Allergan Says It Will Cut 450 Jobs

By BARBARA MARSH

June 4, 1996 12 AM PT

TIMES STAFF WRITER

IRVINE —

Allergan Inc. said Monday that it will eliminate 450 jobs--7.5% of its work force--and take charges this year of as much as $75 million as the drug company adjusts to recent costly acquisitions and a slowdown in business.

The company, which has been struggling for months with above-average costs, said it plans to use money saved from the cutbacks to develop and market new products.

Despite the cost-cutting measures, analysts say that Allergan remains a likely takeover target for much larger drug companies. The company recently broke off talks to merge with London-based Pharmacia & Upjohn Inc.

Among the victims of the drug company’s reorganization is its chief operating officer, Richard M. Haugen, whose position is being cut. William C. Shepherd, the company’s chairman, president and chief executive, took over Haugen’s duties Monday. Shepherd said between 50 and 100 other jobs will be eliminated at the company’s Irvine headquarters.

The 6,000-employee company, which develops, makes and markets therapeutic products for eye and skin care, has been planning to trim its payroll and consolidate plants for more than six months to improve profits and free up funds to invest in new products, Shepherd said.

“We have some big products coming out at the end of this year and early next year. We knew that we have to invest in those and maintain a substantial [income level],” he said.

Zorac, the company’s new treatment for acne and psoriasis, is one of analysts’ favorites. The drug, which awaits regulatory approval, could eventually generate revenue of more than $100 million annually, predicts Steven B. Gerber of Oppenheimer & Co. in Los Angeles.

Still, Allergan remains an attractive candidate for a merger, analysts said.

Kenneth Abramowitz, an analyst with Sanford C. Bernstein & Co. in New York, noted that Allergan is “bite-sized” for any number of giant drug companies, though he said the company isn’t under immediate pressure to merge.

Allergan stock closed at $38.125 a share in New York Stock Exchange trading Monday, down 37.5 cents.

Analysts say Allergan enjoys strong positions in markets for ophthalmic drugs, items used in cataract surgery and solutions for contact lenses--all niches whose growth has slowed in recent years. They say the company’s involvement in the development of new drugs for treating acne, psoriasis, glaucoma and cancer provide its best prospects for future growth.

However, its attempt to grow also through acquisitions of about a dozen companies in the last four years caused its operating costs to shoot up. Overall, it invested about $250 million in about a dozen companies, mostly in ophthalmic or dermatological markets.

Although none of the acquisitions was sizable, the cumulative costs were significant, Shepherd said.

A slowdown in some businesses and pressure from cost-conscious managed-care plans also cut into company margins, the company said.

The company’s first-quarter results only confirmed the need for consolidation, Shepherd said. Earnings increased a scant 3% to $23.1 million, or 35 cents a share, while sales climbed 13% to $29.8 million.

Although Shepherd has assumed the duties of chief operating officer, Haugen will remain with Allergan through the end of the month. Haugen, who is 44 and lives in Irvine, has been with the company 20 years, a spokesman said.

Haugen couldn’t be reached for comment.

Shepherd, who plans to discuss the company’s reorganization in a meeting today with analysts in New York, said Haugen had been involved in the decision-making process that led to the downsizing, felt reductions were appropriate, and “elected to leave the company.”

Shepherd said the cuts will affect manufacturing operations, corporate staff and marketing. An undetermined number will come from vacancies that haven’t been filled, he added. Areas such as research and direct sales will be affected very little, if at all.

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Allergan Inc. Profile

Headquarters: Irvine

Business: Develop, manufacture and market therapeutic products for eye and skin care.

Founded: 1989, a spinoff from SmithKline Inc.

Chairman/chief executive: William C. Shepherd

Employees: 6,000

Five-year trends:

Sales (millions):

1995: $1,067.2

Net income (millions):

1995: $72.5