Allergan Will Cut 8.9% of Its Work Force, Close Factories

By BARBARA MARSH

Sept. 16, 1998 12 AM PT

TIMES STAFF WRITER

Allergan Inc. said Tuesday it will cut 550 jobs--8.9% of its work force--and shutter five of its 12 factories in an effort to slash costs and boost profits.

The Irvine maker of eye-care and skin-care products and drugs said it will lay off 110 employees at its corporate headquarters near John Wayne Airport and close a factory on the 28-acre site.

About 75 local corporate employees and 35 factory workers will lose their jobs, and the factory’s production of skin-care products will be farmed out to other manufacturers, officials said.

Allergan will take a pretax charge of about $103 million in the third quarter for costs of the restructuring. It may also take an additional $10 million in charges in the fourth quarter.

David Pyott, the company’s chief executive, said Allergan is being trimmed down so that it can move more quickly to bring new products to the market ahead of its rivals.

“Before I started here, I looked at our overhead, and it was pretty high compared to the competition,” said Pyott, who joined Allergan in January.

Allergan--which last year posted profits of $128.3 million, or $1.97 a share, on sales of $1.1 billion--is struggling like other medium-sized drug companies to compete against both the industry’s global giants and small, emerging biotech companies.

Pyott said he expects that the cuts announced Tuesday will be sufficient to prepare the company for the future. He said his guiding rule for the restructuring is, “Make it deep and make it once and go on.”

Analysts said the reductions reflect promises by management earlier this summer to take strong action to improve Allergan’s financial performance. In the last three months, Allergan stock rose gradually from $44.56 a share, on June 16, to $59.06, on Monday. On Tuesday it retreated $2.93 to close at $56.13.

Allergan’s work force totals 6,150 employees. Over the next three years, about 250 manufacturing jobs will be eliminated, and 300 administrative and sales positions will be cut through retirement, attrition and layoffs.

The company now employs 1,900 in Orange County, all in Irvine except for 100 at a Santa Ana factory that isn’t affected by the cuts.

About half of the local layoffs will occur this year and the rest by the end of next year, when the Irvine factory is set to close. Pyott said officials have notified nearly all affected employees about the timing of their layoffs. The company has promised severance packages to those who stick around until they’re no longer needed.

The factory’s space will be converted for use by the company’s expanding research and development work force, most of whom work in Irvine. Pyott said California’s high business costs make it better suited for research and development operations than manufacturing.

Allergan also said it plans to close factories in Sao Paulo, Brazil; North Andover, Mass.; Lenoir, N.C., and Hormigueros, Puerto Rico.

The drugs and over-the-counter products from Hormigueros will move to another Puerto Rican plant, in Anasco, and to Waco, Texas. The Anasco plant also will take over production of Lenoir’s surgical line. The pharmaceuticals line at the plant being closed in Sao Paulo will be shifted to another plant in that city. North Andover’s products, used in cataract surgery, will be farmed out.

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Allergan on a Roll

Investors anticipating a move by Allergan Inc. to cut jobs and close plants have helped drive up the company’s stock. Weekly closing prices and Tuesday’s close:

Jan. 2: $32.69

Jan. 9: $31.64

Jan. 16: $32.92

Jan. 23: $34.05

Jan. 30: $33.55

Feb. 6: $36.20

Feb. 13: $34.22

Feb. 20: $35.09

Feb. 27: $34.53

March 6: $36.02

March 13: $36.63

March 20: $36.19