Management Focus on Innovation

The greatest attention of management is to further strengthen our R&D pipeline to deliver new products for the beginning of the next decade both by internal development, supplemented by external licensing of pharmaceutical compounds and medical device technologies, and acquisitions. We contemplate several major opportunities in a number of areas, such as:

• Eye Care — We are preparing to enter the market of retinal therapeutics, the fastest-growing segment worldwide with the greatest unmet medical need.⁽⁴⁾ Further potential exists for technological improvements in glaucoma and dry eye treatment.
• Pain Therapeutics — Physicians have an unmet need for new agents that are not addictive and low in cognitive impairment.
• New Generations of Neuromodulators — These are needed to offer physicians new treatment modalities.

A Year of Strong Execution

While the U.S. businesses grew a strong 26 percent in total, sales outside the United States increased even more rapidly at 36 percent. With the sole exception of our U.S. medical dermatology business, which suffered a poor year with a decline of 12 percent due primarily to the launch of competitive products, every other business grew at least double digits worldwide and in every major geographic operating region. A co-promotion agreement for TAZORAC^® with Stiefel Laboratories will help address the medical dermatology challenge.

In ophthalmic pharmaceuticals we gained share in almost every major market worldwide due to our strong performance in glaucoma led by LUMIGAN^®, the resilience of ALPHAGAN^®, and the launches and growth of COMBIGAN™ and GANFORT™ (a fixed combination of LUMIGAN^® and timolol available outside the United States); as well as by further strong uptake of RESTASIS^®, our pioneering therapy for dry eye, and the artificial tears line led by REFRESH^® and OPTIVE™, our latest innovation in tear technology.

Overall, BOTOX^® continued its remarkable track record of growth at 23 percent over 2006 achieving 2007 sales of over $1.2 billion and, in fact, grew faster outside the United States where competition to BOTOX^® already exists. The therapeutic franchise accelerated from its path of mid double-digit growth to 19 percent. BOTOX^® Cosmetic increased 29 percent, with all regions growing at over 20 percent, benefiting from the synergies of Allergan’s broad range of medical aesthetics products.⁽⁵⁾ BOTOX^® Cosmetic accounted for 50 percent of 2007 sales for the BOTOX^® franchise. During the year, we dedicated additional management resources to addressing many new burgeoning markets in Asia and Eastern Europe.

Due to the market position of BOTOX^® and the complementary nature of dermal filler treatments, JUVÉDERM™ enjoyed a strong launch in the United States, Canada and Australia and has been rapidly catching up with the market leader. In Europe, we relaunched our dermal filler line in early 2008 under the JUVÉDERM™ banner following the full integration of the Cornéal operation into our facial aesthetics sales and marketing organization. In the United States and Canada, our silicone breast aesthetics line under the NATRELLE™ Collection has gained rapid acceptance as the market has been transitioning away from saline breast implants. With the latest technology silicone implants selling at approximately twice the price of saline in the United States and Canada, we expect this to be one of our North American revenue growth drivers in the coming years. We also, however, enjoyed strong growth rates in Europe, Latin America and across most Asian countries as we successfully integrated this business line into our operations.

Considerable investment in direct-to-consumer (DTC) advertising, principally in the United States, supported the growth of many of our franchises. At gross billing rates, we spent approximately $180 million on BOTOX^® Cosmetic, JUVÉDERM™, LAP-BAND^®, RESTASIS^® and the NATRELLE™ Collection.⁽⁶⁾ Complementing these DTC efforts, we executed integrated public relations campaigns to educate our key constituents and generate favorable brand awareness and receptivity to commercial messaging through grassroots initiatives and robust media platforms. These programs included celebrity partnerships, such as with actress Virginia Madsen for BOTOX^® Cosmetic and JUVÉDERM™, and Khaliah Ali, the daughter of Muhammad Ali for LAP-BAND^®, as well as programs to facilitate informed treatment decisions. For example, we invested heavily in a first-of-its kind educational Web site in partnership with an independent expert group of researchers, scientists and physicians to address women’s outstanding questions about the science and safety of silicone breast implants.

In 2007, sales of the LAP-BAND^® System and the BIB™ Intragastric Balloon, a product with modest sales available outside the United States, increased 54 percent over 2006 on a pro forma basis which includes Inamed pre-acquisition sales in 2006. (See related chart.) Sales grew well over 20 percent in every region and even stronger in the United States where we made dramatic investments into this large unmet medical need by greatly expanding our sales force to provide training and service to a larger group of bariatric and other specialized surgeons, securing major improvements in managed care and government payors’ coverage, and increasing patient awareness of LAP-BAND^® through national DTC television advertising and educational campaigns.