Allergan, Reporting Loss, Will Close Irvine Plant
Allergan reported a $10.2-million loss for the fourth quarter Wednesday and said it would shut down a manufacturing plant here, eliminating 210 positions over the next year.
The company, which makes eye-care and skin-care products, also said that it would cut 300 additional jobs worldwide as part of an effort to reduce expenses.
To cover the costs of layoffs and the discontinuation of several products, Allergan took a one-time charge of $22.8 million in the quarter ended Dec. 31. The charge contributed to the quarterly loss, which contrasts with a $32.8-million profit in the same quarter a year earlier.
For all of 1989, Allergan made $57 million on revenue of $807 million, compared to a profit of $72 million on sales of $756 million a year earlier. Allergan--formerly a division of SmithKline Beckman--has been an independent company only since July of last year.
Earnings and sales figures for 1988 are estimates of Allergan’s performance, assuming that it been a publicly traded company at that time.
Details of Allergan’s earnings and cost-cutting program were not released until after trading had ended Wednesday on the New York Stock Exchange. The company’s stock closed down 25 cents at $14.75.
Employees at the plant in Irvine are being given the option of moving to similar factories in Texas and Puerto Rico between now and March, 1991. Allergan spokesman B. Norris Battin said he could not immediately determine how many had decided against leaving the Orange County area. Those employees will receive severance packages.
Eye-care and pharmaceutical products are manufactured at the plant, which began a gradual shutdown more than a year ago. The company has hastened the plant’s closure because of a spate of recent problems.
The 300 positions being cut worldwide are in addition to those at the Irvine facility and will result in at least 110 layoffs, 29 of those in Orange County, Battin said. The rest of the job reduction will be made by leaving current vacancies unfilled and through attrition.
“These moves, along with strict expense control, are designed to enhance 1990 operating income, even with the company’s growing investments in new product-research and sales-force expansion worldwide,” the company said in a statement.
Allergan, which employs 6,800 worldwide, including 2,233 in Orange County, is experiencing financial difficulties primarily because of problems in its contact-lens division, which is being battered by competitors.
Rivals Bausch & Lomb and Alcon last year introduced a one-step disinfection solution, having consolidated the several bottles of chemicals that were needed in the past to clean contact lenses. The new all-in-one solution is both cheaper and more convenient for consumers.
But Allergan has yet to introduce a similar product and sales have suffered as a result.
“They are hurting there and will continue to hurt until they get a new product,” said Jeanine Heller, analyst with Stifel Nicolaus & Co. brokerage in St. Louis.
Allergan spokesman Jeff D’Eliscu said the company has developed two new solutions, which are now being tested.
“Have we missed the boat? We believe a disinfection system needs to disinfect the lenses completely and those systems (belonging to competitors) don’t meet our standards,” D’Eliscu said. “We believe the safety and efficacy of the system is more important than the economic savings and convenience.”
Gavin S. Herbert, Allergan’s chairman and chief executive officer, offered little hope that things would improve this year.
“We expect present contact lens market conditions to continue into 1990,” he said in a written statement. “Also, we do not anticipate introducing a new product in the soft-lens disinfecting segment in the U.S. this year.”
Negative publicity surrounding the potentially harmful effects of extended-wear lenses has further hurt Allergan’s sales.
The Food and Drug Administration recently recommended that those people using such lenses wear them for no longer than seven days before removing them for a night. Some industry researchers said the FDA’s warning prompted some concern among consumers, who may now think twice before purchasing contact lenses.
Because 42% of Allergan’s sales are made overseas, the company’s products were slightly more expensive there because of a strengthening dollar, company officials said. Allergan said sales were down $15 million for 1989 because of currency fluctuations.
The company’s operating income fell 80% to $8.8 million in the fourth quarter compared to a year ago. If the $22.8-million charge is figured in, Allergan had an operating loss of $14 million.
ALLERGAN PERFORMANCE
(In millions of dollars, except per share)
4th Qtr. 4th Qtr. 12 months 12 months 1989 1988 1989 1988 Revenue $211.5 $216.4 $806.9 $755.8 Net Income -10.2 32.8 57.3 72.7 Per Share -0.15 NA* 0.86 NA
* Allergan Inc. became an independent company on July 27, 1989
Source: Allergan Inc.
