Allergan to Exercise Its Option to Buy Its R&D; Spinoff

Allergan Inc. said Monday it will pay about $71 million to exercise its option to buy Allergan Specialty Therapeutics Inc., a spinoff it created three years ago to research and develop new pharmaceutical products.

The Irvine eye- and skin-care company said it will repurchase about 3.3 million shares for $21.70 each.

Before the announcement, shares of Allergan Specialty rose 94 cents to close at $22.94 on the Nasdaq exchange. Allergan said the exercise price for the options was calculated under the 1998 incorporation documents creating the research firm.

In the spinoff, Allergan stockholders had received one share of Allergan Specialty for every 20 shares of Allergan stock they held.

As a result of the acquisition, Allergan will take a $40-million second-quarter charge on the deal, which is expected to close April 20.

Under the terms of the spinoff agreement, Allergan had to buy or close Allergan Specialty if the new company’s cash on hand dipped below $15 million, said Allergan spokeswoman Suki Shattuck.

The research company did not say how much cash it had, but its annual report listed only $22 million at the end of December, less than half what it had a year earlier.

A number of drugs under development by Allergan Specialty will be transferred to Bardeen Sciences Co., an independent, privately owned research and development company. Allergan will have the right to sell any products developed in exchange for royalties, the company said.

Allergan Specialty’s drugs under development include Memantine, a glaucoma compound that stops vision loss by preventing optic nerve cells from dying, and Tazarotene, which is being developed as a pill to treat acne. Both drugs are five to six years away from market, Shattuck said.

In creating Allergan Specialty, Allergan removed from its own books sizable expenses for research and development activities. As of Monday, Allergan’s financial statements will include the assets, liabilities and results of operations of Allergan Specialty.

Allergan spends an amount equal to about 12.5% of its sales on research, Shattuck said. The company’s research budget will increase as a result of the purchase but it will remain about the same as a percentage of sales, she said.

Allergan stock closed at $77.11 a share Monday, up 71 cents in New York Stock Exchange trading. The stock has lost more than 20% of its value since January.

The announcement was made after the close of the stock markets.