Fitch Affirms Allergan’s ‘A+’ Rating; Outlook Stable

Fitch Ratings affirms Allergan, Inc.’s (Allergan) ‘A+’ senior unsecured debt rating and ‘F1′ commercial paper rating and simultaneously withdraws the ‘A’ subordinated debt rating. The subordinated debt rating is withdrawn due to no outstanding subordinated debt. The Rating Outlook is Stable. The ratings apply to approximately $580 million of outstanding debt.

Allergan’s rating is supported by a high degree of liquidity from strong cash flow generation and a large cash balance boosted further by the intention to repatriate foreign earnings in 2005 at a reduced tax rate under the American Jobs Creation Act if 2004. The company maintained a cash position of $284 million, net of total debt, at the end of the first quarter of 2005 and is favored by a debt maturity schedule without a significant maturity until 2022.

Fitch’s prior concern of replacement of revenues and EBITDA from the Advanced Medical Optics (EYE) spin-out in June 2002 was alleviated by Allergan’s ability to replace the losses within 1 1/2 years. Moreover, subsequent to the spin-off of the lower-margin EYE businesses, EBITDA margin expanded year-over-year to 29.8% for the latest 12-month (LTM) period ending March 25, 2005. In addition, free cash flow generation has strengthened to $450.1 million (measured by operating cash flow of $591.5 million minus capital expenditures of $92.8 million and dividends of $48.6 million) for the LTM period ending March 25, 2005 from $94 million at the end of 2002. Continued strong revenue growth and solid free cash flow generation is supported by leading market positions of niche products and a productive R&D program. Fitch believes that the R&D pipeline will provide new revenue sources through the long-term, especially in the 2007-2009 timeframe.

Fitch is concerned with revenue concentration in the Botox and Alphagan products, which collectively represented 47.5% of total revenues for the LTM period at the end of the first quarter of 2005. However, revenue concentration is expected to be mitigated by market acceptance of new products, like Restasis, line extensions and continued geographic expansion for Botox supporting incremental revenues, and noteworthy R&D projects, such as oral Tazorac for psoriasis, Posurdex for macular edema, and Memantine for vision preservation in glaucoma patients.

Fitch also recognizes possible generic challenges to Alphagan-P and Restasis and potential branded treatments similar to Botox in the U.S. in the intermediate term. However, Allergan’s patent estate surrounding difficult-to-replicate formulations of expired active ingredients and various therapeutics uses may serve to support longer useful lives for Alphagan-P and Restasis. Although the active ingredient in Botox lost market exclusivity years ago and competitive products exist, Botox is protected by its broad range of indications and continued commitment to R&D to secure new therapeutic uses, which take years and large investments to achieve regulatory approval. Positive rating action is warranted upon successful commercialization of the company’s late-stage R&D pipeline, potentially reducing revenue concentration found in the current product portfolio.

Fitch anticipates Allergan to address gaps in its facial aesthetics product offering through acquisitions or licensing agreements. If Allergan pursues an acquisition, Fitch expects funding will be provided by cash, equity and/or incremental debt in a combination that will preserve the credit profile of the company.

Allergan is a technology-driven global health care company, with a presence in over 100 countries, devoted to developing and commercializing specialty pharmaceuticals for the eye care, movement disorder, and dermatologic markets. The company has grown its specialty pharmaceutical business through internal development, joint ventures and corporate in-licensing. Allergan maintains major market share positions in its niche markets. Allergan operates through three pharmaceutical product lines: Eye Care Pharmaceuticals; Botox/Neuromodulators; and Skin Care Pharmaceuticals.

Fitch’s rating definitions are available on the agency’s public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.