Allergan Announces Restructuring; Plans to Enhance Strategic Sourcing

As part of an ongoing effort to improve efficiency and productivity, the specialty pharmaceutical company Allergan Inc. announced as part of its second-quarter earnings release that it will execute a restructuring in 2014 under which the company will reduce its workforce by approximately 1,500 employees, or approximately 13% of its current global headcount and eliminate an additional approximately 250 vacant positions.

In its earnings statement, Allergan said that it recently completed a global review of its structures and processes, portfolio of research and development projects and marketed products, and its geographies in an effort to prioritize the highest value investments. As a results of that review, Allergan said it will restructure its operations and processes in the remainder of 2014 to deliver annual pre-tax savings of approximately $475 million in calendar year 2015 as compared to previously communicated 2015 expectations. Such savings will come from efficiencies and reductions in spend across the commercial organization, general and administrative functions, manufacturing and the research and development organization.

Allergan said it will achieve these synergies by focusing resources on the highest value opportunities, streamlining its organizational structure, simplifying processes and interfaces, optimizing site footprints and enhancing strategic sourcing of goods and services.

As part of the restructuring, Allergan will reduce its workforce by approximately 1,500 employees, or approximately 13% of its current global headcount and eliminate an additional approximately 250 vacant positions. The company says that approximately 94% of all customer-facing personnel are unaffected by the restructuring. All pharmaceutical research and development programs in the clinic will continue, and any reductions in discovery programs will not impact approvals within the strategic plan period.

Allergan currently estimates that it will incur total non-recurring pre-tax charges of between $375 million and $425 million in connection with the restructuring and other costs, of which $65 million to $75 million will be a non-cash charge associated with the acceleration of previously unrecognized share-based compensation costs and certain other non-cash accounting adjustments. The restructuring charges and other costs will primarily consist of employee severance and other one-time termination benefits, facility lease and other contract terminations, accelerated depreciation and asset write-downs, accelerated equity-based compensation, temporary labor, and duplicate operating expenses. These non-recurring charges will be incurred beginning in the third quarter of 2014 and are expected to continue through the second quarter of 2015.

For the second quarter ending June 30, Allergan reported $1.827 billion in product net sales and total sales of $1.864 billion. Total product net sales increased 15.9% compared to total product net sales in the second quarter of 2013. Total specialty pharmaceuticals net sales increased 13.2% or 13.7% on a constant currency basis, compared to total specialty pharmaceuticals net sales in the second quarter of 2013. For the full year 2014, Allergan says it expects total product net sales between $6.9 billion and $7.050 billion, excluding any future anticipated revenue from the transition services agreements related to the sale of the obesity intervention business, which includes total specialty pharmaceuticals net sales between $5.865 billion and $5.975 billion.

The news of the restructuring comes following Allergan’s rejection on June 23, 2014, of the latest effort by the specialty pharmaceutical company Valeant Inc to acquire Allergan. On June 18, 2014, Valeant proposed to purchase each outstanding share of Allergan common stock, at the election of the holder, for 0.83 common shares of Valeant and $72.00 in cash, or an equal amount of cash or number of shares of Valeant common stock, in each case subject to proration. On June 23, 2014, Allergan’s board of directors issued its recommendation that Allergan stockholders reject the offer and not tender their Allergan shares pursuant to the offer.

Source: Allergan

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