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FOURTH ANNUAL SPECIAL REPORT • MOST ADMIRED COMPANIES back to table of contents

19 October 2004

by Andrew Humphreys

Pfizer Inc. easily retains its most admired pharmaceutical company title. The world’s biggest pharmaceutical company has won the most admired recognition in each of the four years that Med Ad News has conducted this poll. Johnson & Johnson came in second place for the second consecutive year, about 48% behind Pfizer in total number of votes. Novartis repeats as the No. 3 vote-getter among pharmaceutical companies.

Runner-up for three consecutive years, biotechnology pioneer Genentech Inc. has been selected by voters as the world’s most admired biotechnology company in 2004. Genentech has displaced Amgen Inc. from the No. 1 biotechnology spot, a position held by that company for the first three years of this annual poll. Biogen Idec Inc. came in a distant third in voting conducted by Med Ad News among about 15,000 pharmaceutical industry professionals.

Allergan Inc. wins again as the most admired specialty company, the second year that Med Ad News has conducted voting for this category. Teva Pharmaceutical Industries Ltd., the world’s largest generic drug manufacturer, repeats its second-place rank. Moving up from fourth to the third position was Shire Pharmaceuticals Group Plc., switching places with last year’s No. 3 vote-getter, Bausch & Lomb Inc.

Most admired pharmaceutical company

Pfizer Inc.

he largest pharmaceutical company in the world also markets the highest number of billion-dollar brands, has the highest research and development expenditure, has the largest sales force, is the partner of choice when it comes to developing and marketing prescription drugs, and is a leader in global corporate citizenship. Pfizer is the world’s largest pharmaceutical company with more than $45 billion in 2003 worldwide sales. Pfizer’s ascent to the leading position in the industry is primarily due to acquisitions of other major pharmaceutical companies. In June 2000, Pfizer acquired Warner-Lambert Co. and in April 2003, Pfizer acquired Pharmacia Corp. No other pharmaceutical company has taken on two giant acquisitions within such a short time frame.

During its 155-year history, Pfizer has evolved from a small family business to a specialty chemical company to a diversified manufacturing company to a research-based pharmaceutical company and the world’s largest company devoted to health care. Pfizer’s employee count has almost tripled in four years from 45,000 to 122,000. Pfizer’s reach extends worldwide to more than 150 countries, including Japan, where the company is No. 1.

Pfizer management measures the company’s progress by three key standards: financial performance, ability to increase access to health care, and corporate citizenship. The company’s 2003 revenue rose 39.6% to $45.19 billion compared with 2002. Net income was reported at $3.91 billion, down 57.2% compared with 2002. Diluted earnings per share amounted to 54 cents, a 63% decline. Adjusted income came in at $12.7 billion and adjusted diluted earnings per share were $1.75.

For the first half of 2004, Pfizer revenue grew 34.5% to $24.76 billion compared with the first half of 2003. Net income for the first half of 2004 was $5.20 billion compared with $1.07 billion in first-half 2003. Earnings per share were 68 cents compared with a loss per share of 18 cents in the first six months of 2003.

Global revenue increases primarily are attributed to the inclusion of Pharmacia products, strong performances by in-line and newly launched products across all businesses and regions, and the weakening of the U.S. dollar relative to other foreign currencies. Pfizer (pfizer.com) completed the harmonization of Pharmacia’s trade-inventory practices in 2003.

Pfizer discovers, develops, manufactures, and markets prescription medicines for humans and animals as well as many of the world’s best-known consumer health-care products. Pfizer operates in three business segments: Pharmaceutical, Consumer Healthcare, and Animal Health. Pfizer operates several other businesses, including the manufacture of empty soft-gelatin capsules, contract manufacturing, bulk pharmaceutical chemicals, and diagnostics.

The Pharmaceutical segment includes treatments for cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer, eye disease, endocrine disorders, and allergies. The consumer health-care sector includes self-medications for oral care, upper-respiratory health, tobacco dependence, gastrointestinal health, skin care, eye care, and hair growth. The animal-health business includes products to treat diseases in livestock and companion animals.

Pfizer’s Pharmaceutical business is the largest in the world. In 2003, Pharmaceutical revenue increased 40% to $39.63 billion. Pfizer’s human pharmaceutical business recorded revenue of $21.75 billion in first-half 2004, a 34.7% increase compared with the first half of 2003.

Revenue from the Pharmaceutical segment contributed about 88% of Pfizer’s total revenue in 2003 and in first-half 2004. Pfizer’s financial performance is rooted in the strong sales of its prescription pharmaceuticals. More than 1 billion prescriptions were written for Pfizer medications in 2003. Fourteen of Pfizer’s prescription medicines were category leaders last year, including Xalatan, the first ophthalmology medicine to top $1 billion a year in sales. Xalatan, for lowering elevated intraocular pressure in patients with open-angle glaucoma, came to Pfizer through its Pharmacia acquisition. The Pharmacia transaction immediately strengthened Pfizer’s marketed product portfolio and opened new doors for Pfizer in the three largest markets worldwide: North America, Europe, and Japan.

By acquiring Pharmacia, Pfizer became the No. 1 pharmaceutical company in every region worldwide. Almost immediately following the first day of unified operations, Pfizer debuted as a cancer treatment company. Pfizer provides three cornerstone therapies in treating colorectal and breast cancer, two of the world’s most common and feared tumor types.

Even with the additions of Warner-Lambert and Pharmacia, Pfizer remains an active player in the acquisition arena. Pfizer’s strategic acquisitions during the past year have included Esperion Therapeutics Inc. of Ann Arbor, Mich., and CSL Animal Health of Australia.

Esperion is a specialty pharmaceutical company that is developing compounds to exploit the ability of high-density-lipoprotein, or good, cholesterol, to help scrub arteries of clogging plaque. Esperion’s work potentially complements two new Lipitor-based combination therapies in Pfizer’s pipeline, including the highly anticipated Lipitor/torcetrapib product. Pfizer completed the acquisition of Esperion for $1.3 billion in cash in early 2004.

Pfizer has agreed to acquire CSL Animal Health for $126 million in cash. This addition, which helps Pfizer in the Australian marketplace with CSL’s line of vaccines for livestock and companion animals, establishes Pfizer Animal Health as one of Pfizer’s core businesses and the world’s leading animal-health company.

Pfizer’s new product pipeline is the strongest in company history. The company spends more money than any other on health-care research and development expenditure. With a 37.8% increase to $7.13 billion for 2003, Pfizer’s research and development budget was almost 50% more than the No. 2 company in this area last year.

THE MOST BILLION-DOLLAR BRANDS

Pfizer recorded product sales of more than $1 billion for each of nine pharmaceutical products in 2003: Lipitor, Norvasc, Zoloft, Neurontin, Zithromax, Celebrex, Viagra, Zyrtec, and Diflucan. These products represented 70% of combined Pharmaceutical revenue in 2003.

Lipitor is the world’s top-selling prescription medicine. The product generated $9.23 billion in 2003 global sales, a 15.8% increase compared with 2002 sales. In first-half 2004, Lipitor sales were up 18.1% to $4.86 billion.

Lipitor is for the treatment of elevated cholesterol levels in the blood. The medicine is the most widely prescribed statin for lowering cholesterol and the most widely prescribed pharmaceutical product worldwide. With 45% of total prescriptions in the U.S. lipid-lowering market in 2003, Lipitor has gained wide physician and patient acceptance. Pfizer executives remain confident that Lipitor will maintain its status as the lipid-lowering agent of choice. Lipitor provides physicians with a lipid-lowering treatment that has been proven to get the vast majority of patients to their lipid goals and provide significant impact on cardiovascular outcomes, with an excellent and trusted safety profile across the full dosing range.

Norvasc is the fourth-largest selling pharmaceutical product worldwide and the most-prescribed branded medicine for treating hypertension. Norvasc recorded 2003 sales of $4.34 billion in worldwide sales, an increase of 13% compared with 2002. In first-half 2004, the product generated $2.17 billion, a 9.4% increase compared with first-half 2003.

Norvasc’s success has been driven by its outstanding efficacy, once-daily dosing, consistent 24-hour control of hypertension and angina, and excellent safety and tolerability. The product was introduced to the U.S. market in 1990. Norvasc has been studied in more than 400,000 patients and has been used in more than 30 billion patient days of therapy worldwide. Recently approved labeling for Norvasc includes the results of studies conducted with pediatric patients.

The antidepressant Zoloft generated sales of $3.12 billion in 2003, up 13.7% compared with 2002. First-half 2004 sales amounted to $1.6 billion, a 15.2% increase compared with first-half 2003.

Zoloft is the most-prescribed selective serotonin reuptake inhibitor in the United States. The product is indicated for treating depression, panic disorder, obsessive-compulsive disorder in adults and children, posttraumatic stress disorder, premenstrual dysphoric disorder, and social anxiety disorder. Zoloft is approved for acute and long-term use in all of these indications with the exception of premenstrual dysphoric disorder and is the only approved agent for the long-term treatment of posttraumatic stress disorder and social anxiety disorder, an important differentiating feature because these disorders tend to be chronic.

Zoloft is awaiting FDA approval for treating depressed hospital patients with acute myocardial infarction or unstable angina. FDA issued an approvable letter for this indication in December 2003.

Neurontin sales for 2003 came in at $2.70 billion, a 19.1% increase compared with 2002. The product’s sales in the first half of 2004 were $1.48 billion, a 21.5% increase compared with first-half 2003. Neurontin is used as adjunctive therapy for epilepsy and is approved in more than 60 markets for treating a range of neuropathic pain conditions. Neurontin in May 2002 became the first oral medication approved in the United States for the management of neuropathic pain associated with postherpetic neuralgia

About 12 million patients have been prescribed Neurontin since its first approval in 1994. Neurontin is available in more than 100 countries.

Zithromax is the largest-selling antibiotic worldwide with 2003 sales of $2.01 billion, representing growth of 32.6% compared with 2002. Zithromax sales were down 3% to $837 million in the first half of 2004 due to a weak respiratory season in the United States in the first quarter.

Zithromax continues to revolutionize antibiotic treatment in the United States with the only available single-dose treatment for otitis media. Zithromax is recommended for the first-line treatment of community-acquired pneumonia and sinusitis. Zithromax is the only antibiotic approved as a three-day treatment regimen for acute bacterial sinusitis, which is caused by the pathogens Streptococcus pneumoniae, Haemophilus influenzae, or Moraxella catarrhalis. Zithromax is the leading branded antibiotic in all adult and pediatric indications in the United States. The drug is recognized by physicians for its broad efficacy, compliance advantages, favorable side-effects profile, and a good-tasting liquid formulation for children to treat common respiratory-tract infections. Zithromax is being studied in Phase III clinical studies as a possible treatment of drug-resistant malaria.

Celebrex is the leading selective cox-2 inhibitor in the world, having the broadest range of approved indications. Celebrex is the most-prescribed arthritis brand in the United States, The product generated $1.88 billion in 2003 sales. Sales for first-half 2004 reached $1.5 billion. Pfizer jointly promoted Celebrex with Pharmacia before its acquisition of Pharmacia. Revenue associated with the joint promotion of Celebrex was recorded by Pfizer as alliance revenue before the acquisition date.

Celebrex is indicated for relief of the pain and inflammation of osteoarthritis, rheumatoid arthritis, acute pain, and primary dysmenorrhea in adults. Celebrex provides proven, long-lasting strength in treating the pain and inflammation of osteoarthritis and rheumatoid arthritis, as well as in the treatment of acute pain and primary dysmenorrhea. Celebrex is approved in the United States and the European Union to reduce the number of adenomatous colorectal polyps in familial adenomatous polyposis, a rare genetic disease that may result in colorectal cancer, as an adjunct to usual care.

Celecoxib, the active chemical in Celebrex, is awaiting marketing approval in Japan, the world’s second-largest single pharmaceutical market. There are no cox-2-specific inhibitors approved in Japan.

Viagra generated 2003 global sales of $1.88 billion, an 8.3% increase compared with 2002. Viagra, which treats erectile dysfunction, is among the most widely prescribed medications worldwide. Pfizer expects Viagra to continue to lead the erectile-dysfunction market due to its unsurpassed medical profile. Future Viagra sales growth is expected to come from increased patient presentation and physician diagnosis. Direct-to-consumer advertising has been effective in encouraging more men to see a physician about erectile dysfunction.

On a global basis, the erectile-dysfunction market continues to grow at about 25%. Pfizer executives say this reflects the significant number of men who are suffering with this condition and can be helped by Viagra. Viagra has maintained a leading market share of 73% on a worldwide basis and remains the world’s therapeutic standard in its category, with an unrivaled track record of safety and efficacy. The product is well-positioned to take advantage of continued growth in the erectile-dysfunction market, executives say.

First-half 2004 Viagra sales were $805 million, a 10% decrease compared with the first six months of 2003, due to the introduction of two competitive products. Despite the launch of other oral phosphodiesterase-5 inhibitors, Viagra’s worldwide market share in dollar sales for January 2004 through May 2004 was 73%. In the United States, Viagra continued to lead the erectile-dysfunction market, with 77% of total erectile-dysfunction prescriptions for the period from January 2004 through June 2004.

Patients continue to choose Viagra because of the hardness of erections and the satisfaction the drug provides to consumers and their partners. The efficacy and safety of Viagra have been shown in more than 130 clinical trials worldwide and in more than six years of real-world experience. Studies have demonstrated that Viagra improves erections in up to 82% of men with erectile dysfunction and that 96% of Viagra users report being highly satisfied with the product. Pfizer managers are confident that Viagra’s leadership will continue, especially in the world’s largest erectile-dysfunction markets, including the United States, Germany, the United Kingdom, Brazil, Italy, Mexico, and Japan, which account for about 80% of total global erectile-dysfunction prescription sales.

Pfizer implemented the Value Card savings program for Viagra in April to provide benefit to Viagra patients and to help prompt undiagnosed men to seek treatment. More than 54,000 men have enrolled in the Value Card program. After enrolling in the program, men who pay cash for their prescriptions or who are only partly reimbursed for their prescriptions can get a seventh free prescription after filling and paying for six, for the portion of their prescription paid for in cash.

Diflucan is the No. 1 systemic antifungal in the world. The product generated $1.18 billion in 2003 sales, an increase of 5.8% compared with 2002. Sales of Diflucan for the first six months of 2004 grew 7.5% to $588 million compared with the same period in 2003.

Diflucan’s sales volume after 14 years on the market reflects the product’s continuing acceptance as the therapy of choice for a wide range of fungal infections. Diflucan is for the treatment of fungal infections often present in critically ill, hospitalized patients, as well as fungal infections of the mouth, throat, and esophagus. Diflucan is effective as a single-dose oral treatment for vaginal candidiasis.

Zyrtec is the leading branded antihistamine in the United States in new prescriptions. The product generated sales of $1.34 billion in 2003, up 20% compared with 2002. Zyrtec sales were down 4.4% in first-half 2004 to $605 million as a result of the availability of multiple low-cost over-the-counter branded and private-label loratadine products since December 2002.

Zyrtec provides strong, rapid, and long-lasting relief for seasonal and year-round allergies and hives with once-daily dosing. Zyrtec has strong efficacy relative to prescription or over-the-counter antihistamines. Pfizer and UCB Pharma (ucbpharma.com), the discoverer of Zyrtec, jointly promote the drug. Published data show that Zyrtec has a superior performance compared with Claritin, marketed by Schering-Plough Corp. (sgp.com). Claritin, which contains loratadine, was the former best-selling antihistamine worldwide until the product went off patent.

Zyrtec’s strong sales growth throughout the years can be attributed partly to its strong performance in tablets, syrup, and 12-hour decongestant formulations for adult and pediatric patients. Before the approval of a syrup formulation of Schering-Plough’s Clarinex in September, Zyrtec was the only prescription antihistamine with a syrup formulation. Zyrtec-D 12 Hour is the only prescription oral antihistamine/decongestant combination medicine approved for treating year-round indoor and outdoor allergies, as well as nasal congestion. In March 2004, Zyrtec became the only prescription antihistamine with a chewable formulation as well.

LEADER IN CONSUMER AND ANIMAL HEALTH

Pfizer operates one of the largest consumer health-care business in the world. The company markets many of the world’s best-known over-the-counter medications for oral care, upper respiratory health, tobacco dependence, gastrointestinal health, skin care, eye care, and hair growth.

Consumer Healthcare revenue in 2003 grew 20% to $3.04 billion. This performance was primarily due to the inclusion of legacy Pharmacia products as well as the strong performance of Listerine mouthwash and the favorable impact of foreign exchange. First-half 2004 Consumer Healthcare sales were $1.67 billion, up 29.1% compared with first-half 2003.

Pfizer’s Animal Health business is the largest in the world. The company discovers, develops, and sell products for the prevention and treatment of diseases in livestock and companion animals. Among the products Pfizer markets are parasiticides, anti-inflammatories, vaccines, antibiotics, and related medicines. For 2003, Animal Health revenue grew 42.8% to $1.6 billion, mainly due to the inclusion of legacy Pharmacia products as well as strong performances by many legacy Pfizer products and the favorable impact of foreign exchange. In first-half 2004, animal-health sales were $912 million, a 39.9% increase.

NO. 1 IN R&D EXPENDITURE

Pfizer manages the world’s largest pharmaceutical research and development effort with more than 13,000 scientists worldwide and an expenditure of $7.13 billion in 2003. Research and development expenditure is expected to grow to about $7.6 billion for 2004, reflective of higher cost synergies and increased productivity. Pfizer’s development portfolio of new molecular entities grew about 20% within a one-year period. The company’s development pipeline includes about 130 new molecules and 95 projects to expand the use of existing medicines. Company managers are attempting to submit an unprecedented 20 new medicines for regulatory approval during the five-year period ending in 2006. These products include Caduet, pregabalin, and Spiriva.

Caduet is the first single medication to treat two cardiovascular risk factors simultaneously. The product was FDA-approved Jan. 30 and launched in May in the United States. This dual therapy, indicated for the simultaneous treatment of high blood pressure and high cholesterol, contains Lipitor and Norvasc. Caduet attained sales of $30 million during first-half 2004.

Pfizer has a host of promising new drugs in clinical development or awaiting marketing approval. Pregabalin is Pfizer’s important next-generation drug for neuropathic pain and epilepsy. The product received marketing authorization under the brand name Lyrica in the European Union in July. Neuropathic pain is among the most difficult-to-treat chronic pain syndromes, with limited treatment options. A regulatory submission for pregabalin in the management of neuropathic pain associated with diabetic peripheral neuropathy and postherpetic neuralgia, generalized anxiety disorder, and as adjunctive therapy in epilepsy was submitted to U.S. regulators in October 2003.

Pfizer officers say joint-development and alliance agreements allow the company to capitalize on promising compounds to expand its pipeline of potential future products. Due to Pfizer’s strength in marketing and its global reach, the company is able to attract other organizations that may have promising compounds and can benefit from its strength and skills.

Spiriva is the first once-daily inhaled bronchodilator treatment for chronic obstructive pulmonary disease and a significant advance compared with other treatment options. The drug has been launched by Pfizer and the product’s discoverer Boehringer Ingelheim GmbH (boehringer-ingelheim.com), in more than 40 countries, including the United States, Germany, the United Kingdom, and Spain, where Pfizer records a portion of Spiriva revenue as alliance revenue. U.S. approval was granted in January. Spiriva is indicated for the long-term, once-daily maintenance treatment of bronchospasm associated with chronic obstructive pulmonary disease. The new medicine’s market share is trending steadily upward in every market, indicating that physicians are increasingly recognizing its benefits. Chronic obstructive pulmonary disease is the fifth-leading cause of death worldwide and the fourth-leading cause of death in the United States.

Awaiting FDA marketing clearance, Macugen is a novel drug for age-related macular degeneration, the leading cause of severe vision loss in patients 50 years old or older in the developed world. Pfizer is developing Macugen in partnership with the drug’s discoverer, Eyetech Pharmaceuticals Inc. (eyetech.com). The product was submitted to FDA in June and has received a fast-track designation. Pfizer expects to submit the regulatory filing in the European Union and other markets later this year.

Pfizer intends to submit applications for two new chemical compounds to FDA in 2004: Dynastat, the first injectable cox-2 inhibitor for pain and inflammation; and indiplon for insomnia.

Dynastat already is marketed in more than 30 countries outside the United States. Advanced clinical trials have been completed in acute pain, with a resubmission expected to be submitted to FDA regulators by year-end 2004.

The product contains parecoxib, which is hydrolyzed following injection to valdecoxib, the active chemical in Bextra. Parecoxib provides a unique opportunity, when appropriate, to offer seamless cox-2-specific-inhibitor pain therapy in those markets with an acute-pain indication for Bextra. Thus, parecoxib can be used in the perioperative setting when patients are not able to take oral medication and allows for patients to be discharged from the hospital with a prescription for Bextra.

Bextra is a selective cox-2 inhibitor developed by Pharmacia. The product offers fast, powerful, long-lasting pain relief with once-daily dosing for osteoarthritis and rheumatoid arthritis patients. Bextra gained U.S. approval in 2001 for treating rheumatoid arthritis, osteoarthritis, and primary dysmenorrhea and is available in the European Union for the same indications. Second-half 2004 sales were $545 million compared with $185 million in the first six months of 2003.

Indiplon is a unique nonbenzodiazepine GABA-A-receptor agonist selective for the alpha-1 subunit. Neurocrine Biosciences Inc. (neurocrine.com) and Pfizer are jointly developing and will jointly market indiplon, which is in U.S. Phase III clinical development for treating transient and primary insomnia. Pfizer has exclusive marketing rights to indiplon outside the United States. Phase III clinical trials including more than 7,000 patient exposures makes the indiplon program the largest clinical program to be conducted for sleep.

STRONG LIFE-CYCLE MANAGEMENT

Pfizer is one of the most active companies in conducting research and development to expand the indication of already-marketed drugs. These drugs include Viagra for the treatment of pulmonary arterial hypertension in children and adults; Celebrex for sporadic adenomatous polyposis, Barrett esophagus, actinic keratosis, bladder cancer, ankylosing spondylitis, and chronic lower back pain; Zithromax for cystic fibrosis, drug-resistant malaria, and in a sustained-release formulation for bacterial infections; Bextra for acute pain and perioperative oral surgery pain; Vfend for candidemia in non-neutropenic patients and fungal infections in immunocompromised patients; Camptosar IV for use in children and for adjuvant colorectal cancer and gastric cancer; and Fragmin for the extended treatment of symptomatic venous thromboembolism and in the prevention of recurring venous thromboembolism in cancer patients.

Pfizer is active in extending the life cycle of highly successful pharmaceutical brands through combination drugs with other chemicals. Examples of these combination drugs include Caduet, Lipitor/torcetrapib, and Zithromax/chloroquine.

A combination product of Lipitor and the cholesteryl ester transfer protein inhibitor torcetrapib is in global Phase III clinical trials for dyslipidemia. A Phase III clinical program has been designed to provide conclusive evidence of the benefits of raising high-density-lipoprotein cholesterol through torcetrapib, in combination with the powerful low-density-lipoprotein cholesterol-lowering and established benefits of Lipitor, above and beyond the well-demonstrated effects of Lipitor alone in patients with all types of lipid abnormalities. Demonstration of such benefit would provide support for use of Lipitor/torcetrapib in patients being treated with Lipitor and other statins.

The combination drug of Zithromax and chloroquine is being developed in Phase III clinical trials for treating malaria. Chloroquine is an older, commonly used malaria treatment. The combination drug has been demonstrated to be three times more effective than chloroquine alone.

SALES-FORCE AND DTC LEADER

The world’s largest pharmaceutical sales force belongs to Pfizer at more than 9,400 U.S. sales reps, at least 25% more than the No. 2 company in this area. A Verispan LLC audit announced in August cited that Pfizer has been selected as the best overall pharmaceutical company by long-term care pharmacists. This audit is based on the responses of pharmacy providers and consultants who represent a majority of nursing home and assisted-living beds in the United States. These influential pharmacists rated companies on their ability to meet long-term care industry needs in four areas: contracts, value-added services, account personnel, and pharmaceutical company strategy. Verispan (verispan.com) is an informatics joint venture of Quintiles Transnational Corp. and McKesson Corp.

No other company spent more money on direct-to-consumer advertising for prescription medicines in 2003 than Pfizer. The company’s budget in this area was $687.5 million, 31.6% more than the No. 2 spender last year. This expenditure included more than $100 million spent on four products each: Viagra, Lipitor, Zoloft, and Zyrtec.

CORPORATE CITIZENSHIP CHAMPION

Pfizer’s role in local and global communities is as strong as any other health-care company. As the world’s largest biomedical research and pharmaceutical company with 122,000 employees in over 150 countries, managers say Pfizer has a unique opportunity to be a good corporate citizen. According to executives, they welcome this challenge and know they can achieve this only by incorporating the needs and interests of various stakeholders.

Pfizer’s basic role is to discover and develop medicines, help make medicines available, advance and share health information, and partner on public health programs. The company’s medicines alone help about 150 million people a year worldwide. Additionally, Pfizer is working with a broad range of public and private sector partners to help address people in need of medicines. Ultimately, the company’s goal over time is to be a partner in identifying, creating, and implementing comprehensive sustainable health-care solutions.

Pfizer has made available a number of efforts in the United States that allows needy Americans the opportunity to gain access to its medicines. In August, Pfizer launched its newest initiative, Pfizer Helpful Answers. The 43 million uninsured Americans, regardless of age or income, can call toll free 1-866-776-3700 or log on to the Internet at pfizerhelpfulanswers.com to find out how to get Pfizer medicines for free or at significant savings. This new initiative joins many other opportunities provided by Pfizer allowing access to innovative medicines, such as the Sharing the Care program. Sharing the Care provides Pfizer medicines free of charge to participating community health centers. Eligible families earning less than $31,000 per year, or $19,000 for individuals, can receive Pfizer medicines from eligible community health centers.

Pfizer’s corporate citizenship efforts internationally are just as impressive. In October 2002, Pfizer became the first U.S. pharmaceutical company to sign the United Nations Global Compact. Created in July 2000 by UN Secretary-General Kofi Annan, the Global Compact is a network of UN agencies, corporations, nongovernmental organizations, labor, and academic institutions that endorse a shared set of principles on good corporate citizenship.

Pfizer has partnered with governments to donate Diflucan to developing countries to treat opportunistic infections associated with HIV. Pfizer has committed $110 million to the program, which has distributed more than 4 million free doses of Diflucan and trained 18,000 health-care workers.

The company has expanded its commitment to the International Trachoma Initiative to eliminate trachoma, the world’s leading cause of preventable blindness, through training and medicine donations in 10 countries in Africa and Asia. Pfizer has helped train health-care professionals who have treated 10 million patients and completed 85,000 surgeries. Company management intends to help the World Health Organization achieve its goal of eliminating blinding trachoma by the year 2020. Pfizer is helping a number of developing countries to combat the rampant spread of HIV/AIDS.

CONTINUED FUTURE SUCCESS

Pfizer’s financial results in the second quarter reflect the company’s fundamental soundness and resilience in the face of dynamic market conditions, says Hank McKinnell, chairman and CEO. "Our bottom line remains unaffected by these conditions," he says. "While a more-challenging business environment, marked by new competition and the effects of less-favorable foreign-exchange rates than we anticipated, led us to revise our full-year 2004 revenue expectations from about $54 billion to between $52.5 billion and $53 billion, our current and future product portfolio offerings remain robust."

Company executives continue to expect to achieve full-year targets for adjusted income of $16.3 billion and adjusted diluted earnings per share of $2.13. Pfizer management expects merger-related cost synergies in 2004 of about $3.5 billion due to the rapid integration of Pharmacia.

Estimates for reported net income in 2004 have been revised from $11.9 billion to $12.1 billion and for reported diluted earnings per share from $1.55 to $1.58. The change relates to the timing of merger-related costs.

"Pfizer’s pharmaceutical business sustained its high performance and industry leadership in the second quarter, led in part by the continued strong growth of all of our five top medicines," says Karen Katen, president, Pfizer Global Pharmaceuticals. "Both in the second quarter and through the year to date, our product performance and revenue growth have remained very strong— in the top tier of the industry— and that fact should not be obscured by our relatively minor revision of expected 2004 revenues."

Most admired biotechnology company

Genentech Inc.

Genentech continues to have significant accomplishments and important developments in all areas of its business year after year. In looking at the performance of the company during the past decade, company officers say the successes of 2003 that have continued in 2004 have been the result of many years of effort and long-standing commitment to several important research and development initiatives. Project time lines in biotechnology can span up to 15 years, and 2003 provided a convergence of success for a few of Genentech’s well-calculated long-term investments, as well as a continuation of its 28-year track record of transforming innovative science into breakthrough therapies for patients. Company management has remained focused on the future to ensure that a strong plan is in place for beyond 2004. Genentech management has developed the infrastructure necessary to support a major period of commercialization for the company.

The mission of Genentech (gene.com) is to be the leading biotechnology company, using human genetic information to discover, develop, manufacture, and commercialize biotherapeutics that address significant unmet medical needs. Company management is committed to high standards of integrity in contributing to the best interests of patients, the medical profession, Genentech’s employees, and its communities, and to seeking significant returns to stockholders based on the continual pursuit of operational excellence.

Seventeen of the company’s approved biotechnology products originated from or are based on Genentech science. Genentech manufactures and commercializes in the United States 13 biotechnology products and licenses several additional products to other companies. Genentech was organized in 1976 as a California corporation and was reincorporated in Delaware in 1987. Genentech in 2003 experienced its largest annual growth in employees in the company’s history, recruiting and hiring more than 1,500 new employees to bring the count to more than 6,200 total people.

According to management, Genentech has the biotechnology industry’s most extensive track record in all phases of bringing new disease treatments to patients, from discovery research through development, commercialization, and product operations. With multiple protein-based products on the market for serious or life-threatening medical conditions, Genentech has experience taking a drug from A to Z, transforming the seed of an idea in a lab into a novel therapy for a patient in need. Such a fully integrated approach differentiates Genentech from other biotechnology companies.

Research is the wellspring of potential products, and Genentech’s research organization is among the world’s finest. Genentech scientists are the most prolific in the biotechnology industry, publishing at a rate of more than 200 papers a year, and are among the top 1% of researchers in the world in total citations. Genentech’s scientists have secured more than 4,600 patents worldwide and have another 5,000 awaiting approval.

Discovery research at Genentech focuses primarily on three areas of medicine where there is a strong need for safer, more efficacious therapies: oncology, immunological disease, and disorders of tissue growth and repair, with a major focus on angiogenic disorders. Genentech remains open to other projects where the company has significant opportunities to fill a therapeutic void in important areas of medicine.

Developing alliances has been one of Genentech’s key strategies for success from its inception, according to executives. Several marketed products and clinical-development products have arisen from successful collaborations. Genentech considers collaborations wherever there is excellent science and the potential for a good strategic fit. Genentech is dedicated to bringing considerable resources to the alliance and is open to different collaboration structures. Genentech has the resources of a large company, including world-class research, clinical, sales, and marketing expertise, but has retained the energy and drive of a small, growing company.

Genentech’s alliance strategy includes focusing on novel therapeutics, including small molecules, proteins, or antibodies, which are consistent with the company’s core strengths of oncology, immunology, and angiogenesis at any stage of research or development; and accessing emerging technologies that can enhance its capabilities in research, development, manufacturing, drug delivery, or diagnostics.

AMBITIOUS GOALS AND PLANNING

Genentech continues to deliver on its earnings-per-share targets and make strong investments in new product launches as well as in research and development initiatives. The company has created a solid foundation for growth in the immediate future and into the next decade, which is key to completing its 5X5 goals, which end in 2005, and beginning Genentech’s Horizon 2010 strategic plan.

The company’s 5X5 plan was initiated in 1999 and continues through 2005. The goals of the plan are: 25% average annual non-GAAP earnings-per-share growth; 25% non-GAAP net income as a percentage of operating revenue; five new products/indications approved; five significant products advanced to late-stage clinical trials; and $500 million in new revenue from strategic alliances or acquisitions. According to Genentech executives, the first goal remains the most important of the 5X5 goals.

Genentech exceeded its third goal after obtaining 2003 marketing approval of Xolair and Raptiva and 2004 market clearance of Avastin. The company is well-positioned to meet its fourth goal with more than 30 products in the pipeline and a steady flow of products advancing to later clinical stages. Regarding the fifth goal, Genentech has entered into more than 40 significant agreements and in-license arrangements since 1999, which company officials say points toward strong future growth prospects.

Genentech’s Horizon 2010 strategic plan builds on the 5X5 Plan and covers the period between 2006 and 2010. Genentech managers say the Horizon 2010 vision and goals will help ensure that the company is solidly positioned to continue its 28-year mission of discovering, developing, commercializing, and manufacturing life-enhancing and life-saving medicines for patients with unmet medical needs.

Genentech’s goals related to Horizon 2010 are: to become the No. 1 U.S. oncology company in sales by 2010; to position itself for continued leadership in the oncology franchise by bringing five new oncology products or indications for existing products into clinical development and into the market; to build a leading immunology franchise by expanding the fundamental understanding of immune disorders, bringing at least five new immunology products or indications into clinical development, and obtaining FDA approval of at least five new indications or products by 2010; to increase its leadership in developing biotherapeutics for disorders of tissue growth and repair, with a major focus on angiogenic disorders, and to move at least three new projects into late-stage research or developmental research and three or more new projects into clinical development by 2010; and to achieve average annual earnings-per-share growth rates sufficient to be considered a growth company.

Genentech will manage the business with a primary intent of building sustainable, long-term growth in stockholder value. Executives expect the company to become a recognized leader in B-cell mediated diseases, disorders of tissue growth and repair, particularly angiogenic disorders, and targeted therapies and their enabling diagnostics.

FINANCIAL ACHIEVEMENTS

Solid financial results were recorded by Genentech for 2003. Revenue was up 27.7% to $3.3 billion, the company’s highest annual revenue ever. Net income came in at $562.5 million compared with $63.8 million in 2002. Diluted earnings per share amounted to $1.06 compared with 12 cents in 2002.

Genentech’s double-digit growth continued through first-half 2004. For the first six months, revenue increased 35.8% to $2.1 billion compared with the first half of 2003. Net income was reported at $347.4 million, a 22.4% increase. Earnings per share reached 32 cents, up 18.5%. Based on the strong first half of this year, Genentech raised its goal for 2004 earnings per share to be in the range of 75 cents to 80 cents.

Genentech achieved two significant firsts in its history during the first half of 2004. In the second quarter, total operating revenue topped $1 billion in a single quarter, six years after Genentech achieved its first $1 billion in total operating revenue in a single year. The second achievement was Genentech attained total operating revenue of $2 billion in first-half 2004, three years after the company generated its first $2 billion in total operating revenue in a single year.

HEADING THE PRODUCT PORTFOLIO

The top-selling drugs for Genentech are the non-Hodgkin lymphoma drug Rituxan, the breast cancer drug Herceptin, and the cystic fibrosis drug Pulmozyme. In 2003, Rituxan sales were up 28.1% to $1.49 billion. Sales of Herceptin were reported at $424.8 million, a 10.3% increase compared with 2002. Pulmozyme sales grew 21.1% last year to $167.2 million. For the first half of 2004, Rituxan produced sales of $825.3 million, 17.2% more compared with first-half 2003. Herceptin sales totaled $231.2 million, an increase of 14% compared with the same period in 2003. Pulmozyme’s first-half sales rose 2.7% to $84.4 million. Product sales growth in the second quarter of 2004 was driven primarily by the bio-oncology products Rituxan, Herceptin, and Avastin, accounting for 74% of the company’s total product revenue during this period.

Rituxan gained its first market clearance in November 1997 for the treatment of relapsed or refractory low-grade or follicular, CD20 positive, B-cell non-Hodgkin lymphoma. Rituxan is being developed for other indications and is in Phase III clinical trials for the treatment of indolent non-Hodgkin lymphoma and relapsed chronic lymphocytic leukemia. Genentech is preparing to submit supplemental biologics license applications to FDA for the treatment of front-line indolent non-Hodgkin lymphoma and front-line aggressive non-Hodgkin lymphoma.

Rituxan is being developed in collaboration with Roche (roche.com) and Biogen Idec Inc. (biogenidec.com). Genentech sales for Rituxan are projected by industry analysts to reach $2.93 billion for 2007.

Herceptin’s initial approval occurred in September 1998 in combination with paclitaxel for the treatment of patients with metastatic breast cancer whose tumors overexpress the HER2 protein and who have not received chemotherapy for their metastatic disease. The product gained EU market clearance in June in combination with the Roche drug Taxotere as a first-line therapy in HER2-positive metastatic breast cancer patients who have not yet received chemotherapy. Analysts forecast that Herceptin sales will total about $600 million in 2007.

Upon market approval, Herceptin was the first of the new-generation targeted therapies. More women with breast cancer are treated with Herceptin than are patients using the newer targeted drugs that treat other cancers. Herceptin can strike the most aggressive breast cancer that has spread with an effectiveness unmatched by any chemotherapy agent. Breast cancer is the most common cancer diagnosed in women, and despite improvements in traditional treatment, up to half of breast cancer patients develop cancer that has spread, or that keeps coming back. The result is 40,000 deaths per year. Herceptin can be used in 25% to 30% of such patients.

Pulmozyme is an inhalation solution for the treatment of cystic fibrosis. FDA approval was first granted in December 2003. Analysts estimate that Pulmozyme sales will be about $213 million for 2007.

NEW LAUNCHES, LOFTY EXPECTATIONS

Genentech has launched three new and highly anticipated drugs since July 2003: Raptiva, Xolair, and Avastin. All three were launched in the United States.

Xolair is an anti-IgE antibody that Genentech commercializes with Novartis (novartis.com) for the treatment of moderate-to-severe persistent asthma in adults and adolescents. In June 2003, FDA approval was granted for marketing of Xolair. The product was launched in July 2003. Phase III clinical trials for treating pediatric asthma and Phase II clinical trials for treating peanut allergy are under way for Xolair. This product is being developed in collaboration with Novartis and Tanox Inc. (tanox.com). Xolair is awaiting approval in Europe as a first-in-class treatment for severe allergic asthma, a chronic disorder of the airways that affects about 150 million people worldwide and causes more than 180,000 deaths annually.

Xolair generated sales of $25.3 million in 2003 after its July introduction. In first-half 2004, Xolair sales totaled $73.7 million. Analysts project that 2007 sales for Xolair will be about $500 million.

Raptiva is an anti-CD11a antibody jointly developed with Xoma Ltd. (xoma.com). The product was approved by FDA in October 2003 for the treatment of chronic moderate-to-severe plaque psoriasis in adults 18 years old or older who are candidates for systemic therapy or phototherapy.

Raptiva is a humanized therapeutic antibody designed to selectively and reversibly block the activation, reactivation, and trafficking of T cells that lead to the development of psoriasis. Raptiva is the first and only FDA-approved biologic therapy that is designed to provide continuous control of chronic moderate-to-severe plaque psoriasis and can be self-administered by patients as a single, once-weekly, subcutaneous injection. More than 3,500 patients in the United States and Europe have been included in Raptiva clinical trials, creating the largest existing database of patients taking part in studies with a biological therapy for psoriasis.

Raptiva was launched in November 2003. Sales for Raptiva for the rest of that year were $1.4 million. First-half 2004 sales reached $19.7 million. Raptiva is expected to be one of several biologic immunosuppressives that will drive sales of the worldwide psoriasis therapeutics market from $1.09 billion in 2004 to $3.12 billion worldwide by 2009. Raptiva sales are forecast by analysts at $252 million for 2007.

Avastin is a therapeutic antibody designed to inhibit VEGF, a protein that plays an important role in tumor angiogenesis and maintenance of existing tumor vessels. By binding to VEGF, Avastin is designed to interfere with the blood supply to tumors, a process that is critical to tumor growth and metastasis.

Avastin was approved by FDA Feb. 26, 2004, for use in combination with intravenous 5-fluorouracil-based chemotherapy as a treatment for patients with first-line or previously untreated metastatic cancer of the colon or rectum. Genentech began shipping Avastin on the day of its U.S. approval. Sales of $133 million were reported for the second quarter of 2004. Industry analysts have predicted Avastin sales of $1.51 billion for 2007.

HIGHLY ANTICIPATED PIPELINE

As a leader in the biotechnology industry, Genentech has a long-standing tradition of reinvesting a significant percentage of revenue back into research and development. This practice has proved successful in transforming promising candidates into important new products. Genentech’s research and development expenditure grew 15.8% to $722 million for 2003. For the first six months of 2004, the amount increased 19.4% to $403.2 million. Genentech managers say the company’s development pipeline has never been more robust and promising. More than half of Genentech’s pipeline is composed of potential antibody therapies.

Avastin is in Phase III clinical development for the adjuvant treatment of colorectal cancer and the treatment of metastatic breast cancer and pancreatic cancer. Avastin is in Phase II clinical trials in combination with another promising cancer product from Genentech, Tarceva, to treat relapsed nonsmall cell lung cancer and metastatic renal cell carcinoma.

Tarceva is an investigational product designed to block tumor cell growth by inhibiting the tyrosine kinase activity of the epidermal growth factor receptor, thereby blocking the HER1/EGFR signaling pathway inside the cell. Tarceva is being evaluated in an extensive clinical-development program by a global alliance of Genentech, OSI Pharmaceuticals Inc., and Roche.

In addition to its Phase II clinical trials in combination with Avastin, Tarceva is being jointly developed by Genentech as a single agent with OSI (osip.com) for treating advanced nonsmall cell lung cancer. In July 2004, OSI filed a new drug application for Tarceva with FDA as monotherapy for patients with advanced nonsmall cell lung cancer after failure of at least one standard chemotherapy regimen. The new drug application has been granted Pilot 1 Status under FDA’s Pilot 1 Program for Continuous Marketing Applications. This new program is designed for investigational products given fast-track status, such as Tarceva, that have shown significant promise in clinical trials as a therapeutic advance compared with available therapy for a disease or condition. Tarceva is the first and only targeted therapy to demonstrate an improvement in survival for advanced nonsmall cell lung cancer patients.

Genentech and OSI reached a deal in January 2001 for the joint development and commercialization of Tarceva in the United States. Genentech continues to be responsible for the marketing, launch, and promotion of Tarceva in the United States. OSI will assist with the promotion of Tarceva by providing at least 25% of the combined U.S. sales force. These two companies will continue to share responsibility for the ongoing development of Tarceva after its market introduction. OSI is responsible for obtaining FDA approval and is working to complete the new drug application for Tarceva. OSI is responsible for commercial manufacturing and supply of Tarceva in the United States. Based on a fourth-quarter 2004 launch, analysts have estimated Tarceva sales will be $709 million in 2007.

Genentech continues extensive work in oncology, including its Tumor Antigen Program and mechanism-of-action studies. According to Verispan, in the 12-month period ended in May 2004, Genentech’s promotional spending to oncologists reached $37.5 million, with about one-third of that total devoted to promotional events. The company concentrated the largest portion of its promotional efforts on oncologists, who accounted for 20% of promotional expenditures, representing a 166% increase compared with the previous-year period. Promotion to oncologists at meetings and events increased about fivefold compared with the previous year.

Angiogenesis remains a significant and broad arena of study for the company, not only in oncology but in vascular biology. Immunology is a growing area of expertise and emphasis for Genentech. Management is exploring several promising areas of research, including tumor necrosis factor super family members, autoimmunity, transplant issues, and allergy/asthma. Genentech is developing a strong focus on diagnostics for its novel, targeted treatments to increase development success rates in clinical trials and deliver the right drugs to the right patients.

Another promising oncology drug in the company’s pipeline is Omnitarg, a humanized monoclonal antibody that targets the HER2 based signaling pathway. The product is being jointly developed in the United States by Genentech and Roche.

Omnitarg is in Phase II clinical development for treating ovarian cancer, prostate cancer, breast cancer, and nonsmall cell lung cancer.

During the first half of 2004, Genentech continued to enter new molecular entities and product-line extensions into preclinical development, including: a hedgehog pathway antagonist licensed from Curis Inc. (curis.com) for basal cell carcinoma; BR3-Fc, licensed from Biogen Idec as part of the company’s B-cell franchise, for rheumatoid arthritis; and the humanized anti-CD20 antibody PRO70769 for hematological/oncology indications in collaboration with Biogen Idec and Roche. Xolair was advanced into Phase II clinical development for treating peanut allergies.

Genentech began enrollment in multiple clinical trials last year for Lucentis, which is being investigated for age-related macular degeneration, Avastin and Omnitarg in multiple tumor types, and Raptiva for psoriatic arthritis. Genentech entered more than 10 new projects into its development portfolio, including two new molecular entities: PRO70769 and PRO1762, a soluble human protein. PRO70769 is in Phase I/II clinical trials for rheumatoid arthritis. PRO1762, which is involved in the regulation of apoptosis, is in preclinical development. Genentech will jointly develop PRO1762 with Immunex Corp. (immunex.com), a subsidiary of Amgen.

Genentech and Novartis Ophthalmics (novartisophthalmics.com) are developing and commercializing Lucentis. Novartis Ophthalmics has an exclusive license to develop and market Lucentis, formerly known as rhuFab V2, an antivascular endothelial growth factor antibody fragment, outside of North America for indications related to eye diseases. Lucentis is in U.S. Phase III clinical trials for treating the wet form of age-related macular degeneration.

Genentech and Novartis Ophthalmics are sharing certain global development costs. Genentech will receive an up-front fee, payments for achievement of clinical-development milestones, and royalties on net sales of Lucentis products outside North America. Genentech will retain marketing rights for Lucentis in the United States, Canada, and Mexico. Novartis Ophthalmics will receive exclusive commercialization rights for the rest of the world.

Genentech and Biogen Idec are jointly developing BR3-Fc, a B-cell activating factor receptor of the tumor necrosis factor family. The protein is a key target for the development of drugs to treat disorders associated with abnormal B-lymphocyte activity, such as rheumatoid arthritis and lupus.

Genentech continues to attempt to expand its thrombolytic product line. Boehringer Ingelheim and Genentech have initiated a clinical trial evaluating TNKase/Metalyse use before angioplasty for treating heart attack. This international study seeks to determine efficacy of a combined medical/mechanical approach in the improvement of survival and clinical outcomes in acute myocardial infarction. Genentech markets TNKase in the United States. Boehringer Ingelheim markets tenecteplase, the main chemical in TNKase, worldwide under the trade name Metalyse, except in the United States, Canada, and Japan.

THROMBOLYTICS AND GROWTH HORMONES

Genentech’s thrombolytics product portfolio contains TNKase, Activase, and CathFlo Activase. These drugs generated combined global 2003 sales of $185.2 million, 2.8% more compared with sales during 2002. Combined sales of $97.8 million were generated in the first six months of 2004, an increase of 2.8% compared with first-half 2003. Analysts have projected that the combined sales of these drugs will remain about the same for full-year 2004 and then slowly decline each year to $174.2 million in 2007.

Genentech management is evaluating the company’s growth-hormone product line. During second-quarter 2004, Genentech and collaborator Alkermes Inc. (alkermes.com) made a decision to discontinue production of the growth hormone Nutropin Depot. This decision was made due to the significant resources required by these companies to continue manufacturing and commercializing the product.

Genentech’s growth-hormone product line containing Nutropin Depot, Nutropin, Nutropin AQ, and Protropin recorded sales of $321.9 million in 2003, representing 8.3% growth compared with 2002. First-half 2004 combined sales of these products came to $173.9 million, 9.9% more compared with first-half 2003. Genentech’s growth-hormone products have been projected by analysts to generate combined sales of $471 million for 2007.

AWARD-WINNING COMPANY

Genentech, its management, and its founders are regularly recognized as the best in what they do in the biotechnology industry. Genentech has received recognition and awards for its overall performance as a company, its workplace culture, its contributions to the community, and its patient advocacy.

In addition to the company’s ability to retain world-class employees, Genentech continues to receive external recognition as an employer of choice. Genentech was included in the 100 Fastest Growing Companies List in Fortune’s Sept. 6, 2004, issue. Fortune ranked Genentech No. 15 on its list of the 100 Best Companies to Work For in America in early 2004.

In 2003, Science magazine named Genentech "the top employer and most admired company in the biotechnology and pharmaceutical industries" for the second consecutive year. Essence magazine recognized Genentech as one of 17 "Great Places to Work" for women of color. Health magazine listed Genentech as one of the top 10 healthiest companies for women in the United States.

COMMUNITY INVOLVEMENT

Essential to Genentech’s corporate responsibility is working with the community. Genentech demonstrates this commitment by providing charitable support to nonprofit organizations working in the areas of health care and science in which Genentech is involved. The company is active in the local communities where it conducts business. The company makes its approved products available to qualified uninsured or underinsured patients in the United States. Genentech supports the charitable interests of its employees. The company has programs that provide access to students to gain exposure to the biotechnology industry.

BRIGHT FUTURE

The transforming events of 2003 have positioned Genentech for significant growth ahead, with the potential to launch multiple novel products or indications during the next several years, according to Arthur D. Levinson, Ph.D., Genentech chairman and CEO.

"Translating science into successful product development takes significant effort and planning throughout all areas of the company and requires leveraging our people, science, commercial strengths, intellectual property and manufacturing capacity and expertise while balancing the risks that are inherent to our business," Dr. Levinson says. "Fortunately, with our financial resources, we are able to invest for near-term growth in our product launches and at the same time in our research and development programs to provide longer-term growth prospects.

The energies of Genentech’s management team are directed towards the critical activities of the business at hand, as well as long-range planning for growth in the 2006 through 2010 time frame and beyond.

"We are focusing on the priorities that will allow us to meet our goals while delivering products that have the potential to change the practice of medicine and improve and extend patients’ lives," Dr. Levinson says.

The company remains committed to its 5X5 goals, and Dr. Levinson believes that the company is well-positioned to fulfill its non-GAAP earnings per share growth trajectory of annual double-digit growth for 2006 through 2010. Genentech continues to manage its business with the intent of delivering breakthrough therapies to patients while building sound and consistent growth and continuing to increase shareholder value.

Most admired specialty company

Allergan Inc.

The specialty companies are becoming a force to be reckoned with. Six specialty companies ranked among the world’s top 50 pharmaceutical companies based on health-care revenue during 2003. Five of these companies, including Allergan, generated double-digit revenue growth in 2003. The sixth company is the soon-to-be-joined Mylan Laboratories Inc. and King Pharmaceuticals. Inc., which will complete its unification by year-end 2004. This new company signifies the largest consolidation ever among two specialty companies.

The mission and vision of Allergan is to continue as an innovative, technology-driven, global health-care company focused on pharmaceuticals in specialty markets that deliver value to customers, satisfy unmet medical needs, and improve patients’ lives. Allergan strives to become the partner of choice for ever-better health care through the value of technological innovation, industry leadership, partnering skills and relationships, worldwide infrastructure, and research and manufacturing capabilities. The company seeks to develop a level of understanding to implement operational strategies that provide the greatest value for customers and stockholders.

Allergan’s strategy is to expand its leadership role in the science of neuromodulators, develop new potential compounds for sight-threatening diseases, including glaucoma and age-related macular degeneration, as well as pain and gastroenterology, build on its strong market positions in therapeutic dry-eye products and dermatology products for acne and psoriasis, and explore new therapeutic areas that are consistent with its specialty pharmaceutical focus.

This company is a pioneer in specialty pharmaceutical research, targeting products and technologies related to specific disease areas such as glaucoma, retinal disease, dry eye, psoriasis, acne, and movement disorders. Allergan develops and markets aesthetic-related pharmaceuticals and over-the-counter products. Within these areas, Allergan is an innovative leader in therapeutic and other prescription products, and to a limited degree, over-the-counter products that are sold in more than 100 countries. Allergan’s other focuses include research and development efforts on new therapeutic areas, including gastroenterology, neuropathic pain, and various types of cancer.

Allergan (allergan.com) employs more than 4,900 people throughout the world, including more than 2,430 individuals in the United States. Allergan initially was incorporated in California in 1948 and became known as Allergan Corp. in 1950. In 1977, the company was reincorporated in Delaware. In 1980, Allergan was acquired by SmithKline Beecham Plc., then known as SmithKline Corp. From 1980 through 1989, Allergan operated as a wholly owned subsidiary of SmithKline, and in 1989 became a stand-alone public company through a spin-off distribution by SmithKline.

Since the successful spin-off of its optical medical-device businesses in mid-2002, Allergan has focused all of its management and financial resources on growth and innovation in its pharmaceutical businesses. From 1997 through 2003, Allergan’s pharmaceutical businesses more than doubled in size, driven by the strength of its scientific innovations and sales and marketing capabilities.

Allergan management considers the company as truly unique in the pharmaceutical industry. Allergan combines revenue diversity through a broad proprietary product portfolio and global research and development capability similar to the large, fully integrated pharmaceutical companies with the high-growth and lean operating models of specialty pharmaceuticals and the strong pipeline characteristics of biotechnology. Allergan is small enough for flexible decision making and nimble execution and large enough to command sufficient economies of scale to succeed in the specialty markets the company competes in. Executives say this uniquely attractive business model has enabled the company to build a depth of managerial and scientific talent, and has provided financial resources to generate sufficient profit streams for reinvestment back into breakthrough research and development. Key aspects of Allergan’s business model include integrated global research and development; leading sales and marketing capabilities; highly leveraged assets; efficiency and effectiveness; and strong growth driven by innovation.

Allergan is one of the few midsized pharmaceutical companies with a strong, internal discovery capability spanning multiple, strategically targeted therapeutic areas and that possesses small-molecule and biologics assets. The company’s internal discovery know-how is further supplemented by a global network of discovery partnerships. With the 2003 acquisition of Oculex Pharmaceuticals Inc., Allergan has enhanced its expertise in drug delivery.

As a true specialty company, Allergan markets to limited numbers of physicians, typically 10,000 or less, in the United States. This allows the company to service its customers with manageable sales forces that are among the largest in their competitive segments.

In terms of highly leveraged assets, Allergan is a relatively small player in the overall pharmaceutical industry. Therefore, the company has streamlined its structures to achieve economies of scale by concentrating manufacturing into three world-class plants and clinical development into four global units.

According to executives, Allergan has one of the best track records in the industry for success measured in terms of the number of compounds entering the clinic relative to the number of market approvals and is in the top quartile of benchmark performance for speed and costs of clinical development. The company’s large, well-trained sales forces are managed according to tight performance metrics and customer satisfaction, using information-technology tools. In manufacturing, Allergan uses Six Sigma and Lean Manufacturing techniques. A mantra for maintaining flexibility is to maintain a lean overhead structure. In 2003, Allergan’s general and administrative expenses were below 8% of sales, driven by the company’s ability to leverage strong, common processes and investment in a single worldwide SAP information-technology platform.

In an industry challenged by declining pharmaceutical growth rates, Allergan delivered strong results in 2003, recording 23% growth in its core pharmaceutical products. Driven by a multitude of new product introductions and new indications for Botox, sales in dollars increased more than 20% in every business: ophthalmology, neuromodulators, and dermatology. Allergan gained market share in each of these areas.

Allergan continues to fulfill its goal of providing earnings performance in the top quartile of the best specialty pharmaceutical and biotechnology companies. As evidence by its financial and operational strength, Allergan generated $326 million of operating cash flow before dividend payments and share repurchases. This came after investing $110 million into new fixed assets, principally in a new Botox facility in Ireland, which addresses foreseeable expanding demand for Botox in the next decade, and a 170,000-square-foot research and development facility at its Irvine, Calif., campus that will address laboratory space requirements for about the next five years. Allergan managed its working capital even tighter than in previous years, and at year-end 2003 the company held a cash position of $508 million, granting flexibility for future strategic transactions.

Reinvestment into the two key drivers of growth in the pharmaceutical industry, research and development and sales and marketing, remained at very high levels and at the top of the benchmarks for the best companies in Allergan’s peer group of specialty pharmaceutical and large biotechnology companies. The company’s selling, general, and administrative expenditures grew 17% in 2003 compared with 2002, as adjusted for one-time items, given the investments in launches of multiple new products and were 41.5% of pharmaceutical-only sales. Expenditures on research and development, adjusted for the in-process research and development charges, were up 34% to $306 million, or 18.3% of pharmaceutical-only sales.

In ophthalmology, Allergan was the fastest-growing global company, increasing in-market sales 19% in 2003, according to global data from the independent research firm IMS Health Inc. (imshealth.com). Allergan has been the fastest-growing global company since 2002 and is poised to capture the No. 2 global position in 2004. Strong market-share gains were recorded in all of the key segments of the ophthalmology market in which the company competes in.

Allergan is an acknowledged leader in ophthalmology, neuromodulators with Botox, and dermatology. The company’s strategy is to continue to bolster its strengths in these areas and, by following the technology being developed in its laboratories, to add positions in neurology, gastroenterology, and potentially another therapeutic area. This strategy will establish Allergan as a multiplatform specialty company.

BUSINESS REORGANIZATION

Two newly formed U.S. business units were announced in August 2004: Neurosciences and Dermatology. The decision to create these new business units, which complement Allergan’s Ophthalmology business unit, was based on the company’s goal to best serve its specialized customer base, as well as its strategic vision to maximize its commercial core competencies for its existing product portfolio and anticipated new products.

The Neurosciences business unit is based upon the building of the Botox therapeutic franchise and developing new therapeutic indications for this important, versatile medicine. Additional focus is on developing Allergan’s alpha-2 agonists and other products to treat patients with neurological disorders.

The Dermatology business unit includes Botox Cosmetic and Tazorac. This new business sector is poised to offer physicians and patients the benefit of Allergan’s extensive expertise in the dermatologic arena as well as the company’s considerable product portfolio.

"By operating as three distinct units led by outstanding professionals, Allergan will optimize the strength of our existing product portfolio, drive our research and development efforts with maximum efficiency, and seek to deliver on the promise of our extensive pipeline," says Julian Gangolli, corporate VP and president of U.S. pharmaceuticals, Allergan.

Allergan net sales for 2003 increased 26.7% to $1.76 billion compared with 2002. Net sales broke down as followed: Eye-care pharmaceuticals, $999.5 million; Botox/neuromodulators, $563.9 million; skin-care products, $109.3 million; and other revenue, $82.7 million. Other revenue primarily consists of sales to Advanced Medical Optics Inc. pursuant to the manufacturing and supply agreement entered into as part of the spin-off of Advanced Medical Optics.

In June 2002, Allergan completed the spin-off of its optical medical-device business to its stockholders. The spin-off was effected by contributing the optical medical-device business to a newly formed subsidiary, Advanced Medical Optics, and issuing a dividend of Advanced Medical Optics’ common stock to Allergan stockholders. Following the spin-off, Allergan continues to own and operate its specialty pharmaceutical business and Advanced Medical Optics owns and operates what was formerly Allergan’s optical medical-device business. Allergan’s consolidated financial statements reflect the financial position, results of operations, and cash flows of the optical medical-device business as a discontinued operation.

AIMING TO BE NO. 1 IN OPHTHALMOLOGY

Allergan develops, manufactures, and markets a broad range of prescription and nonprescription products designed to treat diseases and disorders of the eye, including glaucoma, dry eye, inflammation, infection, and allergy. The largest segment of the market for ophthalmic prescription drugs is for the treatment of glaucoma, a sight-threatening disease typically characterized by elevated intraocular pressure leading to optic nerve damage. Glaucoma is the world’s second-leading cause of blindness, and more than 60 million people worldwide have glaucoma. Data from IMS show that Allergan’s products for the treatment of glaucoma, including Alphagan, Alphagan P, and Lumigan, captured 18% of the global glaucoma market in 2003.

Allergan’s largest-selling eye-care pharmaceutical products are the ophthalmic solutions Alphagan 0.2% and Alphagan P 0.15%. Alphagan and Alphagan P lower intraocular pressure by reducing aqueous humor production and increasing uveoscleral outflow. Alphagan P is an improved reformulation of Alphagan containing brimonidine, Alphagan’s active ingredient, preserved with Purite. The Alphagan products are marketed in more than 70 countries. Alphagan and Alphagan P combined are the second best-selling glaucoma products in the world, as measured by 2003 revenue, according to IMS. Combined sales of Alphagan and Alphagan P, at $286.8 million, were up 15.4% compared with 2002 sales and represented 16% of Allergan’s total consolidated sales in 2003. First-half 2004 sales were $131.6 million, down 7.4% compared with first-half 2003.

In May 2004, Allergan entered into an exclusive license agreement with Kyorin Pharmaceutical Co. in Japan to develop and market the Alphagan/Alphagan P franchise. Kyorin is responsible for the development and commercialization of Alphagan and Alphagan P in Japan and will incur associated costs. Allergan and Kyorin (kyorin-pharm.co.jp) will work collaboratively on overall product strategy and management.

Lumigan gained U.S. approval in March 2001 as a topical treatment indicated for the reduction of elevated intraocular pressure in patients with glaucoma or ocular hypertension who are either intolerant or insufficiently responsive when treated with other intraocular pressure-lowering medications. In March 2002, the European Commission approved Lumigan through its centralized procedure. In January 2004, the EU’s Committee for Proprietary Medicinal Products cleared Lumigan as a first-line therapy for the reduction of elevated intraocular pressure in chronic open-angle glaucoma and ocular hypertension. Lumigan is sold in more than 40 countries.

Allergan in May 2004 initiated a process to out-license Lumigan in Japan. Senju Pharmaceutical Co., a leader within the Japanese ophthalmic pharmaceutical market, will be responsible for the development and commercialization of Lumigan in Japan and will incur associated costs. Allergan and Senju (senju.co.jp) will work collaboratively on overall product strategy and management.

Lumigan sales for 2004 increased 47.4% to $181.3 million. First-half 2004 sales were up 33.8% to $110.8 million.

In September 2001, Allergan filed a new drug application with FDA for a combination of brimonidine and timolol. During the fourth quarter of 2003, approval was granted by Health Canada for the brimonidine and timolol combination, which is marketed as Combigan. In November 2003, a new drug application was filed with U.S. regulators for a Lumigan and timolol combination designed to treat glaucoma or ocular hypertension. FDA issued an approvable letter for this product in August 2004.

In December 2002, FDA approved Restasis 0.05%, the first prescription therapy for the treatment of chronic dry-eye disease. The product was launched in the United States in April 2003. Dry-eye disease is a painful and irritating condition involving abnormalities and deficiencies in the tear film initiated by a variety of causes. Restasis sales totaled $38.3 million for its time on the market during 2003. Sales during the first half of 2004 were $41.4 million compared with $11.8 million in first-half 2003.

In June 2001, Allergan entered into a license, development, and marketing accord with Inspire Pharmaceuticals Inc. (inspirepharm.com). Allergan obtained an exclusive license to develop and commercialize Inspire’s INS365 Ophthalmic in exchange for royalty payments to Inspire on sales of Restasis and, ultimately, INS365. The product has completed Phase III clinical trials investigating its ability to relieve the signs and symptoms of dry-eye disease by rehydrating conjunctival mucosa and increasing nonlacrimal tear component production. In December 2003, FDA issued an approvable letter for INS365, although Inspire has reported that the regulatory agency has requested additional clinical data. Allergan management believes that if INS365 is approved, the drug will be complementary to Restasis in the market.

Allergan’s leading ophthalmic anti-inflammatory drug is Acular 0.5%, which is licensed from its developer, Syntex (U.S.A.) Inc., a business unit of Hoffmann-La Roche Inc. (rocheusa.com). Acular is indicated for the temporary relief of itch associated with seasonal allergic conjunctivitis, the inflammation of the mucus membrane that lines the inner surface of the eyelids, and for the treatment of postoperative inflammation in patients who have undergone cataract extraction. Acular PF is the first unit-dose, preservative-free topical nonsteroidal anti-inflammatory drug in the United States. Acular PF is indicated for the reduction of ocular pain and photophobia following incisional refractive surgery. Acular is the No. 1 prescribed nonsteroidal anti-inflammatory in the United States.

In June 2003, Allergan received U.S. clearance for Acular LS, a reformulated ketorolac 0.4% concentration, for the reduction of ocular pain, burning, and stinging following corneal refractive surgery. Acular LS was introduced in the United States in August 2003.

Pred Forte remains a leading topical steroid worldwide based on 2003 sales. A leading product in the ophthalmic anti-infective market is Ocuflox/Oflox/Exocin ophthalmic solution. According to Verispan, this ophthalmic solution was the No. 1 ocular anti-infective prescribed by ophthalmologists in the United States in 2003.

In March 2003, Allergan was granted FDA approval of Zymar 0.3%, the first fourth-generation fluoroquinilone to enter the market for the treatment of bacterial conjunctivitis. Clinical studies have shown that Zymar kills the most common bacteria that cause eye infections as well as specific resistant bacteria. Zymar was launched in the United States in April 2003. In March 2004, Lupin Pharmaceuticals Inc. entered into an agreement with Allergan in the United States to promote Zymar 0.3% in the pediatric specialty area. Lupin’s pediatric sales force will promote Zymar to high-volume pediatric prescribers. Lupin (lupinworld.com) has created a dedicated national pediatric sales force in the United States to promote Suprax, approved Feb. 12.

In October 2003, FDA approved Elestat 0.05% for the prevention of itching associated with allergic conjunctivitis. In December 2003, an agreement was reached with Inspire for the joint promotion of Elestat in the United States within the ophthalmic specialty area and to allergists.

Inspire has primary responsibility for selling and marketing activities in the United States in accordance with Elestat. Allergan retained all international marketing and selling rights. Allergan launched Elestat in Europe under the brand names Relestat and Purivist during first-quarter 2004. Inspire introduced Elestat in the United States during the first three months of 2004.

BOTOX HEADS NEUROMODULATOR SECTOR

Allergan’s neuromodulator product Botox is used in a wide variety of treatments that continue to expand. Botox is accepted in many global regions as the standard therapy for indications ranging from therapeutic neuromuscular disorders and related pain to cosmetic facial aesthetics. There are more than 100 therapeutic and cosmetic indications for Botox based on its localized treatment effect and 20 years of safety experience in large patient groups. The drug is marketed as either Botox, Botox Cosmetic, or Vistabel, depending on the indication and country of approval, in more than 70 countries for a broad range of indications. Sales of Botox represented 32% of Allergan’s total consolidated sales in 2003. During that year, Botox sales reached $563.9 million. Sales in the first half of 2004 were $327.6 million, a 23.1% increase compared with first-half 2003 sales.

Botox is used therapeutically in the treatment of certain neuromuscular disorders that are characterized by involuntary muscle contractions or spasms. The approved therapeutic indications for Botox in the United States include blepharospasm, strabismus, and cervical dystonia. In July 2004, Botox was approved for its fourth therapeutic indication in 15 years: for the treatment of severe primary axillary hyperhidrosis.

In certain countries outside the United States, Botox is approved for treating blepharospasm, strabismus, cervical dystonia, hemifacial spasm, pediatric cerebral palsy, hyperhidrosis, and upper-limb spasticity associated with debilities occurring after a stroke. Allergan is pursuing new approved indications for Botox in the United States, Japan, and Europe, including headache, back spasm, and spasticity.

FDA approved Botox Cosmetic in April 2002 for the temporary improvement in the appearance of moderate-to-severe glabellar lines in adult men and women 65 years old or older. This product is designed to relax wrinkle-causing muscles to smooth the deep, persistent, glabellar lines between the brow that often develop during the aging process.

Health Canada approved Botox Cosmetic for similar use in Canada in April 2001. In 2003, Allergan continued its previously launched direct-to-consumer marketing campaigns in Canada and the United States. These campaigns included television commercials, radio advertising, and print advertising aimed at consumers and aesthetic specialty physicians. Allergan spent $41.1 million promoting Botox to consumers during 2003 compared with $22.7 million during 2002, according to Nielsen Monitor-Plus (nielsenmedia.com).

Since its FDA approval in the United States, at least 25 other countries have approved the glabellar line indication for Botox, Botox Cosmetic, or Vistabel. Allergan is sponsoring training of aesthetic-oriented physicians in approved countries to further expand the base of qualified physicians using Botox, Botox Cosmetic, or Vistabel.

CONCENTRATION ON ACNE AND PSORIASIS

The Allergan skin-care product line focuses on the high-growth, high-margin segments of the acne and psoriasis markets, particularly in the United States and Canada. Allergan has marketed Tazorac gel in the United States since 1997 for the treatment of plaque psoriasis, a chronic skin disease characterized by dry red patches, and acne. Tazorac cream was FDA-approved in October 2000 for the treatment of psoriasis. In September 2001, U.S. approval was granted to Tazorac cream for the topical treatment of acne.

Under a joint-promotion agreement with Procter & Gamble Pharmaceuticals Inc. (pgpharma.com) markets in the United States Tazorac primarily to general practitioners and Allergan markets Tazorac to dermatologists through its in-house sales force. Pierre Fabre Dermatologie (pierre-fabre.com) is the promotion partner in certain parts of Europe, the Middle East, and Africa for Zorac, the brand name for Tazorac in these regions.

Allergan entered into a joint-promotion agreement in July 2004 with PediaMed Pharmaceuticals Inc. for the introduction of topical Tazorac for acne vulgaris in patients 12 years old or older to the pediatric medical community. A specialty pharmaceutical company focusing exclusively on the pediatric space, PediaMed (pediamedpharma.com) will be responsible for Tazorac commercialization to the pediatric market, with Allergan continuing to record Tazorac sales and PediaMed receiving a royalty. Pediatrics is the fastest-growing prescription segment in the United States, generating $20 billion in sales in 2004, an increase of 65% since 1997. Acne affects a majority of young adults, about 85% of 12-year-olds to 24-year-olds.

A new drug application was filed in November 2003 to FDA for oral tazarotene, the active ingredient in Tazorac, for the treatment of moderate to very severe psoriasis. Allergan has initiated a process to out-license the tazarotene molecule for indications in psoriasis and acne outside North America.

Avage was approved in October 2002 as a tazarotene cream indicated for the treatment of facial fine wrinkling, mottled hypopigmentation and hyperpigmentation, and benign facial lentigines in patients using a comprehensive skin-care and sunlight-avoidance program. Avage was introduced in the United States in January 2003.

Combined sales of Tazorac, Zorac, and Avage for 2003 amounted to $80.3 million, up 29.3% compared with 2002 sales. First-half 2004 sales were down 4.1% to $35.1 million.

Allergan develops and markets glycolic acid-based skin care products. The M.D. Forte line of alpha hydroxy acid products are marketed to and dispensed by physicians. In 2003, the company entered into a collaboration to jointly promote Berlex Inc.’s (berlex.com) topical rosacea treatment Finacea. Finacea is the first new therapeutic class option to be approved for the treatment of rosacea in more than a decade and has rapidly gained a leading position in the market.

SOLID PRODUCT PIPELINE

Allergan has one of the best drug pipelines in the industry relative to the company’s size. With an exceptional portfolio of early-stage and mid-stage pipeline compounds, along with at least 10 projects in Phase III clinical development, and the integration of the Oculex programs, there is a requirement for continuing high investment rates in research and development to about $330 million to $350 million in 2004. This year Allergan intends to file no fewer than five investigational new drug applications with FDA. Allergan officers say the richness, breadth, and depth of the company’s pipeline, unusual in the industry at this time, means they have the good fortune of deciding among many exciting strategic options.

Faced with these many options, Allergan has developed processes for disciplined resource allocation and rigorous portfolio planning so that the company may concentrate resources on the highest-return projects for long-term shareholder-value creation. In this context, management selects retinal diseases as the next large potential market in ophthalmology and acquired the Oculex technology.

Allergan in November 2003 completed the acquisition of Oculex, a company engaged in developing treatments for sight-threatening diseases of the eye. The Oculex business was acquired for an aggregate purchase price of $223.8 million. The primary focus of the transaction was Allergan’s acquisition of a bioerodable, extended-release drug-delivery technology to deliver drug to the back of the eye.

This deal includes Posurdex, which is intended to deliver dexamethasone for the treatment of edema. Phase III clinical trials for Posurdex were initiated during the first half of 2004. The Phase III clinical trials are focused on macular edema associated with diabetes and other conditions. If these Phase III clinical trials are successful, Allergan managers anticipate potential FDA approval of Posurdex by early 2007. Posurdex is a proprietary, bioerodable extended-release implant that may deliver medicine to the targeted disease site at the back of the eye and may serve as a platform for numerous compounds in Allergan’s ophthalmology pipeline.

In November 2002, Allergan entered into a research collaboration and license agreement with Peplin Biotech Ltd. (peplin.com) for the right to develop and commercialize PEP005 for the topical treatment of nonmelanoma skin cancer and actinic keratosis. This small molecule has shown early promise for the treatment of a wide range of human cancers, including nonmelanoma and other skin cancers.

Allergan managers decided to avoid the costs of building a sales infrastructure overseas by out-licensing tazarotene oral outside North America for psoriasis and out-licensing Lumigan in Japan, thus leveraging partners’ existing sales forces. In the discovery area, management intends to focus prolific efforts on the highest potential areas. As a consequence, Allergan spun off the company’s early-stage retinoid technology in 2004.

Concurrent Pharmaceuticals Inc. in May 2004 agreed to acquire certain rights to Allergan’s preclinical programs and broad research portfolio in retinoid and rexinoid nuclear receptor compounds. The clinical assets and compounds included in this transaction include near-clinical compounds and are primarily derived from Allergan’s retinoid program, which Allergan has pursued since 1988.

The transaction provides Concurrent, a privately held biopharmaceutical company, with a portfolio of development compounds and near-clinical candidates, and will fortify a discovery engine with the potential to create a pipeline of product leads and follow-on programs. Allergan will receive equity in Concurrent (concurrentpharma.com) in addition to future milestone and royalty payments.

Allergan’s global research and development efforts focus on eye-care, skin-care, neuromodulator, and other neurologic and gastroenterology candidates. Research and development activities are supplemented by a commitment to identify and obtain new technologies through in-licensing, technological collaborations, joint ventures, and acquisition efforts, including the establishment of research relationships with biotechnology companies, academic institutions, and individual researchers.

In 2003, there were, in the aggregate, 1,060 employees involved in Allergan’s research and development efforts. Research and development expenditure was $763.5 million for 2003 compared with $233.1 million for 2002. These amounts include those spent by Allergan as in-process research and development expenditures in conjunction with its 2003 acquisitions of Bardeen Sciences Co. and Oculex, as well as the 2001 acquisition of Allergan Specialty Therapeutics.

Excluding in-process research and development expenditures made in conjunction with the foregoing acquisitions, Allergan increased investment in research and development more than $200 million in the past five years, dedicating 20% of its investment in research and development to the discovery of new compounds.

In 2002, Allergan dedicated a new research and development facility in France and is nearing completion of a major new research and development facility in Irvine, which is expected to be completed in 2004 at an aggregate cost of $75 million.

In 2004, Allergan began construction on a new biologics facility to be located on the Irvine campus. This facility is expected to be completed in 2005 at an aggregate cost of $50 million.

NO. 1 OPHTHALMOLOGICAL SALES FORCE

As of Dec. 31, 2003, Allergan employed 1,300 sales representatives worldwide. In 2003, for the sixth year in a row, an independent survey of U.S. ophthalmologists ranked the company’s sales force No. 1 in terms of product knowledge and service.

Allergan maintains a global marketing team, as well as regional sales and marketing organizations. Marketing activities are coordinated on a worldwide basis, and resident management teams provide leadership and infrastructure for customer-focused, rapid introduction of new products in the local markets. Company managers engage contract sales organizations to promote certain products.

Allergan’s sales efforts and promotional activities are primarily aimed at eye-care professionals, neurologists, plastic surgeons, and dermatologists who use, prescribe, and recommend its products. The company advertises in professional journals and has an extensive direct-mail program of descriptive product literature and scientific information that is provided to specialists in the ophthalmic, dermatological, and movement-disorder fields.

Allergan has developed training modules and seminars to update physicians regarding evolving technology in its products. Direct-to-consumer advertising has been implemented for Botox Cosmetic and Refresh.

PROMISING 2004 AND BEYOND

Net sales for Allergan during the first half of 2004 were $978.6 million, up 17.5% compared with the first six months of 2003. Net earnings came in at $164.9 million for first-half 2004, up 17%. Diluted earnings per share totaled $1.24, an increase of 15.9%. Research and development expenditure grew 31.5% to $174.6 million. Adjusted diluted-earnings-per-share guidance between $2.72 and $2.75 provided in April 2004 remained unchanged after the first-half results were announced in July. Adjusted diluted-earnings-per-share guidance excludes any non-GAAP adjustments to diluted earnings per share.

"We are very pleased with our continued strong sales growth in the second quarter," says David E.I. Pyott, Allergan’s chairman, president, and CEO. "During the second quarter, we entered into several strategic ophthalmology agreements and completed the spin-off of our retinoid discovery platform. These events should help continue to drive value maximization of our assets globally and further demonstrate Allergan’s focus on positioning itself as a premier specialty pharmaceutical company."

Allergan management is proud of its legacy of applying innovative science and technology to unmet medical needs in the specialty markets of ophthalmology, neuromodulators, and dermatology. This legacy began, and continues, with scientists, researchers, and development specialists dedicated to creating products and technologies to enhance patient quality of life. Allergan is looking ahead to important developments in its specialty areas.

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