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¬nding better, more ef¬cient ways to operate our ward to working with them to achieve our vision for
business. By focusing on our customers and taking growth in the years ahead.
advantage of global opportunities in emerging mar-
kets, we are effectively adapting to the changing John L. Zabriskie, Ph.D.
marketplace. By targeting our R&D efforts on major Chairman of the Board and
unmet medical needs and accelerating product Chief Executive Of¬cer
development on a global scale, we are creating
opportunities for the decades ahead. We are a March 3, 1995


Dollars in millions, except per-share data 1994 % Change 1993 % Change 1992
Total revenue $3,344.5 (1%) $3,380.5 3% $3,284.7
Operating income 599.4 30 459.5 (31) 662.7
Earnings from continuing operations before
income taxes and minority equity 643.3 34 480.0 (29) 671.9
Earnings from continuing operations 489.1 23 396.4 (25) 527.0
Net earnings 490.8 25 392.4 21 324.3
Net earnings per common share:
Primary $ 2.76 27 $ 2.18 22 $ 1.78
Fully diluted $ 2.68 26 $ 2.13 22 $ 1.74

of these accounting changes reduced net earnings
When comparing year-to-year earnings, account-
by $223 million ($1.26 per share).
ing changes and restructuring recorded in each of
the prior two years should be considered. In 1993,
In 1993, the company recorded restructuring
the company made two accounting changes: the
charges that reduced operating income by $209
adoption of calendar-year reporting for subsidiaries
million ($155 million, or $.89 per share after tax),
formerly reporting on a ¬scal year and the adoption
primarily associated with a worldwide work-force
of Statement of Financial Accounting Standards
reduction, the write-down of certain assets and the
(SFAS) No. 112 relating to postemployement bene-
reduction of excess manufacturing capacity. In
¬ts. The cumulative effect of these changes reduced
1992, restructuring charges of $22 million ($13.4
1993 net earnings by $18.9 million ($.11 per
million, or $.08 per share after tax) were made to
share). In 1992, the company adopted SFAS No.
re¬‚ect the cost of a special voluntary early retirement
106 relating to the postretirement bene¬t costs other
than pensions and SFAS No. 109 relating to
accounting for income taxes. The cumulative effect
632 Mergers and Acquisitions

Mergers and Acquisitions

Several actions were taken to increase the com- dated sales for 1994 were down as the result of a 3
pany™s focus on its core pharmaceutical business, percent decline in price, offset in part by a 1 percent
including the 1994 divestitures of the Asgrow Seed bene¬t from foreign exchange. Volume was
Company and the company™s interest in a chicken- unchanged.
breeding joint venture and the 1993 divestiture of
The current year decline in worldwide sales of cen-
Asgrow Florida Company. Both the sales of the
tral nervous system agents was the result of intense
Asgrow Seed Company and Asgrow Florida Com-
generic competition against XANAX, the anti-anxiety
pany have been reported as discontinued opera-
agent, which lost U.S. patent protection in October
tions. Accordingly, certain prior-period ¬nancial
1993. The U.S. decline in sales of XANAX was offset

The Uphohn Company
data have been restated to re¬‚ect only the continu-
somewhat by sales of the company™s generic anti-
ing operations of the company.
anxiety agent alprazolam. In international markets,
With the sale of three agricultural segment opera- XANAX continued to record good growth. Sales of
tions identi¬ed above, the company has elected to HALCION Tablets (triazolam), the sleep inducing
report its business operations as a single industry agents, were also down in the U.S. largely due to the
segment”Pharmaceutical Products. This industry loss of U.S. patent protection in October 1993. Sales
designation more accurately re¬‚ects the ongoing of HALCION in international markets were up in
operations of the company. Prior-year data pre- 1994, reversing the trend of decline encountered
sented in this review also re¬‚ect the single Pharma- over the past few years. The decline in sales of cen-
ceutical Products industry segment. tral nervous system agents is expected to continue in
1995. The 1993 decrease from 1992 sales levels
also resulted from the loss of U.S. patent protections,
Product Sales
offset somewhat by the launch of generic versions
The table below provides a year-to-year comparison of XANAX and HALCION.
of consolidated net sales by major pharmaceutical
product group 15:

Dollars in millions 1994 % Change 1993 % Change 1992
Central nervous system $ 455.3 (39%) $ 749.7 (4%) $ 783.3
Steroids, anti-in¬‚ammatory and analgesic 413.4 2 406.5 (4) 422.1
Reproductive and women™s health 511.1 41 362.5 24 292.6
Critical care, transplant and cancer 412.1 8 383.1 11 344.3
Infectious disease 439.0 11 394.0 14 346.4
Animal health 336.2 1 332.6 4 320.7
Other products and materials 707.9 (1) 711.6 (5) 746.8
Consolidated net sales $3,275.0 (2) 3,340.0 3 $3,256.2

Consolidated domestic sales of pharmaceutical
products in 1994 decreased 10 percent to $1,847
million from $2,046 million in 1993, and compared
to $2,003 million in 1992. Domestic sales in 1994
were 56 percent of total consolidated sales, down
from 61 and 62 percent in 1993 and 1992, respec-
tively. International sales in 1994 were $1,428 mil-
lion, up 10 percent from $1,294 million in 1993
and compared to $1,253 million in 1992. Consoli-

15. Prior-year data have been conformed to current year product
group classi¬cation.
Mergers and Acquisitions

15-37 Part 3 Business Analysis and Valuation Applications

The 1994 growth in steroids, anti-in¬‚ammatory and 1994 sales growth. Sales of MGA, the feed additive,
analgesic product group was let by MOTRIN IB, the were ¬‚at. Sales of NAXCEL (EXCENEL in interna-
over-the-counter nonsteroidal analgesic agent, tional markets), the antibiotic, were up in interna-
which continued to perform well in a very competi- tional markets and down slightly in the U.S. due to a
tive market. This performance resulted in part from lower-than-average cattle population. Sales of linco-
a 1993 agreement that provided access to new- mycin and companion animal products were down
product technology and product-line extensions. in 1994.
This and other products sales gains offset the In other products and materials category, GLYNASE
decline in U.S. sales of ANSAID Tablets (¬‚urbipro- Press Tab, the oral anti-diabetes agent, continued to
The Uphohn Company

fen), which resulted from generic competition record good growth in the U.S. Sales of MICRON-
encountered in late 1994. U.S. patent protection for ASE Tablets (glyburide), the oral anti-diabetes
ANSAID was lost in February 1993. agents, were down signi¬cantly from 1993 levels as
a result of the loss of U.S. market exclusivity in the
Sales of reproductive and women™s health products
second quarter of 1994. While the company will
recorded strong, bene¬ting from the addition of
continue to sell its generic glyburide to minimize the
OGEN, the estrogen replacement therapy acquired
effect of third-party generic competition, it is antici-
in late 1993. Sales of DEPO-PROVERA, the inject-
pated that combined sales of MICRONASE and gly-
able contraceptive, continued to record strong
buride will decline in 1995. Sales of ROGAINE, the
increases in both U.S. and international markets.
treatment for hair loss, were up for the year. The
Combined worldwide sales of PROVERA Products
consumer products CORTAID, the anti-itch medica-
(medroxy-progesterone), the progestational agents,
tion; DOXIDAN and SURFAK, the treatments for
were up for the year in spite of a moderate decline
constipation; and DRAMAMINE, the treatment for
in the U.S. due to increasing generic competition.
motion sickness, all demonstrated good growth,
CAVERJECT, for erectile dysfunction, was approved
while sales of KAOPECTATE, the treatment for diar-
for sale in 12 countries in 1994 and also contrib-
rhea, were down for the year.
uted to sales.
International sales of SOLU-MEDROL, the injectable
Other Operating Revenue
steroid, and other MEDROL Products led the growth
in the critical care, transplant and cancer product Operating income for 1994 bene¬ted from market-
group. Sales of ATGAM, the immunosuppressant, ing alliance agreements with Burroughs-Wellcome
were up slightly for the year. In 1994, the company Co. for the promotion of their product ZOVIRAX,
completed a series of agreements with Yakult Hon- and with Hoechst-Roussel Pharmaceuticals Inc.
sha Co. Ltd. for the rights to develop and market the (HRPI) to market and detail their product ALTACE.
anti-cancer compound irinotecan for several indica- The agreement with Burroughs-Wellcome expires at
tions in the U.S., Canada, and Latin America. the end of 1995. An agreement has been reached
Clinical development of this compound is currently with HRPI to sell the company™s rights relating to
in process. ALTACE effective January 1, 1995.
VANTIN, the broad-spectrum oral antibiotic sold
Cost and Expenses
primarily in the U.S., led the growth in the infectious
disease product group. Sales of CLEOCIN Consolidated operating expenses, stated as a per-
(DALACIN in international markets), the family of cent of sales, were as follows:
antibiotic products, demonstrated good growth in
1994 1993 1992
international markets but declined in the U.S. Sales
of CLEOCIN T Products (clindamycin topical) were Cost of products sold 25.7% 23.5% 23.2%
Research and development 18.5 18.3 17.0
down for the year due to U.S. generic competition.
Marketing and administra-
In the animal health product group, PIRSUE, intro- tive 39.5 39.4 39.7
Restructuring 6.3 0.7
duced late in 1993 for the treatment of mastitis, and
Operating income 18.3 13.8 20.4
LUTALYSE, the fertility-control agent, both provided
634 Mergers and Acquisitions

Mergers and Acquisitions

The rise in 1994 cost of products sold compared to for obsessive-compulsive disorder, which will be sold
that of the prior two years is the result of a change in in the U.S. LUVOX is a product of Solvay Pharma-
product mix, which is primarily due to U.S. generic ceuticals Inc. Unfavorable foreign exchange com-
competition encountered with the major products parisons in certain international markets also added
identi¬ed previously. Compared to the products that to this expense category in 1994.
lost patent protection, the company™s generic equiv- The restructuring plan announced in October 1993
alents and other products have lower gross margins. was in the process of being implemented during
The decline is also due to a higher percentage of 1994. At the beginning of 1994, approximately 400
total worldwide pharmaceutical product sales in employees had left the company under the 1993

The Uphohn Company
international markets where the company™s products restructuring, while at the end of 1994 that number
generally carry lower gross margins. had increased to approximately 1,100. Certain
elements of the 1993 plan are still in the process of
Expenditures for research and development in 1994
implementation. All aspects of the 1992 plan had
were up slightly as a percent of sales from 1993
been implemented by the end of 1993. The gross
due primarily to the timing of expenses related to
combined bene¬t to 1995 earnings from the 1992
large clinical programs. Both 1994 and 1993
and 1993 restructurings is expected to be approxi-
research and development expenditures are signi¬-
mately $120 million. The bene¬t is expected to
cantly higher than in 1992 due to the continuing
increase moderately after 1995 when all aspects of
costs associated with accelerated development of
the 1993 restructuring plan are fully implemented.
FREEDOX IV Solution (tirilazad mesylate) and other
compounds. Earnings before taxes and minority equity from the
company™s operation in Europe of $44 million were
In December 1994, further enrollment in the North
up signi¬cantly in 1994 from a loss of $39 million
American clinical trial of FREEDOX for severe to
and earnings of $11 million in 1993 and 1992,
moderate head injury was suspended pending fur-
respectively. This improvement is the result of
ther analysis of an unexplained difference in mortal-
increased sales volume, a net favorable effect from
ity rates. At the time of suspension, enrollment in this
exchange and savings from expense reductions. The
trial was 98 percent complete. The results were
1993 European measure was depressed largely due
unexpected because a fully-enrolled study in Europe
to unfavorable exchange and the costs of restructur-
showed no signs of the effects encountered in the
ing. Sales increased in Japan largely as the result of


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