.
`
`(Exact name of Registrant as Specified in its Charter)
`
`
`
`
`951622442
`(I.R.S. Employer Identification No.)
`92612
`(Zip Code)
`
`Delaware
`(State of Incorporation)
`2525 Dupont Drive
`Irvine, California
`(Address of principal executive offices)
`
`
`
`(714) 2464500
`(Registrant’s telephone number)
`
`
`
`
`
`Securities registered pursuant to Section 12(b) of the Act:
`
`Title of each class
`
`Common Stock, $0.01 par value
`Preferred Share Purchase Rights
`
`
`
`
`
`
`
`Name of each exchange on
`which each class registered
`
`New York Stock Exchange
`
`Securities registered pursuant to Section 12(g) of the Act: None
`
` Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
`Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past
`90 days. Yes No .
`
` Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will
`not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
`III of this Form 10K or any amendment to this Form 10K.
`
` Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b
`2). Yes No .
`
` The aggregate market value of the registrant’s common equity held by nonaffiliates was approximately $8,576 million on
`June 28, 2002, based upon the closing price on the New York Stock Exchange on such date.
`
` Common Stock outstanding as of March 3, 2003 — 134,254,772 shares (including 4,533,771 shares held in treasury).
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`Allergan, Inc. Form 10K Year Ended 12/31/02
`DOCUMENTS INCORPORATED BY REFERENCE
`
` Part III incorporates certain information by reference from the registrant’s proxy statement for the annual meeting of stockholders
`to be held on April 25, 2003, which proxy statement was filed with the Securities and Exchange Commission on March 14, 2003.
`
` Part II, Item 5 incorporates certain information by reference from the registrant’s registration statement on Form S3, which
`registration statement was filed with the Securities and Exchange Commission on January 9, 2003.
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`TABLE OF CONTENTS
`
`PART I
`Item 1. Business
`Item 2. Properties
`Item 3. Legal Proceedings
`Item 4. Submission of Matters to a Vote of Security Holders
`Item 4A. Our Executive Officers
`PART II
`Item 5. Market For Registrant’s Common Equity And Related Stockholder Matters
`Item 6. Selected Financial Data
`Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of
`Operations
`Item 7A. Quantitative And Qualitative Disclosures About Market Risk
`Item 8. Financial Statements And Supplementary Data
`Item 9. Changes In And Disagreements With Accountants On Accounting And Financial
`Disclosure
`PART III
`Item 10. Directors And Executive Officers Of Allergan, Inc.
`Item 11. Executive Compensation
`Item 12. Security Ownership Of Certain Beneficial Owners And Management
`Item 13. Certain Relationships And Related Transactions
`Item 14. Controls and Procedures
`PART IV
`Item 15. Exhibits, Financial Statement Schedules And Reports On Form 8K
`SIGNATURES
`CERTIFICATIONS
`REPORT OF MANAGEMENT
`INDEPENDENT AUDITORS’ REPORT
`SCHEDULE II
`EXHIBIT INDEX
`EXHIBIT 3.5
`EXHIBIT 10.6
`EHXIBIT 10.7
`EXHIBIT 10.8
`EXHIBIT 10.13
`EXHIBIT 10.18
`EXHIBIT 10.21
`EXHIBIT 10.22
`EXHIBIT 21
`EXHIBIT 23
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`Table of Contents
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`TABLE OF CONTENTS
`
`
`
`
`
`
`
`
`
`PART I
`
`Item 1.
`
`Item 2.
`
`Item 3.
`
`Item 4.
`
`Item 4A.
`PART II
`Item 5.
`
`
`
`Item 6.
`Item 7.
`
`
`
`
`
`
`Item 7A.
`Item 8.
`Item 9.
`
`
`PART III
`
`Item 10.
`
`Item 11.
`Item 12.
`
` Business
` Properties
` Legal Proceedings
` Submission of Matters to a Vote of Security Holders
` Our Executive Officers
`
`
`
` Market for Registrant’s Common Equity and Related Stockholder
`Matters
` Selected Financial Data
`Management’s Discussion and Analysis of Financial Condition
`and Results
`of Operations
` Quantitative and Qualitative Disclosures About Market Risk
` Financial Statements and Supplementary Data
`Changes in and Disagreements with Accountants on Accounting
`and Financial Disclosure
`
`
`
` Directors and Executive Officers of Allergan, Inc.
` Executive Compensation
`Security Ownership of Certain Beneficial Owners and
`Management
`
` Certain Relationships and Related Transactions
` Controls and Procedures
`
`
`
`
`
`
`
`
`
`
`
`
`
`
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`Page
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`1
`1
`15
`16
` 18
`18
`20
`20
`21
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`22
`35
`41
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`41
`41
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` F39
` F42
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`Item 13.
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`
`Item 14.
`
`
`PART IV
` Exhibits, Financial Statement Schedules and Reports on Form 8K
`
`Item 15.
`SIGNATURES
`
`CERTIFICATIONS
`
`REPORT OF MANAGEMENT
`
`INDEPENDENT AUDITORS’ REPORT
`
`SCHEDULE II
`
`INDEX OF EXHIBITS AND EXHIBITS (Attached to this Report on Form 10K)
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`Table of Contents
`
`Item 1. Business
`
`General Development of Our Business
`
`PART I
`
` Allergan, Inc. is a technologydriven, global health care company that develops and commercializes specialty pharmaceutical
`products for the ophthalmic, neurological, dermatological and other specialty markets. We are a pioneer in specialty pharmaceutical
`research, targeting products and technologies related to specific disease areas such as glaucoma, retinal disease, dry eye, psoriasis,
`acne, photodamage, movement disorders, metabolic disease and various types of cancer. Within these areas, we are an innovative
`leader in therapeutic and other prescription products, and to a limited degree, overthecounter products that are sold in more than 100
`countries around the world. With the April 2002 U.S. Food and Drug Administration (“FDA”) approval of our product Botox®
`Cosmetic for the temporary treatment of moderate to severe glabellar lines in adult men and women age 65 or younger, we began
`marketing to the consumer cosmetic market in the United States.
`
` We were originally incorporated in California in 1948, became known as Allergan Corporation in 1950, and reincorporated in
`Delaware in 1977. In 1980, we were acquired by SmithKline Beecham plc (then known as SmithKline Corporation). We operated as a
`whollyowned subsidiary of SmithKline from 1980 until 1989 when we again became a standalone public company through a spin
`off distribution by SmithKline.
`
` Our Internet website address is www.allergan.com. We make our periodic and current reports, together with amendments to these
`reports, available on our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or
`furnished to, the Securities and Exchange Commission.
`
` On June 29, 2002, we completed the spinoff of our optical medical device business to our stockholders. The optical medical
`device business consisted of two businesses: our ophthalmic surgical products business, which developed, manufactured and
`marketed products that included artificial lenses for the eye, called intraocular lenses, and equipment for cataract and refractive eye
`surgery; and our contact lens care products business, which developed, manufactured and marketed a broad range of products for use
`with every available type of contact lens. The spinoff was effected by contributing our optical medical device business to a newly
`formed subsidiary, Advanced Medical Optics, Inc., and issuing a dividend of Advanced Medical Optics’ common stock to our
`stockholders. The Internal Revenue Service ruled that the transaction qualified as taxfree for Allergan and our stockholders for U.S.
`federal income tax purposes, with the exception of cash received for fractional shares. The common stock of Advanced Medical
`Optics began trading publicly on the New York Stock Exchange on July 1, 2002 under the symbol “AVO.” As a result of the spinoff,
`we continue to own and operate our specialty pharmaceutical business and Advanced Medical Optics owns and operates what was
`formerly our optical medical device business.
`
` Our consolidated financial statements and related notes have been recast to reflect the financial position, results of operations and
`cash flows of the optical medical device business as a discontinued operation.
`
`1
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`Our Business
`
` The following table sets forth, for the periods indicated, the net sales for each of our specialty pharmaceutical product lines and
`our longlived assets from continuing operations:
`
`
`
`
`
`Eye Care Pharmaceuticals
`Botox®/ Neuromuscular
`Skin Care Products
`Other(1)
`
`Total Product Net Sales
`
`Sales
` Domestic
`
`International
`LongLived Assets (in millions)
` Domestic
`
`International
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Year Ended December 31
`
`
`
`
`
`
`
`2002
`
`2001
`
`2000
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`$ 827.3
`
`439.7
`
`90.2
`
`27.8
`
`
`
`$1,385.0
`
`
`
`
`70.6%
`29.4%
`
`
`
`$ 381.2
`
`$ 225.2
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`(in millions)
`
`$ 753.7
`
`309.5
`
`78.9
`
`—
`
`
`
`$1,142.1
`
`
`
`
`67.0%
`33.0%
`
`
`
`$ 354.6
`
`$ 199.3
`
`
`$683.9
` 239.5
`
`68.7
`
`—
`
`
`$992.1
`
`
`63.4%
`36.6%
`
`
`$300.1
`$168.9
`
`
`
`
`
`
`
`
`
`
`
`(1) Other sales primarily include sales to Advanced Medical Optics pursuant to the manufacturing and supply agreement entered
`into as part of the spinoff of Advanced Medical Optics.
`
` See Note 14, “Business Segment Information” in the notes to the consolidated financial statements listed under Item 15(a) of
`Part IV of this report for further information concerning our foreign and domestic operations.
`
`Eye Care Pharmaceutical Product Line
`
` We develop, manufacture and market a broad range of prescription and nonprescription products designed to treat diseases and
`disorders of the eye, including glaucoma, dry eye, inflammation, infection and allergy.
`
` Glaucoma. The largest segment of the market for ophthalmic prescription drugs is for the treatment of glaucoma, a sight
`threatening disease typically characterized by elevated intraocular pressure leading to optic nerve damage. Glaucoma is currently the
`world’s second leading cause of blindness, and we estimate that over 60 million people worldwide have glaucoma. According to IMS
`Health Inc., an independent research firm, our products for the treatment of glaucoma, including Alphagan®, Alphagan® P and
`Lumigan®, captured approximately 16% of the worldwide glaucoma market in 2002.
`
` Our largest selling eye care pharmaceutical products are the ophthalmic solutions Alphagan® (brimonidine tartrate ophthalmic
`solution) 0.2% and Alphagan® P (brimonidine tartrate ophthalmic solution) 0.15%, preserved with Purite®. Alphagan® and
`Alphagan® P lower intraocular pressure by reducing aqueous humor production and increasing uveoscleral outflow. Alphagan® P is
`a new and improved reformulation of Alphagan® containing brimonidine, Alphagan®’s active ingredient, preserved with Purite®. In
`registration studies with the FDA, Alphagan® P demonstrated comparable efficacy to Alphagan® with 41% less incidence of ocular
`allergy. The FDA approved Alphagan® in September 1996 for lowering intraocular pressure in patients with openangle glaucoma or
`ocular hypertension. Alphagan® P received the same FDA approval in March 2001. We sell Alphagan® and Alphagan® P in over 70
`countries worldwide.
`
` Alphagan® and Alphagan® P combined are the second best selling glaucoma products in the world, as measured by 2002
`revenue, according to IMS Health Inc. Combined sales of Alphagan® and Alphagan® P represented 18% of our total consolidated
`sales in 2002 and 22% of our total consolidated sales in 2001. Sales of Alphagan® represented 23% of our total consolidated sales in
`2000. In July 2002, based on the
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`overwhelming acceptance of Alphagan® P, we discontinued the U.S. distribution of Alphagan®. The period of new chemical entity
`exclusivity in the United States for Alphagan® ended in September 2001. We received a 6month exclusivity extension from the FDA
`for the pediatric use of Alphagan®, which expired in March 2002. See Item 3, “Legal Proceedings,” at page 16 and Note 13,
`“Commitments and Contingencies,” in the notes to the consolidated financial statements listed under Item 15(a) of Part IV of this
`report for further information regarding litigation involving Alphagan®.
`
` In March 2001, the FDA approved Lumigan®, a topical treatment indicated for the reduction of elevated intraocular pressure in
`patients with glaucoma or ocular hypertension who are either intolerant or insufficiently responsive when treated with other
`intraocular pressurelowering medications. Data suggests that Lumigan® lowers intraocular pressure by increasing the outflow of
`aqueous humor through trabecular meshwork and uveoscleral routes. Alphagan® and Alphagan® P are increasingly being prescribed
`by ophthalmologists as adjunctive therapy to other medications such as prostaglandins, prostamides or betablockers. For this reason,
`we believe that sales of Alphagan® and Alphagan® P to date have been only marginally affected by the introduction of Lumigan®.
`In March 2002, the European Commission approved Lumigan® through its centralized procedure. We currently sell Lumigan® in
`over 40 countries worldwide. See Item 3, “Legal Proceedings,” at page 16 and Note 13, “Commitments and Contingencies,” in the
`notes to the consolidated financial statements listed under Item 15(a) of Part IV of this report for further information regarding
`litigation involving Lumigan®.
`
` In September 2001, we filed a New Drug Application with the FDA for a brimonidine and timolol combination designed to treat
`glaucoma. This New Drug Application remains pending.
`
` We also market Betagan® ophthalmic solution, a topical betablocker used in the treatment of glaucoma, and Propine®
`ophthalmic solution, which is used alone or in combination with other drugs when initial drug therapy for glaucoma becomes
`inadequate. Patent protection for both products expired in the United States in 1991 and they face generic competition from several
`companies, including Bausch & Lomb and Alcon Laboratories, Inc. We also market our own generic version of these two products.
`
` Ocular Surface Disease. In addition to our eye care pharmaceuticals, we market a variety of artificial tear products for various
`needs, under a range of brand names worldwide, led by our Refresh® brand. We estimate that the $500 million 2002 global
`lubricating tears market, according to IMS Health Inc., is growing at an approximate annual rate of 9%. With approximately 21% of
`this market, we believe that we are the clear global market leader, outside of Japan. In the United States, our Refresh® brand includes
`Refresh Plus®, the leading unitdose tear, as measured by 2002 sales; Refresh Tears®, the number one multidose product, as
`measured by 2002 sales; Refresh P.M.® for overnight relief of dry eye; and Refresh Liquigel®, which combines the strength of a gel
`with the convenience of a liquid eye drop. In 2002, we also launched Refresh EnduraTM in the United States, a new emulsion
`formulation that acts on all three tear layers (lipid layer, aqueous layer and mucin layer) to provide relief of dry eye symptoms. We
`also market Celluvisc® in the United States for severe dry eye. Our other brands marketed around the world for the treatment of ocular
`surface disease include Liquifilm Tears®, Cellufresh® and LacriLube® S.O.P.®, as well as Lerin®, a decongestant.
`
` We also provide an eye drop for contact lens wearers called Refresh Contacts® to help provide comfort and protection from
`dryness and irritation.
`
` In December 2002, the FDA approved Restasis™, the first and only prescription therapy for the treatment of chronic dry eye
`disease. 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, after menopause in women and in people with systemic diseases such
`as Sjogren’s syndrome and rheumatoid arthritis. Until the approval of Restasis™, physicians used lubricating tears as a temporary
`measure to provide palliative relief of the debilitating symptoms of dry eye disease. We plan to launch Restasis™ early in the second
`quarter of 2003. In June 2001, we entered into a license, development and marketing agreement with Inspire Pharmaceuticals, Inc.
`Pursuant to the Inspire agreement, we obtained an exclusive license to develop and commercialize INS365 Ophthalmic worldwide,
`with the exception of Japan and nine other Asian countries covered by Inspire’s agreement with Santen
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`Pharmaceutical Co. Ltd. In return, Inspire received up to $39 million in up front and milestone payments, a copromotion arrangement
`for INS365 Ophthalmic in the United States, and payments on net sales. In addition, Inspire received an option to copromote
`RestasisTM in the United States and royalties on global net sales of RestasisTM excluding the Japan, Taiwan, Korea, Hong Kong and
`People’s Republic of China markets. The Inspire agreement also provided for potential copromotion by Inspire of one or more of our
`other marketed and future products in the United States. INS365 Ophthalmic has completed Phase III clinical trials investigating its
`ability to relieve the signs and symptoms of dry eye disease by rehydrating conjunctival mucosa and increasing mucin production.
`We believe this mechanism may be complementary to that of Restasis™.
`
` Ophthalmic Inflammation. Our leading ophthalmic antiinflammatory product is Acular® (ketorolac 0.5%) ophthalmic solution.
`Acular® is a registered trademark of and is licensed from its developer, Syntex (U.S.A.) Inc., a business unit of HoffmannLaRoche
`Inc. Acular® is indicated for the relief of itch associated with seasonal allergic conjunctivitis, the inflammation of the mucus
`membrane that lines the inner surface of the eyelids, and for the treatment of postoperative inflammation in patients who have
`undergone cataract extraction. Acular® PF is the first, and currently remains the only unitdose, preservativefree topical non
`steroidal antiinflammatory drug in the United States. Acular® PF is indicated for the reduction of ocular pain and photophobia
`following incisional refractive surgery and, we believe, continues to be the number one prescribed nonsteroidal antiinflammatory in
`the United States. See Item 3, “Legal Proceedings,” at page 16 and Note 13, “Commitments and Contingencies,” in the notes to the
`consolidated financial statements listed under Item 15(a) of Part IV of this report for information regarding litigation involving
`Acular®. In August 2002, Allergan filed a New Drug Application with the FDA for a reformulated ketorolac 0.4% concentration. This
`New Drug Application is pending.
`
` Our product Pred Forte® remains the leading topical steroid worldwide, and we also market FML® Liquifilm® as an ophthalmic
`suspension in the ocular corticosteroid inflammation market. Pred Forte® has no patent protection and faces generic competition.
`
` Ophthalmic Infection. Our major product in the ophthalmic antiinfective market is our Ocuflox®/ Oflox®/ Exocin® ophthalmic
`solution. According to Verispan, an independent research firm, this ophthalmic solution was the leading ocular antiinfective
`prescribed by ophthalmologists in the United States in 2002.
`
` In May 2002, we filed a New Drug Application with the FDA for gatifloxacin, a new fourth generation fluoroquinolone. This New
`Drug Application is pending.
`
` We also market Blephamide® ophthalmic suspension, a topical antiinflammatory and antiinfective, and Polytrim® ophthalmic
`solution, a synthetic antimicrobial which treats ocular surface bacterial infections. Blephamide® and Polytrim® ophthalmic solutions
`no longer have patent protection and face generic competition.
`
` Allergy. Our allergy product is Alocril® ophthalmic solution. Alocril® is indicated for the treatment of itch associated with
`allergic conjunctivitis. The allergy market is, by its nature, a seasonal market, peaking during the spring months. We have established
`a contract sales force to promote Alocril® to pediatricians in the United States. In December 2002, we filed a New Drug Application
`with the FDA for epinastine, an ocular antihistamine. This New Drug Application is pending. A Marketing Authorization Application
`has been filed in Europe with Sweden acting as the Reference Member State for the mutual recognition procedure in Europe.
`
`Neuromodulator
`
` Our neuromodulator product, Botox® (Botulinum Toxin Type A), is used in a wide variety of treatments which continue to
`expand. We believe that Botox® is accepted in many global regions as the standard therapy for indications ranging from therapeutic
`neuromuscular disorders and related pain to cosmetic facial aesthetics. We believe that there potentially are in excess of 100
`therapeutic and cosmetic indications for Botox® based on its localized treatment effect and approximately 20 years of safety
`experience in large patient groups. Marketed as Botox®, Botox® Cosmetic or Vistabel®, depending on the indication and country of
`approval, we have successfully expanded the product’s regulatory approvals worldwide with approvals in over
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`70 countries for a broad range of indications. Sales of Botox® represented approximately 32%, 27% and 24% of our total
`consolidated sales in 2002, 2001 and 2000, respectively.
`
` Botox®. Botox® is used therapeutically in the treatment of certain neuromuscular disorders which are characterized by
`involuntary muscle contractions or spasms. The approved therapeutic indications for Botox® in the United States and Japan are for:
`
`
`
`
`
`
`
`• the treatment of blepharospasm, the uncontrollable contraction of the eyelid muscles which can force the eye closed and result
`in functional blindness;
`
`• strabismus, or misalignment of the eyes, in people 12 years of age and over; and
`
`• cervical dystonia in adults, along with the associated pain.
`
` In certain countries outside of the United States and Japan, Botox® is also approved for treating blepharospasm, strabismus,
`cervical dystonia, hemifacial spasm, pediatric cerebral palsy, hyperhidrosis (excessive sweating) and upper limb spasticity associated
`with debilities occurring after a stroke. We are pursuing new approved indications for Botox® in the United States, Japan and Europe,
`including hyperhidrosis (excessive sweating), brow furrow, headache, back spasm and spasticity.
`
` In October 2001, the European Commission granted Botox® a positive opinion for focal spasticity of the wrist and hand in adult
`poststroke patients. Health Canada has also approved Botox® for the management of focal spasticity, including the treatment of
`upper limb spasticity associated with adult poststroke patients. In addition, Botox® was granted approval for hyperhidrosis in
`Canada, Australia, New Zealand and the Netherlands.
`
` Botox® Cosmetic. The FDA approved Botox® in April 2002 for the temporary improvement in the appearance of moderate to
`severe glabellar lines in adult men and women age 65 or younger. Referred to as Botox® Cosmetic or Vistabel®, depending on the
`country of approval, this product is designed to relax wrinklecausing muscles to smooth the deep, persistent, glabellar lines between
`the brow that often develop during the aging process. Health Canada had previously approved Botox® Cosmetic for similar use in
`Canada in April 2001. With the Canadian approval of Botox® Cosmetic, we launched our first directtoconsumer marketing
`campaign aimed at building the product market. We subsequently launched a significant advertising campaign for Botox® Cosmetic
`in the United States in April 2002, including television commercials and print advertising aimed at consumers and aesthetic specialty
`physicians. Since its FDA approval in the United States, Botox® Cosmetic or Vistabel®, depending on the country of approval, has
`received approval in Australia, Switzerland and France, with France acting as the Reference Member State under the mutual
`recognition process in the European Union. We expect to initiate marketing of this product in other European countries in 2003. We
`now sponsor training of aestheticoriented physicians in approved countries to further expand the base of qualified physicians using
`Botox® Cosmetic or Vistabel®, depending on the country of approval.
`
` Our skin care product line focuses on the high growth, high margin segments of the acne and psoriasis markets, particularly in the
`United States and Canada. Our skin care business is currently comprised of three main product lines:
`
`Skin Care Product Line
`
`
`
`
`
`
`
`• Our tazarotene products in cream and gel formulations are marketed under Tazorac® in the United States and Canada and as
`Zorac® elsewhere, as well as our new tazarotene cream, marketed under Avage™;
`
`• Azelex®, an acne product; and
`
`• our M.D. Forte® line of alpha hydroxy acid products.
`
` Tazarotene Products. Since 1997, we have marketed Tazorac® gel in the United States for the treatment of plaque psoriasis and
`acne. We have marketed the cream formulation of Tazorac® for the treatment of psoriasis since its FDA approval in October 2000. In
`September 2001, we received FDA approval
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`to market Tazorac® cream for the topical treatment of acne vulgaris. In July 2001, we entered into a copromotion agreement for
`Tazorac® with Procter & Gamble Pharmaceuticals Inc. for the United States. Under this agreement, Procter & Gamble Pharmaceuticals
`markets Tazorac® primarily to the general practitioner market and we market Tazorac® to dermatologists currently covered by our in
`house sales force. We have also engaged Pierre Fabre Dermatologie as our promotion partner for Zorac® in certain parts of Europe, the
`Middle East and Africa.
`
` In October 2002, we received FDA approval for Avage™. Avage™ is a tazarotene cream indicated for the treatment of facial fine
`wrinkling, mottled hypo and hyperpigmentation (blotchy skin discoloration) and benign facial lentigines (flat patches of skin
`discoloration) in patients using a comprehensive skin care and sunlight avoidance program. We began marketing Avage™ in the
`United States in February 2003.
`
` Azelex®. Azelex® cream is approved for the topical treatment of mild to moderate inflammatory acne vulgaris. We launched
`Azelex® cream in the United States in December 1995.
`
` M.D. Forte®. We also develop and market glycolic acidbased skin care products. Our M.D. Forte® line of alpha hydroxy acid
`products are marketed to and dispensed by physicians.
`
`Employee Relations
`
` At December 31, 2002, we employed approximately 4,900 persons throughout the world, including approximately 2,400 in the
`United States. Unions do not represent any of our U.S.based employees. We believe that our relations with our employees are, in
`general, very good.
`
`International Operations
`
` Our international sales of specialty pharmaceutical products have represented 29.4%, 33.0% and 36.6% of total sales for the years
`ended December 31, 2002, 2001 and 2000, respectively. Our products are sold in over 100 countries. Marketing activities are
`coordinated on a worldwide basis, and resident management teams provide leadership and infrastructure for customer focused rapid
`introduction of new products in the local markets.
`
`Sales and Marketing
`
` We maintain a global marketing team, as well as regional sales and marketing organizations. We also engage contract sales
`organizations to promote certain products. Our sales efforts and promotional activities are primarily aimed at eye care professionals, as
`well as neurologists, plastic surgeons and dermatologists, who use, prescribe and recommend our products. In addition, we advertise
`in professional journals and have an extensive direct mail program of descriptive product literature and scientific information that we
`provide to specialists in the ophthalmic, dermatological and movement disorder fields. We have also developed training modules and
`seminars to update physicians regarding evolving technology in our products. We have also utilized directtoconsumer advertising
`for our Botox® Cosmetic and Refresh® products.
`
` Our products are sold to drug wholesalers, independent and chain drug stores, pharmacies, commercial optical chains, opticians,
`mass merchandisers, food stores, hospitals, ambulatory surgery centers and medical practitioners, including ophthalmologists,
`neurologists, dermatologists, pediatricians and plastic surgeons. At December 31, 2002, we employed approximately 1,300 sales
`representatives throughout the world. In 2002, for the fifth year in a row, an independent survey of U.S. ophthalmologists ranked our
`sales force No. 1 in terms of product knowledge and service. We also utilize distributors for our products in smaller international
`markets.
`
` In the United States, sales to two major wholesale customers represented 27.9% and 28.2% of our total consolidated product net
`sales in 2002 and 2001, respectively. In 2000, sales to three major United States wholesale customers represented 36.7% of our total
`consolidated product net sales. No other country, or single customer, generates over 10% of our total product net sales.
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`Research and Development
`
` Our global research and development efforts focus on eye care, skin care and neuromodulator products that are safe, effective and
`convenient and have an economic benefit. Our own research and development activities are supplemented by a commitment to
`identifying and obtaining new technologies through inlicensing, technological collaborations, joint ventures and acquisition efforts,
`including the establishment of research relationships with biotechnology companies, academic institutions and individual
`researchers.
`
` At December 31, 2002, there were, in the aggregate, approximately 1,000 employees involved in our research and development
`efforts. Our research and development expenditures for 2002, 2001 and 2000 were $233.1 million, $227.5 million and $165.7 million,
`respectively, including amounts spent by us in conjunction with our 200