Allergan 3rd-Quarter Profits Fall 4.9%

Suffering from a continuing soft market for contact lenses, Allergan Inc. said Tuesday that its third-quarter earnings declined 4.9% while sales rose 7.7%.

The Irvine-based manufacturer of eye- and skin-care products reported earnings of $25.4 million for the three months ended Sept. 30, contrasted with $26.7 million for the period a year earlier. Sales rose to $222.2 million from $206.4 million.

Allergan, which SmithKline Beckman spun off in July, 1989, as a separate public company, enjoyed an initial quarter of improved earnings followed by four quarters of declining profitability as compared to the same quarters for the previous year.

“The quarterly comparisons have been unfavorable since the optical market became unhealthy in the third quarter of last year,” said Jeff D’Eliscu, Allergan director of investor relations.

D’Eliscu said that is when the number of new customers for contact lenses began to decline, partly because of an article in the New England Journal of Medicine warning about the harm to eyes caused by wearing contact lenses for extended periods.

In addition, Allergan and industry analysts have said Allergan’s performance has been hindered by its inability so far to introduce a one-step contact lens cleansing system to compete with those of its competitors.

D’Eliscu said Allergan’s earnings declined for the third quarter despite the revenue increase because the sales growth was in businesses that generally have slimmer profit margins than do contact lens and lens care products. The contact lens and lens-care product showed a sales decline.

“Adverse sales trends continue in our optical business in the United States, but sales growth was strong in the pharmaceutical, surgical and dermatology businesses,” Gavin S. Herbert, Allergan chairman and chief executive, said in a prepared statement.

The Allergan pharmaceuticals unit that makes prescription and nonprescription eye-care products recorded $75.7 million in worldwide sales for the third quarter, up 17% over the period in 1989. Allergan Optical sales, by contrast, were $94.6 million, down slightly from $95.3 million for the quarter a year ago.

Herbert noted that the company’s overall profitability for the third quarter was better than for the first two quarters in part because the company’s interest expense has been reduced with the pay-down of corporate debt and changes in the application of federal tax law.

Adelle Haley, an analyst in the New York office of Alex Brown & Sons, commended Allergan for having taken significant steps this year--including the consolidation of its optical products manufacturing in Waco, Tex.--to control costs.

If charges related to the July, 1989, spinoff taken in the third quarter of that year are not included, the company’s quarterly net earnings comparison would be worse. Without a $4.5-million charge from that transaction, the company would have earned $29.4 million for the year-ago quarter. Without that charge included in the comparison, the third-quarter earnings drop this year is 13.7%.

For the nine months ended Sept. 30, Allergan posted net earnings of $56.1 million on sales of $638.5 million, compared to net earnings of $67.5 million on sales of $595.4 million for the same period of 1989.

Also on Tuesday, Howard E. (Ted) Greene Jr., was elected to the board of directors. Greene is chief executive officer of Amylin Corp., a pharmaceutical development company in San Diego, and founder and former chief executive of Hybritech Inc., a San Diego biotechnology firm acquired by Eli Lilly & Co. in 1986.

ALLERGAN’S FINANCIAL PERFORMANCE

In the third quarter, Allegan Inc.reported a 7.7% increase in revenues but a 4.9% decrease in net earnings.

Figures are in millions, except amounts per share

Net Per Revenue Income Share Period (loss) (loss) 3rd Quarter 1990 $222.2 $25.4 $0.37 1989 206.4 26.7 0.40 9 Months 1990 638.5 56.1 0.83 1989 595.4 67.5 1.01

Source: Allergan Inc.