Allergan Sued Over Too-Rosy Sales Forecast
Allergan Inc. has been hit by a flurry of shareholder lawsuits alleging that the Irvine-based company gave an overly optimistic portrayal of its business prospects before its emergence two months ago as a publicly traded firm.
The suits were filed in federal courts in Philadelphia and Santa Ana following Allergan’s downward revision Sept. 6 of its sales growth forecast for 1989 from the “mid-teens” to the “double-digit” range.
A spokesman for the company, which makes eye-care and skin-care products, said the company told industry analysts earlier this year that the company expected sales growth of 15% to 16%. But that has since been revised to 10% to 12% because of several factors.
After the sales forecast was lowered, the price of Allergan stock fell 15% to $20.75 from $24.50 a share on Sept. 7. At the close of trading Wednesday, the stock was selling at $19.25 on the New York Stock Exchange.
More Suits
Allergan was spun off as a separate company July 26 when Philadelphia-based SmithKline Beckman merged with London-based Beecham to form SmithKline Beecham PLC. At that time, SmithKline distributed to its stockholders all the outstanding shares of Allergan.
The company said in a statement Wednesday that two shareholder complaints--one by Melrose Investment Club and Plato Paper Products Inc. on Sept. 8 and the other by Hyman and Elaine Greenspan on Sept. 12--had been filed against it in U.S. District Court in Philadelphia. Allergan also said it had been informed that “additional, similar lawsuits may be filed.”
Blake Harper, an attorney in the San Diego office of Milberg, Weiss, Bershad, Specthrie & Lerach, said his firm and others have filed a total of seven shareholder suits against Allergan in U.S. District Court in Santa Ana over the last two weeks. However, he said Allergan has not yet been served with the suits.
The Philadelphia suits, which are seeking class-action status, accuse the company, Chairman and Chief Executive Gavin S. Herbert Jr. and SmithKline Beecham of violating federal securities laws.
The suits charge that the defendants, before and during the initial public offering of Allergan’s stock and in later weeks, were responsible for having Allergan issue “various statements and documents to the investing public, the purpose and effect of which was to lull the public into having a belief in the soundness and future prospects of Allergan despite the fact that the opposite was true.”
Sales Off
Howard J. Sedran, an attorney representing the Greenspans, said he will be seeking damages for all those who purchased Allergan stock from June 20, the date of Allergan’s prospectus for its public offering, through Sept. 6. He said he had not yet calculated the total damages, which he estimated “in the millions of dollars.”
Sedran and other lawyers representing Allergan shareholders said they expect eventually to consolidate their suits in one action.
Allergan said Wednesday that it “denies the allegations” and “will vigorously contest the actions.” SmithKline Beckman spokesmen declined to comment on the litigation.
On Sept. 6, Allergan said its sales forecast revision was caused by lower than anticipated sales in its optical division because of increased competition, the delayed release of a new diagnostic product and strengthening of the dollar, which has reduced the company’s revenue from overseas business.
