Allergan Pushes Collaborative R & D Strategy

Allergan Inc., continuing its strategy of hooking up with other companies to develop eye and skin therapies, said Tuesday it plans to invest $9 million with a tiny Redwood City company to pursue treatments to prevent blindness.

The Irvine drug and medical devices company’s partnership with Sugen Inc. is the third such deal that Allergan has lined up in the last four years with biotech companies in an effort to fuel future sales growth amid intense competition from its giant drug-industry rivals.

Analysts say the strategy of investing in technologies developed elsewhere suits a company whose research and development budget is dwarfed by those of its major competitors. In addition, Allergan’s own efforts to develop new drugs have had mixed results.

Allergan earned $72.5 million last year as sales topped $1 billion for the first time, but the company is so overshadowed by many of its competitors that it faces a long-running struggle to keep up, analysts say. That’s one reason the company explored a possible merger earlier this year with London-based Pharmacia & Upjohn, a company about seven times Allergan’s size, they say.

Allergan called off the merger in May, saying the two couldn’t agree on terms. Rumors that the deal might be revived have recently subsided, analysts say.

Many large drug companies now invest research dollars in biotech opportunities, but that strategy is especially useful for Allergan, says Steven B. Gerber, an analyst with Oppenheimer & Co., in Los Angeles. The company’s annual research and development budget runs about one-tenth the size of larger competitors, he says.

He also noted that Allergan failed to develop its own treatment for glaucoma based on a combination of two existing drugs. Last year, the company announced it was canceling the project.

In contrast, Allergan’s joint venture with the La Jolla biotech company Ligand Pharmaceuticals Inc. appears more promising, analysts say. In 1992, the two companies began collaborating to develop a treatment for Kaposi’s sarcoma, one of the opportunistic diseases of AIDS and other immunological conditions. Allergan has poured nearly $100 million into the venture, ALRT, which itself went public last year.

An Allergan spokesman said ALRT likely will seek approval from regulators next year to begin marketing the treatment.

Last year, Allergan also invested $2 million in an Australian company that has developed a possible treatment for psoriasis.

In its new partnership with Sugen, Allergan is investing in technology that may be used to inhibit growth of excess blood vessels in the retina, a condition that can cause loss of vision in diabetics and certain other adults.

Sugen has isolated cell proteins that appear to trigger abnormal proliferation of blood vessels. It has also developed substances that it believes can be used to disarm the triggering proteins, thereby preventing the vessels from forming.

Under the deal, Allergan is purchasing $4 million of Sugen’s common stock at $20.88 a share. The Irvine company promises to buy stock worth $3 million in its partner’s next stock offering. Allergan also has agreed to pay a $2-million fee for Sugen’s technological expertise.

In exchange, Allergan gets exclusive rights to develop Sugen technology for treatment of eye ailments.

For Sugen, the deal provides more needed cash to fuel its research effort. Sugen tried to raise $60 million in a public offering last spring, but canceled the deal when its stock dropped to about $12 a share from $14 in Nasdaq trading. The company, which has no sales, doesn’t expect to bring a product to market for at least two years.

Allergan shares closed at $37.125 a share on the New York Stock Exchange on Tuesday, down 50 cents.

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R&D; Spending Comparison

Allergan’s research and development budget is dwarfed by those of competing firms, which can sink more than $1 billion annually into developing new products. Research and development expenditures, in millions:

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1993 1994 1995 Allergan Inc. $102.5 $111.5 $116.7 Merck & Co. Inc. 1,172.8 1,230.6 1,331.4 Pharmacia & Upjohn 1,144.0 1,162.8 1,253.6 Bristol-Myers Squibb 1,128.0 1,108.0 1,199.0

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Source: Allergan Inc., Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times