Allergan Details Streamlining of Its Operations : Restructuring: The Irvine company will realign its eye-care business geographically while consolidating marketing.
Allergan Inc., a manufacturer of eye- and skin-care products, revealed Wednesday for the first time details of its restructuring plans, including proposals to streamline operations and cut expenses.
In a presentation to analysts in New York, the Irvine-based company said it is realigning its eye-care business according to world geographic markets, rather than by product lines, to promote its burgeoning international sales.
And the company is consolidating research and some marketing operations for its core eye-care business into two segments with the purpose of promoting co-development of products aimed at the same buyers.
One research segment, the therapeutics group, will concentrate on development of surgical instruments and drugs sold to physicians. The other segment, the optical and consumer eye-care group, will concentrate on development of contact lenses and lens-care solutions sold over the counter.
Wall Street did not seem unimpressed by Allergan’s plan. The company’s stock closed at $21.88, down 87.5 cents in trading on the New York Stock Exchange.
The meeting with analysts comes a week after the company announced a 42% increase in 1990 net income and said it was reorganizing to emphasize its international operations. But few details of the realignment were provided then.
Since becoming an independently traded company in July, 1989, Allergan has struggled with an industrywide decline in the sale of contact lenses and lens-care solutions that were once its mainstay products. Gavin S. Herbert, Allergan’s chairman and chief executive, told the analysts that a major goal of the company is to reduce expenses across the board.
“To this end we will consolidate staff functions while we continue to implement our previously announced programs to improve operating efficiencies,” he said. “We plan to reinvest a significant portion of the resources derived from the reductions in operating expenses toward acceleration of new product development and entry into new specialty areas.”
Herbert said Allergan’s growth strategy for the 1990s will expand beyond eye care, with a particular emphasis on strengthening the company’s fledgling skin-care business. “Allergan is committed to building our skin-care business into a leadership position and a significant contributor to this corporation,” he said.
Several industry analysts said the reorganization will likely help the company improve its profit margins by becoming more efficient. The company told analysts that last year it reduced its work force by 7%, eliminating 469 positions, by consolidating manufacturing operations.
The analysts said company officials projected that this year Allergan will make further, although less substantial, cuts in its existing work force of about 6,344 worldwide by eliminating duplications through the reorganization.
Allergan is consolidating the marketing and sales operations of four divisions--Allergan Optical, Allergan Pharmaceutical, Allergan Medical Optics and Allergan International--which used to have separate staffs. A fifth unit, Allergan Humphrey, a diagnostic-instrument business in San Leandro, will continue to operate separately, as will the company’s skin-care product division.
Allergan officials told analysts that the company intends to bolster its already heavy investment in research and development from $75.3 million in 1990 to $80 million in 1991 to assure a steady stream of new products.
“The company is trying to be more efficient with the resources they have got so they can plow more money into R&D; and still deliver reasonable profit margins,” said Raul Esquivel, health-care analyst for Barclays de Zoete Wedd Ltd. in New York.
He noted that Allergan’s profit margin was squeezed from about 18% in 1988 to 13% in 1990 by a combination of market factors, among them weakening consumer demand for contact lenses and contact lens products that Allergan makes and a shift toward disposable lenses that are not part of Allergan’s business.
“It is important that they continue to improve their profit margins,” Esquivel said.
Allergan’s growing ophthalmic drug, surgical and international sales in the fourth quarter helped to boost the company’s earnings for 1990 to $81.4 million on sales of $883.9 million, up from $57.3 million on sales of $806,000 in 1989.
“The new organization is intended to better enable us to capitalize on our existing global infrastructure . . . “ and “allow for a more rapid response to local needs,” said Herbert. “We are structured to think globally and act locally.”
Adele Haley, an analyst with Alex. Brown & Sons, concurred that Allergan’s “sharper focus on their key geographic regions will give them even greater leverage going forward in international markets.”
Herbert said Allergan’s eye-care product marketing will be divided into four regions: the Americas region will be managed by Richard M. Haugen, who heads the company’s U.S. optical business; the European region by David B. Bruns, president of Allergan’s international division; the Japan region by Edward H. (Ted) Danse, director of the Latin America region, and the Pan-Asia region by Warren Brainard, senior vice president of the Americas.
