Steady and Continuous Investment for the Long Term

We are also pleased that we delivered on our commitments to stockholders, recording diluted earnings per share of $2.18, an increase of 19 percent over 2006.⁽²⁾ This result was achieved while we continued to invest vigorously in the long-term growth and innovation of the company. In 2007, we invested $646 million in R&D, a growth of 36 percent over 2006 and the largest increase in Allergan’s history.⁽³⁾ This robust R&D investment comes as we progress many programs through the most expensive phase of clinical development, Phase III, and also bring several new compounds out of the research laboratories and into human clinical trials. We also invested heavily in sales and marketing, with selling, general and administrative expenditures increasing by 29 percent.⁽²⁾ Relative to the plans we established at the time of the Inamed and Cornéal acquisitions, we substantially increased our sales and marketing investments as we fully grasped the growth potential of the medical aesthetics markets and in the opportunity for substantial value creation.

In 2007, we completed the full integration of the Inamed and Cornéal operations worldwide, exceeding the planned cost synergies. In addition, we made two further acquisitions: EndoArt in Switzerland, which is intended to bring us the next generation of gastric bands with a unique telemetric technology; and Esprit Pharma in New Jersey, which provides us with a strong platform in a new urologics specialty in the United States. In anticipation of the likely approval of BOTOX^® for incontinence by the FDA, European Medicines Evaluation Agency and other regulatory agencies worldwide, the acquisition of Esprit Pharma provides us with the ability to become experts in the urology specialty. Ultimately we plan to offer a continuum of care for overactive bladder (OAB) that commences with an oral anticholinergic agent and concludes with BOTOX^® treatment, which is currently under investigation in the United States for the treatment of OAB. In less than three months we completed the integration of Esprit Pharma, closing the New Jersey office in December 2007, while retaining and expanding the urologics sales force. In January 2008, we launched SANCTURA XR™, a best-in-class anticholinergic, in the United States.

Operating cash flow post capital expenditures was a strong $651 million which led to a high cash balance of over $1.1 billion even after we had expended almost $700 million in 2007 for the Cornéal, EndoArt and Esprit Pharma acquisitions. This demonstrates the strategic flexibility that we still maintain for other value-creating acquisitions and licensing transactions.

While we like to create market-leading franchises on our own, we also keenly evaluate where we can achieve even greater results by collaborating with a limited number of partners. In 2007, we entered into a co-promotion arrangement in the United States with Covidien Ltd., formerly Tyco Healthcare, for the LAP-BAND^® Adjustable Gastric Banding System. This increases our depth and frequency of calls to bariatric surgeons as we counter the 2008 launch of a competitive gastric band from Ethicon Endo-Surgery, a Johnson & Johnson company. In 2008, we entered into a long-term strategic partnership in the United States with Clinique Laboratories, LLC with the goal of establishing a clear leadership position in another fast-growing segment of the medical aesthetics market — physician-dispensed skin care products, which are complementary to existing aesthetic procedures. The Clinique brand is the number-one prestige North American cosmetics brand with a strong dermatology heritage. We believe that combining the strength of the Clinique brand and Clinique’s formulation expertise with Allergan’s knowledge of the medical aesthetics market and distribution power will lead to market expansion and a leadership position. This special Clinique product line, developed for dermatologists and plastic surgeons and only available in these channels, is expected to launch by the fall of 2008.

Strategic Strength

Allergan is in a unique position in the health care industry due to its diversified portfolio of pharmaceutical, medical device and over-the-counter products. The common characteristics are high-growth potential and strong market positions, in most cases globally, within these specialty markets. A further strength is our diversity of payors, with roughly one-third of our revenues being medical aesthetics products that are paid electively out-of-pocket by the patient or consumer. While we have strong positions in Medicare Part D and in national formularies, primarily in Europe, the outlook for pricing and rebates is challenging for all participants in the pharmaceutical industry. As the pharmaceutical industry contends with an evolving and risk-averse regulatory environment, Allergan is less exposed given the generally lower risks of drugs delivered topically versus systemically.

Our overall sales are currently growing around 20 percent year-over-year given the extraordinary growth of the markets we service. As we factor in the arrival of competition in the gastric band and neuromodulator businesses, we believe there are significant growth opportunities as these markets are stimulated by the new competition as well as by our competitive responses.

The many drivers of our growth in 2007 have been diverse. (See related chart)