General Overview of our Business

We are a multi-specialty health care company focused on developing and commercializing innovative pharmaceuticals, biologics, medical devices and over-the-counter products that enable people to live life to its greatest potential — to see more clearly, move more freely and express themselves more fully. Our diversified approach enables us to follow our research and development into new specialty areas where unmet needs are significant.

We discover, develop and commercialize specialty pharmaceutical, biologics, medical device and over-the-counter products for the ophthalmic, neurological, medical aesthetics, medical dermatology, breast aesthetics, obesity intervention, urological and other specialty markets in more than 100 countries around the world. Our diversified business model includes products for which patients may be eligible for reimbursement and cash pay products that consumers pay for directly. Based on internal information and assumptions, we estimate that in fiscal year 2010, approximately 71% of our net product sales were derived from reimbursable products and 29% of our net product sales were derived from cash pay products.

We are a pioneer in specialty pharmaceutical, biologic and medical device research and development, with global efforts targeting products and technologies related to eye care, skin care, neuromodulators, medical aesthetics, obesity intervention, urology and neurology. In 2010, our research and development expenditures were approximately 16.7% of our product net sales or approximately $804.6 million. We supplement our own research and development activities with our commitment to identify and obtain new technologies through in-licensing, research collaborations, joint ventures and acquisitions.

We were founded in 1950 and incorporated in Delaware in 1977. Our principal executive offices are located at 2525 Dupont Drive, Irvine, California, 92612, and our telephone number at that location is (714) 246-4500. Our Internet website address is www.allergan.com . Our Internet website address is not intended to function as a hyperlink and the information available at our website address is not incorporated by reference into this Annual Report on Form 10-K. We make our periodic and current reports, together with amendments to these reports, available on our Internet website, free of charge, as soon as reasonably practicable after such material is

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electronically filed with, or furnished to, the U.S. Securities and Exchange Commission, or SEC. The SEC maintains an Internet website at www.sec.gov that contains the reports, proxy and information statements and other information that we file electronically with the SEC.

Operating Segments

We operate our business on the basis of two reportable segments — specialty pharmaceuticals and medical devices. The specialty pharmaceuticals segment produces a broad range of pharmaceutical products, including: ophthalmic products for dry eye, glaucoma, retinal diseases and ocular surface disease; Botox ^® for certain therapeutic and aesthetic indications; skin care products for acne, psoriasis, eyelash growth and other prescription and over-the-counter skin care products; and urologics products. The medical devices segment produces a broad range of medical devices, including: breast implants for augmentation, revision and reconstructive surgery; obesity intervention products, including the Lap-Band ^® System and the Orbera ^™ Intragastric Balloon System; and facial aesthetics products. The following table sets forth, for the periods indicated, product net sales for each of our product lines within our specialty pharmaceuticals segment and medical devices segment, domestic and international sales as a percentage of total product net sales within our specialty pharmaceuticals segment and medical devices segment, and segment operating income for our specialty pharmaceuticals segment and medical devices segment:

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We do not discretely allocate assets to our operating segments, nor does our chief operating decision maker evaluate operating segments using discrete asset information.

See Note 17, “Business Segment Information,” in the notes to the consolidated financial statements listed under Item 15 of Part IV of this report, “Exhibits and Financial Statement Schedules,” for further information concerning our foreign and domestic operations.

Specialty Pharmaceuticals Segment

Eye Care Pharmaceuticals Product Line

We develop, manufacture and market a broad range of prescription and non-prescription products designed to treat diseases and disorders of the eye, including chronic dry eye, glaucoma, inflammation, infection, allergy and retinal disease.

Chronic Dry Eye

Restasis ^® (cyclosporine ophthalmic emulsion) 0.05% is the first, and currently the only, prescription therapy for the treatment of chronic dry eye worldwide. Restasis ^® is our best selling eye care product. Chronic dry eye is a painful and irritating condition involving abnormalities and deficiencies in the tear film initiated by a variety of causes. The incidence of chronic dry eye increases markedly with age, after menopause in women and in people with systemic diseases such as Sjögren’s syndrome and rheumatoid arthritis. Until the approval of Restasis ^® , physicians used lubricating tears to provide palliative relief of the debilitating symptoms of chronic dry eye. We launched Restasis ^® in the United States in 2003 under a license from Novartis AG for the ophthalmic use of cyclosporine. During the third quarter of 2010, Health Canada approved Restasis ^® for the treatment of moderate to moderately severe aqueous deficient dry eye disease. Restasis ^® is currently approved in 41 countries.

Our over-the-counter artificial tears products, including the Refresh ^® and Refresh ^® Optive ^™ brands, treat dry eye symptoms including irritation and dryness due to pollution, computer use, aging and other causes. Refresh ^® , launched in 1986, includes a wide range of preserved and non-preserved drops as well as ointments to treat dry eye symptoms. According to IMS Health Incorporated, an independent marketing research firm, our artificial tears products, including the Refresh ^® and Refresh ^® Optive ^™ brands, were again the number one selling artificial tears products worldwide for the first nine months of 2010.

Glaucoma

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 currently the world’s second leading cause of blindness, and we estimate that over 70 million people worldwide have glaucoma. According to IMS Health Incorporated, our products for the treatment of glaucoma, including Lumigan ^® (bimatoprost ophthalmic solution) 0.03%, Lumigan ^® 0.01%, Ganfort ^™ (bimatoprost/timolol maleate ophthalmic solution), Alphagan ^® (brimonidine tartrate ophthalmic solution) 0.2%, or Alphagan ^® , Alphagan ^® P 0.15%, Alphagan ^® P 0.1% and Combigan ^® (brimonidine tartrate/timolol maleate ophthalmic solution) 0.2%/0.5%, captured approximately 26.2% of worldwide market sales in their product categories for first nine months of 2010.

Lumigan ^® 0.03% and Lumigan ^® 0.01% are topical treatments indicated for the reduction of elevated intraocular pressure in patients with glaucoma or ocular hypertension. Lumigan ^® 0.01% is an improved reformulation of Lumigan ^® 0.03%. We currently sell Lumigan ^® 0.01% and Lumigan ^® 0.03% in the United States and over 75 countries worldwide and, together, they are our second best selling eye care products. According to IMS Health Incorporated, Lumigan ^® 0.01% and Lumigan ^® 0.03% were amongst the best selling glaucoma products in the world for the first nine months of 2010. In 2002, the European Commission approved Lumigan ^®

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0.03%. In 2004, the European Union’s Committee for Proprietary Medicinal Products approved Lumigan ^® 0.03% as a first-line therapy for the reduction of elevated intraocular pressure in chronic open-angle glaucoma and ocular hypertension. In 2006, the U.S. Food and Drug Administration, or the FDA, approved Lumigan ^® 0.03% as a first-line therapy. We are party to an exclusive licensing agreement with Senju Pharmaceutical Co., Ltd., or Senju, under which Senju became responsible for the development and commercialization of Lumigan ^® 0.03% in Japan. In 2009, Senju received approval of Lumigan ^® 0.03% in Japan. Also in 2009, Lumigan ^® 0.01% was approved by Health Canada. In the first quarter of 2010, the European Commission granted a Marketing Authorization for Lumigan ^® 0.01% in the European Union member states. During the third quarter of 2010, the FDA approved Lumigan ^® 0.01% as a first-line therapy indicated for the reduction of elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension. In 2006, we received a license from the European Commission to market Ganfort ^™ in the European Union. Ganfort ^™ is now sold in over 37 countries outside the United States. Combined sales of Lumigan ^® 0.03%, Lumigan ^® 0.01% and Ganfort ^™ represented approximately 11%, 10% and 10% of our total consolidated product net sales in 2010, 2009 and 2008, respectively.

Our third best selling eye care products are the ophthalmic solutions Alphagan ^® , Alphagan ^® P 0.15% and Alphagan ^® P 0.1%. These products lower intraocular pressure by reducing aqueous humor production and increasing uveoscleral outflow. Alphagan ^® P 0.15% and Alphagan ^® P 0.1% are improved reformulations of Alphagan ^® containing brimonidine, the active ingredient in Alphagan ^® , preserved with Purite ^® . We currently market Alphagan ^® , Alphagan ^® P 0.15% and Alphagan ^® P 0.1% in over 70 countries worldwide. In 2002, based on the acceptance of Alphagan ^® P 0.15%, we discontinued the U.S. distribution of Alphagan ^® . We are party to an exclusive licensing agreement with Senju, under which Senju is responsible for the development and commercialization of Alphagan ^® and Alphagan ^® P 0.15% in Japan. The marketing exclusivity period for Alphagan ^® P 0.1% expired in 2008 and Alphagan ^® P 0.15 % now faces generic competition in the United States, although we have a number of patents covering the Alphagan ^® P 0.1% and Alphagan ^® P 0.15% technology that extend to 2022 in the United States. In 2003, the FDA approved the first generic of Alphagan ^® . Additionally, a generic form of Alphagan ^® is sold in a limited number of other countries, including Canada, Mexico, India, Brazil, Colombia, Argentina and in the European Union.

We also developed the ophthalmic solution Combigan ^® , a brimonidine and timolol combination designed to treat glaucoma and ocular hypertension in patients who are not responsive to treatment with only one medication and are considered appropriate candidates for combination therapy. In 2005, we received positive opinions for Combigan ^® from 20 concerned member states included in the Combigan ^® Mutual Recognition Procedure for the European Union, and we launched Combigan ^® in the European Union during 2006. In 2007, the FDA approved Combigan ^® and we launched Combigan ^® in the United States. Combigan ^® is now sold in 67 countries worldwide. Combined sales of Alphagan ^® , Alphagan ^® P 0.15% and Alphagan ^® P 0.1% and Combigan ^® represented approximately 8%, 9% and 9% of our total consolidated product net sales in 2010, 2009 and 2008, respectively.

Inflammation

Our ophthalmic anti-inflammatory product Acuvail ^® (ketorolac tromethamine ophthalmic solution) 0.45%, an advanced unit-dose preservative-free formulation of ketorolac for the treatment of pain and inflammation following cataract surgery, was approved by the FDA in 2009. Our ophthalmic anti-inflammatory product Acular LS ^® (ketorolac ophthalmic solution) 0.4% is a version of Acular ^® that has been reformulated for the reduction of ocular pain, burning and stinging following corneal refractive surgery. Acular ^® PF was the first preservative-free topical non-steroidal anti-inflammatory drug in the United States. Acular ^® PF is indicated for the reduction of ocular pain and photophobia following incisional refractive surgery. In 2009, the FDA approved seven Abbreviated New Drug Applications, or ANDAs, for ketorolac tromethamine ophthalmic solution 0.5%, a generic version of Acular ^® and Acular LS ^® . Acular ^® and Acular LS ^® now face generic competition. Our ophthalmic anti-inflammatory product Pred Forte ^® remains a leading topical steroid worldwide based on 2010 sales. Pred Forte ^® has no patent protection or marketing exclusivity and faces generic competition.

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Infection

Our leading anti-infective is Zymar ^® (gatifloxacin ophthalmic solution) 0.3%, which we license from Kyorin Pharmaceutical Co., Ltd. and have worldwide ophthalmic commercial rights excluding Japan, Korea, Taiwan and certain other countries in Asia and Europe. We launched Zymar ^® in the United States in 2003. Zymar ^® is a fourth-generation fluoroquinolone for the treatment of bacterial conjunctivitis and is currently approved in 33 countries. Laboratory studies have shown that Zymar ^® kills the most common bacteria that cause eye infections as well as specific resistant bacteria. During the second quarter of 2010, we received FDA approval of Zymaxid ^® (gatifloxacin ophthalmic solution) 0.5%, our next-generation anti-infective product indicated for the treatment of bacterial conjunctivitis. In February 2011, we announced the discontinuation of Zymar ^® due to strong physician acceptance of Zymaxid ^® with its increased concentration.

Allergy

The allergy market is, by its nature, a seasonal market, peaking during the spring months. We license Elestat ^® from Boehringer Ingelheim AG, and hold worldwide ophthalmic commercial rights excluding Japan. Elestat ^® is used for the prevention of itching associated with allergic conjunctivitis. We launched Elestat ^® in Europe under the brand names Relestat ^® and Purivist ^® during 2004, and Inspire Pharmaceuticals, Inc., or Inspire, our marketing partner in the United States, launched Elestat ^® during 2004. Elestat ^® (together with sales under its brand names Relestat ^® and Purivist ^® ) is currently approved in 49 countries. In the third quarter of 2010, we acquired from Vistakon Pharmaceuticals, LLC, Janssen Pharmaceutica N.V., Beerse and Johnson & Johnson Vision Care Inc., or, collectively, Vistakon, the global license to manufacture and commercialize alcaftadine 0.25%, a topical allergy medication for the prevention and treatment of itching associated with allergic conjunctivitis. Alcaftadine is FDA-approved in the United States under the brand name Lastacaft ^™ (alcaftadine ophthalmic solution) and was commercialized in January 2011.

Retinal Disease

Ozurdex ^® is a novel bioerodable formulation of dexamethasone in our proprietary Novadur ^™ sustained-release drug delivery system that can be used to locally and directly administer medications to the retina. In 2009, the FDA approved Ozurdex ^® (dexamethasone intravitreal implant) 0.7 mg, as the first drug therapy indicated for the treatment of macular edema associated with branch retinal vein occlusion or central retinal vein occlusion. We launched Ozurdex ^® in the United States in 2009. In the third quarter of 2010, the European Medicines Agency granted marketing authorization for Ozurdex ^® in the 27 member states of the European Union, making Ozurdex ^® the first licensed treatment in Europe for macular edema in patients with retinal vein occlusion. Also in the third quarter of 2010, the FDA approved Ozurdex ^® for the treatment of non-infectious ocular inflammation, or uveitis, affecting the posterior segment of the eye.

Neuromodulator

Botox ^®

Our neuromodulator product, Botox ^® (onabotulinumtoxinA), has a long-established safety profile and has been approved by the FDA for more than 20 years to treat a variety of therapeutic conditions, as well as for aesthetic use since 2002. In 2010, therapeutic uses accounted for approximately 51% and aesthetic uses for approximately 49% of total sales. With more than 2,000 publications on Botox ^® and Botox ^® Cosmetic in scientific and medical journals, results of approximately 50 randomized, placebo-controlled clinical trials involving more than 11,000 patients, Botox ^® is a widely researched medicine with more than 100 potential therapeutic and aesthetic uses reported in the medical literature. Over 18 million treatment sessions have been recorded with Botox ^® and Botox ^® Cosmetic in the United States alone over the past 16 years (1994-2009). Marketed as Botox ^® , Botox ^® Cosmetic, Vistabel ^® , Vistabex ^® or Botox Vista ^® depending on the indication and country of approval, the product is currently approved in approximately 80 countries for up to 21 unique

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indications. In 2009, following the approval of a competitor product, Dysport ^™ in the United States, we adopted a Risk Evaluation and Mitigation Strategies program, or REMS, including a boxed warning about the potential spread of botulinum toxins from the site of injection and the lack of interchangeability among botulinum toxin products. Sales of Botox ^® represented approximately 29%, 29% and 30% of our total consolidated product net sales in 2010, 2009 and 2008, respectively. Botox ^® has been primarily used therapeutically for the treatment of certain neuromuscular disorders which are characterized by involuntary muscle contractions or spasms as well as upper limb spasticity. In the fourth quarter of 2010, the FDA approved Botox ^® for the prophylactic treatment of headaches in adults with chronic migraine. The approved therapeutic indications for Botox ^® in the United States are as follows:

In many countries outside of the United States, Botox ^® is approved for treating hemifacial spasm, spasticity associated with pediatric cerebral palsy and upper limb spasticity in post-stroke patients. We are currently in development for Botox ^® in the United States and Europe for new indications, including lower limb spasticity, neurogenic overactive bladder, idiopathic overactive bladder and benign prostatic hyperplasia. In the third quarter of 2010, we received approval for Botox ^® for the prophylactic treatment of headaches in adults with chronic migraine in the United Kingdom. In 2009, we submitted regulatory files for the use of Botox ^® to treat chronic migraine in France, Switzerland and Canada and are currently seeking approval in the European Union. In the fourth quarter of 2010, we filed a supplemental Biologics License Application, or sBLA, with the FDA for the use of Botox ^® in the treatment of urinary incontinence due to neurogenic detrusor overactivity resulting from neurogenic bladder and we are currently seeking approval in the European Union and Canada. In 2010, we completed enrollment in our Phase III clinical trials for the use of Botox ^® to treat idiopathic overactive bladder. In 2005, we initiated Phase II clinical trials outside the United States for the use of Botox ^® to treat benign prostatic hyperplasia. In 2009, we filed an Investigational New Drug Application with the FDA relating to the use of Botox ^® to treat benign prostatic hyperplasia.

Botox ^® Cosmetic

The FDA approved Botox ^® Cosmetic in 2002 for the temporary improvement in the appearance of moderate to severe glabellar lines in adult men and women age 65 or younger. Referred to as Botox ^® , Botox ^® Cosmetic, Vistabel ^® , Vistabex ^® or Botox Vista ^® , depending on the country of approval, this product is administered in small injections to temporarily reduce the muscle activity that causes the formation of glabellar lines between the eyebrows that often develop during the aging process. Currently, more than 60 countries have approved facial aesthetic indications for Botox ^® , Botox ^® Cosmetic, Vistabel ^® , Vistabex ^® or Botox Vista ^® . In Australia, New Zealand, Canada and certain countries in East Asia and Latin America, we have regulatory approvals for upper facial lines, including crow’s feet. Since we have launched Botox ^® Cosmetic, we have conducted comprehensive direct-to-consumer marketing campaigns in the United States. We continue to sponsor aesthetic specialty physician training in approved countries to further expand the base of qualified physicians using Botox ^® , Botox ^® Cosmetic, Vistabel ^® , Vistabex ^® or Botox Vista ^® .

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        In 2005, we entered into a long-term arrangement with GlaxoSmithKline, or GSK, under which GSK agreed to develop and promote Botox ^® in Japan and China and we agreed to co-promote GSK’s products Imitrex STATdose System ^® (sumatriptan succinate) and Amerge ^® (naratriptan hydrochloride) in the United States until the third quarter of 2010. In the first quarter of 2010, we reacquired the rights from GSK to develop and sell Botox ^® in Japan and China for all current and future cosmetic indications. GSK retains the rights granted under the long-term arrangement to develop and sell Botox ^® in Japan and China for all current and future therapeutic indications. In 2009, Botox ^® was approved in Japan for the additional indications of glabellar lines and equinus foot due to lower limb spasticity in juvenile cerebral palsy patients and was launched in Japan for these indications with the glabellar lines indication marketed as Botox Vista ^® . Botox ^® was also approved for the treatment of glabellar lines in China in 2009. In the fourth quarter of 2010, we received approval of Botox ^® in Japan for the treatment of upper and lower limb spasticity.

Skin Care Product Lines

Our skin care product lines focus on the acne, psoriasis, physician-dispensed skin care and eyelash growth markets, particularly in the United States and Canada.

Acne/Psoriasis

Aczone ^® (dapsone) gel 5% is approved for sale in both the United States and Canada and is indicated for the treatment of acne vulgaris in patients age 12 and older. Aczone ^® contains the first new FDA-approved chemical entity (dapsone) for acne treatment since Tazorac ^® (tazarotene) gel was approved in 1997. We launched Aczone ^® in the United States in 2008. In February 2011, we outlicensed our Canadian rights to Aczone ^® to Biovail Laboratories International SRL, a subsidiary of Valeant Pharmaceuticals, Inc.

Tazorac ^® (tazarotene) gel is approved for sale in the United States for the treatment of acne and plaque psoriasis, a chronic skin disease characterized by dry red patches. We also market a cream formulation of Tazorac ^® in the United States for the topical treatment of acne and for the treatment of psoriasis. We have also engaged Pierre Fabre Dermatologie as our promotion partner for Zorac ^® (tazarotene) in certain parts of Europe, the Middle East and Africa. In 2007, we entered into a strategic collaboration agreement with Stiefel Laboratories, Inc., which was acquired by GSK in 2009, to develop and market new products involving tazarotene for dermatological use worldwide.

Topical Aesthetic Skin Care

Avage ^® (tazarotene) cream is indicated for the treatment of facial fine wrinkling, mottled hypo- and hyperpigmentation, or blotchy skin discoloration, and benign facial lentigines, or flat patches of skin discoloration, in patients using a comprehensive skin care and sunlight avoidance program. We launched Avage ^® in the United States in 2003.

We develop and market glycolic acid-based skin care products. We market our M.D. Forte ^® line of alpha hydroxy acid products to physicians in the United States.

Prevage ^® MD, containing 1% idebenone, which we launched in 2005, is a clinically tested antioxidant designed to reduce the appearance of fine lines and wrinkles, as well as provide protection against environmental factors, including sun damage, air pollution and cigarette smoke. We market Prevage ^® MD to physicians in the United States.

Vivité ^® is an advanced anti-aging skin care line that uses proprietary GLX Technology ^™ , creating a highly specialized blend of glycolic acid and natural antioxidants. We market our Vivité ^® line of skin care products to physicians in the United States. We launched Vivité ^® in 2007.

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Eyelash Growth

Latisse ^® (bimatoprost ophthalmic solution) 0.03%, is the first, and currently the only, FDA-approved prescription treatment of insufficient or inadequate eyelashes. The FDA approved Latisse ^® in 2008 and we launched Latisse ^® in the United States in 2009. Latisse ^® is a once-daily prescription treatment applied to the base of the upper eyelashes with a sterile, single-use-per-eye disposable applicator. Patients using Latisse ^® typically experience noticeable eyelash growth in eight to 16 weeks. Continued treatment with Latisse ^® is required to maintain its effect. Latisse ^® is also approved for sale in Canada and certain markets in Latin America and Asia Pacific.

Urologics

Following our 2007 acquisition of Esprit Pharma Holdings Company, Inc., or Esprit, we began marketing Sanctura ^® , a twice-a-day anticholinergic approved for the treatment of over-active bladder, or OAB. The FDA approved Sanctura XR ^® , a once-daily anticholinergic for the treatment of OAB in 2007 and we launched Sanctura XR ^® in 2008. Sanctura XR ^® is well tolerated by patients and has demonstrated improvements in certain adverse side effects common in existing OAB treatments, including dry mouth. We obtained an exclusive license to market Sanctura ^® and Sanctura XR ^® in the United States and its territories from Indevus Pharmaceuticals, Inc., which has since been acquired by Endo Pharmaceuticals, or Endo. We pay royalties to Endo based upon our sales of Sanctura ^® and Sanctura XR ^® and assumed Esprit’s obligations to pay certain other third-party royalties, also based upon sales of Sanctura ^® and Sanctura XR ^® . In 2008, we entered into a license agreement with Indevus and Madaus GmbH, which grants us the right to seek approval for and to commercialize Sanctura XR ^® in Canada. In the first quarter of 2010, Health Canada approved Sanctura XR ^® . We promote Sanctura XR ^® to the urology specialty channel using our existing sales force in the United States. Sanctura ^® began facing generic competition in 2010.

Medical Devices Segment

Breast Aesthetics

For more than 25 years, our silicone gel and saline breast implants, consisting of a variety of shapes, sizes and textures, have been available to women in more than 60 countries for breast augmentation, revision and reconstructive surgery. Our breast implants consist of a silicone elastomer shell filled with either a saline solution or silicone gel with varying degrees of cohesivity. This shell can consist of either a smooth or textured surface. We market our breast implants under the trade names Natrelle ^® , Inspira ^® , and CUI ^™ and the trademarks BioCell ^® , MicroCell ^™ and BioDimensional ^® . We currently market over 1,000 breast implant product variations worldwide to meet our patients’ preferences and needs.

We sell saline breast implants in the United States and worldwide for use in breast augmentation, revision and reconstructive surgery. The U.S. market is the primary market for our saline breast implants. Following the approval of silicone gel breast implants by the FDA and Health Canada in 2006, the U.S. and Canadian markets have been undergoing a transition from saline breast implants to silicone gel breast implants. The majority of the breast implants we now sell are silicone gel breast implants.

The safety of our silicone gel breast implants is supported by our extensive preclinical device testing, their use in over one million women worldwide and 20 years of U.S. clinical experience involving more than 150,000 women. The FDA approved our silicone gel breast implants in 2006 based on the FDA’s review of interim data from our 10-year core clinical study and our preclinical studies, its review of studies by independent scientific bodies and the deliberations of advisory panels of outside experts. Following approval, we are required to comply with a number of conditions, including our distribution of labeling to physicians and the distribution of our patient planner, which includes our informed consent process to help patients fully consider the risks associated with breast implant surgery. In addition and pursuant to the conditions placed on the FDA’s approval of our silicone gel breast implants, we continue to monitor patients in the 10-year core clinical study and the 5-year

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adjunct clinical study and, in 2007, we initiated the Breast Implant Follow-Up Study, or BIFS, a 10-year post-approval clinical study. The 10-year core clinical study, which we began in 1999 and had fully enrolled in 2000 with approximately 940 augmentation, revision or reconstructive surgery patients, was designed to establish the safety and effectiveness of our silicone gel breast implants. We plan to continue to monitor patients in the 10-year core clinical study through the end of the study in 2011. In 2006, we terminated new enrollment into our 5-year adjunct study, which was designed to further support the safety and effectiveness of silicone gel breast implants and which includes over 80,000 revision or reconstructive surgery patients. We plan to continue to monitor patients in the 5-year adjunct study through the end of the study in 2012. Finally, pursuant to the conditions placed on the FDA’s approval of our silicone gel breast implants, we initiated BIFS, a new 10-year post-approval study of approximately 40,000 augmentation, revision or reconstructive surgery patients with silicone gel implants and approximately 20,000 augmentation, revision or reconstructive surgery patients with saline implants acting as a control group. In 2008, the FDA approved a modification to BIFS, which reduced the number of patients with saline breast implants from 20,000 to approximately 15,000. BIFS is designed to provide data on a number of endpoints including, for example, long-term local complications, connective tissue disease issues, neurological disease issues, offspring issues, reproductive issues, lactation issues, cancer, suicide, mammography issues and to study magnetic resonance imaging compliance and rupture results. We completed enrollment in BIFS in the first quarter of 2010.

In January 2011, the FDA released preliminary findings and analysis regarding recent reports in the scientific community that have suggested a possible association between saline and silicone gel-filled breast implants and anaplastic large cell lymphoma, or ALCL, a very rare form of cancer. The FDA believes that, based on its review of limited scientific data, women with breast implants may have a very small but increased risk of developing ALCL in the scar capsule adjacent to the implant. According to the FDA, a study by the National Cancer Institute indicates that only approximately 3 in 100 million women per year in the United States are diagnosed with ALCL in the breast, including both women with implants and without implants.

We sell a line of tissue expanders primarily for breast reconstruction and also as an alternative to skin grafting to cover burn scars and correct birth defects.

Facial Aesthetics

We develop, manufacture and market dermal filler products designed to improve facial appearance by smoothing wrinkles and folds. Our primary facial aesthetics product is the Juvéderm ^® dermal filler family of products.

Our Juvéderm ^® dermal filler family of products, including Juvéderm ^® , Voluma ^™ and Surgiderm ^® , are developed using our proprietary Hylacross ^™ technology, a technologically advanced manufacturing process that results in a smooth consistency gel formulation. This technology is based on the delivery of a homogeneous gel-based hyaluronic acid, as opposed to a particle gel-based hyaluronic acid technology, which is used in other hyaluronic acid dermal filler products. In 2006, the FDA approved Juvéderm ^® Ultra and Ultra Plus, indicated for wrinkle and fold correction, for sale in the United States. In Europe, we market various formulations of Juvéderm ^® , Voluma ^™ and Surgiderm ^® for wrinkle and fold augmentation. The Juvéderm ^® dermal filler family of products are currently approved or registered in over 34 countries, including all major world markets with the exception of Japan and China where we are pursuing approvals.

In 2007, the FDA approved label extensions in the United States for Juvéderm ^® Ultra and Ultra Plus based on new clinical data demonstrating that the effects of both products may last for up to one year, which is a longer period of time than was reported in clinical studies that supported FDA approval of other hyaluronic acid dermal fillers. In 2008, we began selling Juvéderm ^® Ultra 2, 3 and 4, containing lidocaine, an anesthetic that alleviates pain during injections, in Europe. Also in 2008, we began selling Juvéderm ^® Ultra and Ultra Plus with lidocaine in Canada. After FDA approval in the first quarter of 2010, we launched Juvéderm ^® Ultra XC and Ultra Plus XC, each formulated with lidocaine, in the first quarter of 2010.

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Obesity Intervention

Lap-Band ^®

We develop, manufacture and market several medical devices for the treatment of obesity. Our principal product in this area, the Lap-Band ^® System, is designed to provide minimally invasive long-term treatment of severe obesity and is used as an alternative to more invasive procedures such as gastric bypass surgery, sleeve gastrectomy, “stapling” or gastric imbrications. The Lap-Band ^® System is an adjustable silicone band that is laparoscopically placed around the upper part of the stomach through a small incision, creating a small pouch at the top of the stomach. The new pouch fills faster, making the patient feel full sooner and, because the adjustable component of the band slows the passage of food, patients retain a feeling of fullness for longer periods of time. In addition to the anatomic effect of the pouch, data also suggests that patients with a properly adjusted band are less hungry due to neurological feedback to the brain.

The Lap-Band ^® System has achieved widespread acceptance in the United States and worldwide. The FDA approved the Lap-Band ^® System in 2001 to treat severe obesity in adults who have failed more conservative weight reduction alternatives. In 2007, we launched the Lap-Band AP ^® System, a next-generation of the Lap-Band ^® System. The Lap-Band AP ^® System has proprietary 360-degree Omniform ^® technology, which is designed to evenly distribute pressure throughout the band’s adjustment range. The Lap-Band AP ^® System also comes in two sizes, standard and large, to better serve patients who are physically larger, have thicker gastric walls or have substantial abdominal fat. Over 650,000 Lap-Band ^® System bands have been sold worldwide since 1993. In 2008, we completed enrollment in our pivotal adolescent study of the Lap-Band ^® System in patients aged 14 to 17 and submitted a sPMA to the FDA in 2009 seeking approval to market the Lap-Band ^® System for the treatment of obesity in patients aged 14 to 17. In February 2011, the FDA approved the expanded use of the Lap-Band ^® System for weight reduction in obese adults who have failed more conservative weight reduction alternatives and have a Body Mass Index, or BMI, of 30 to 40 and at least one comorbid condition, such as type-2 diabetes or hypertension.

Orbera ^™

We also sell the Orbera ^™ Intragastric Balloon System, which is a non-surgical alternative for the treatment of overweight and obese adults. Approved for sale in more than 60 countries, including many significant international markets, but not in the United States, the Orbera ^™ System includes a silicone elastomer balloon that is filled with saline after transoral insertion into the patient’s stomach to reduce stomach capacity and create an earlier sensation of fullness. The Orbera ^™ System is removed endoscopically within six months of placement, and is designed to be utilized in conjunction with a comprehensive diet and exercise program.

EasyBand ^™

In 2007, we completed the acquisition of Swiss medical technology developer EndoArt SA, or EndoArt, a pioneer in the field of telemetrically-controlled, or remote-controlled, gastric bands used to treat morbid obesity and other conditions. The EndoArt acquisition gave us ownership of EndoArt’s proprietary technology platform, including FloWatch ^® technology, which powers the EasyBand ^™ Remote Adjustable Gastric Band System, or EasyBand ^™ , a telemetrically-adjustable gastric banding device for the treatment of morbid obesity. The EasyBand ^™ , like the Lap-Band ^® System, is implanted laparoscopically through a small incision. Clinical benefits of the EasyBand ^™ are similar to the Lap-Band ^® System’s clinical benefits, except that adjustments to the EasyBand ^™ are done telemetrically rather than hydraulically.

International Operations

Our international sales represented 37.4%, 34.6% and 35.4% of our total consolidated product net sales for the years ended December 31, 2010, 2009 and 2008, respectively. Our products are sold in over 100 countries.

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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.

Sales and Marketing

We sell our products directly through our own sales subsidiaries in 36 countries and additionally through independent distributors in over 100 countries worldwide. We maintain a global marketing team, as well as regional sales and marketing organizations, to support the promotion and sale of our products. We also engage contract sales organizations to promote certain products. Our sales efforts and promotional activities are primarily aimed at eye care professionals, neurologists, physiatrists, dermatologists, plastic and reconstructive surgeons, aesthetic specialty physicians, bariatric surgeons and urologists who use, prescribe and recommend our products. We advertise in professional journals, participate in medical meetings and utilize direct mail and Internet programs to provide descriptive product literature and scientific information to specialists in the ophthalmic, dermatological, medical aesthetics, bariatric, neurology, movement disorder and urology fields. We have developed training modules and seminars to update physicians regarding evolving technology in our products. In 2010, we also utilized direct-to-consumer advertising for our Botox ^® Cosmetic, Juvéderm ^® , the Lap-Band ^® System, Latisse ^® , Natrelle ^® and Restasis ^® products.

Our products are sold to drug wholesalers, independent and chain drug stores, pharmacies, commercial optical chains, opticians, mass merchandisers, food stores, hospitals, group purchasing organizations, integrated direct hospital networks, ambulatory surgery centers and medical practitioners, including ophthalmologists, neurologists, physiatrists, dermatologists, plastic and reconstructive surgeons, aesthetic specialty physicians, bariatric surgeons, pediatricians, urologists and general practitioners. As of December 31, 2010, we employed approximately 3,000 sales representatives throughout the world. We supplement our marketing efforts with exhibits at medical conventions, advertisements in trade journals, sales brochures and national media. In addition, we sponsor symposia and educational programs to familiarize physicians and surgeons with the leading techniques and methods for using our products.

We also utilize distributors for our products in smaller international markets. We transferred back sales and marketing rights for our products from our distributors and established direct operations in Poland and Turkey in the third quarter of 2010, and in the Philippines in the fourth quarter of 2010.

U.S. sales, including manufacturing operations, represented 62.6%, 65.4% and 64.6% of our total consolidated product net sales in 2010, 2009 and 2008, respectively. Sales to Cardinal Health, Inc. for the years ended December 31, 2010, 2009 and 2008 were 13.1%, 13.9% and 12.0%, respectively, of our total consolidated product net sales. Sales to McKesson Drug Company for the years ended December 31, 2010, 2009 and 2008 were 12.1%, 12.8% and 12.3%, respectively, of our total consolidated product net sales. No other country, or single customer, generated over 10% of our total consolidated product net sales.

Research and Development

Our global research and development efforts currently focus on eye care, skin care, neuromodulators, medical aesthetics, obesity intervention, urology and neurology. We have a fully integrated research and development organization with in-house discovery programs, including medicinal chemistry, high throughput screening and biological sciences. We supplement our own research and development activities with our commitment to identify and obtain new technologies through in-licensing, research collaborations, joint ventures and acquisitions.

As of December 31, 2010, we had approximately 1,800 employees involved in our research and development efforts. Our research and development expenditures for 2010, 2009 and 2008 were approximately $804.6 million, $706.0 million and $797.9 million, respectively. The increase in research and development expenses in 2010 compared to 2009 primarily resulted from increased spending on next-generation eye care

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pharmaceuticals products for the treatment of glaucoma and retinal diseases, Latisse ^® in international markets, Botox ^® for the treatment of overactive bladder, hyaluronic-acid based dermal filler products, tissue regeneration technology acquired in our acquisition of Serica Technologies, Inc., or Serica, and obesity intervention products, partially offset by a reduction in expenses related to the development of Ozurdex ^® for retinal vein occlusion, the development of Botox ^® for the treatment of chronic migraine, and lower upfront payments for technology that has not achieved regulatory approval. Excluding in-process research and development expenditures related to company acquisitions, we have increased our annual investment in research and development by over $416 million in the past five years.

Our strategy includes developing innovative products to address unmet medical needs and conditions associated with aging, and otherwise assisting patients in reaching life’s potential. Our top priorities include furthering our leadership in ophthalmology, medical aesthetics and neuromodulators, identifying new potential compounds for sight-threatening diseases such as glaucoma, age-related macular degeneration and other retinal disorders and developing novel therapies for chronic dry eye, pain and genitourinary diseases as well as next-generation breast implants, dermal fillers and obesity intervention devices. We plan to continue to build on our strong market positions in ophthalmic pharmaceuticals, medical aesthetics, medical dermatology, obesity intervention and neurology, and to explore new therapeutic areas that are consistent with our focus on specialty physician groups.

Our research and development efforts for the ophthalmic pharmaceuticals business focus primarily on new therapeutic products for retinal disease, glaucoma and chronic dry eye. As part of our focus on diseases of the retina, we acquired Oculex Pharmaceuticals, Inc. in 2003. With this acquisition, we obtained a novel posterior segment drug delivery system for use with compounds to treat eye diseases, including age-related macular degeneration and other retinal disorders. In 2009, the FDA approved Ozurdex ^® for the treatment of macular edema following retinal vein occlusion, utilizing our proprietary Novadur ^™ sustained-release drug delivery system that slowly releases dexamethasone, a potent steroid, to the back of the eye. In the second quarter of 2010, the European Medicines Agency granted marketing authorization for Ozurdex ^® in the European Union. In the third quarter of 2010, the FDA approved Ozurdex ^® to treat non-infectious intermediate and posterior uveitis.

In 2005, we entered into an exclusive licensing agreement with Sanwa Kagaku Kenkyusho Co., Ltd., or Sanwa, to develop and commercialize Ozurdex ^® for the ophthalmic specialty market in Japan. Under the terms of the agreement, Sanwa is responsible for the development and commercialization of Ozurdex ^® in Japan and associated costs. Sanwa will pay us a royalty based on net sales of Ozurdex ^® in Japan, makes clinical development and commercialization milestone payments and reimbursed us for certain expenses associated with our Phase III studies outside of Japan. We are working collaboratively with Sanwa on the clinical development of Ozurdex ^® as well as overall product strategy and management.

In 2009, we entered into a collaboration agreement with Pieris AG, or Pieris, a biopharmaceutical company engaged in the discovery and development of a novel class of targeted human proteins designed to diagnose and treat serious human disorders. The agreement combines Pieris’ proprietary technology with our expertise in drug delivery and ophthalmic drug development, with a goal of developing agents for the treatment of serious retinal disorders.

We continue to invest heavily in the research and development of neuromodulators, primarily Botox ^® and Botox ^® Cosmetic. We focus on both expanding the approved indications for Botox ^® and pursuing next-generation neuromodulator-based therapeutics. This includes expanding the approved uses for Botox ^® to include treatment for spasticity, OAB and benign prostatic hyperplasia. We are also developing a new targeted neuromodulator for use in post herpetic neuralgia and overactive bladder. We are also continuing our investment in the areas of biologic process development and manufacturing and the next-generation of neuromodulator products, and we are conducting a Phase IV study of Botox ^® for the treatment of palmar hyperhidrosis, as part of our conditions of approval for axillary hyperhidrosis by the FDA. In addition, GSK received approval of Botox ^® in Japan for the treatment of glabellar lines and equinus foot due to lower limb spasticity in juvenile cerebral palsy patients and launched Botox ^® in Japan for these indications in 2009 with the glabellar lines indication

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marketed as Botox Vista ^® . GSK also received approval of Botox ^® in China for the treatment of glabellar lines during 2009. In the first quarter of 2010, we reacquired from GSK all rights to develop and sell Botox ^® in Japan and China for all cosmetic indications. In the third quarter of 2010, the Medicines and Healthcare Products Agency in the United Kingdom also approved Botox ^® for the preventative treatment of headaches in adults with chronic migraine. In the second quarter of 2010, the FDA approved Botox ^® for treatment of increased muscle stiffness in the elbow, wrist and fingers in adults with upper limb spasticity. In the fourth quarter of 2010, the FDA approved Botox ^® for preventative treatment of headaches in adults with chronic migraine. We also filed a sBLA with the FDA in the fourth quarter of 2010 for the use of Botox ^® in the treatment of urinary incontinence due to neurogenic detrusor overactivity resulting from neurogenic bladder and we are currently seeking approval in the European Union and Canada. In the fourth quarter of 2010, we also received approval of Botox ^® in Japan for the treatment of upper and lower limb spasticity.

In January 2011, we entered into a collaboration agreement and a co-promotion agreement with MAP Pharmaceuticals, Inc., or MAP, for the exclusive development and commercialization by us and MAP of Levadex ^™ within the United States to certain headache specialist physicians for the treatment of acute migraine in adults, migraine in adolescents 12 to 18 years of age and other indications that may be approved by the parties. Levadex ^™ is a self-administered, orally inhaled therapy consisting of a proprietary formulation of dihydroergotamine delivered using MAP’s proprietary Tempo ^® delivery system, which has completed Phase III clinical development for the treatment of acute migraine in adults.

We have a strategic research collaboration and license agreement with ExonHit Therapeutics, or ExonHit. The goals of this collaboration are to identify new molecular targets based on ExonHit’s gene profiling DATAS ^™ technology and to work collaboratively to develop unique compounds and commercial products based on these targets. Our strategic alliance with ExonHit provides us with the rights to compounds developed in the fields of neurodegenerative disease, pain and ophthalmology. In 2009, we extended and expanded the scope of our collaboration with ExonHit.

In 2008, we entered into a strategic collaboration arrangement with Spectrum Pharmaceuticals, Inc., or Spectrum, to develop and commercialize apaziquone, an antineoplastic agent currently being investigated for the treatment of non-muscle invasive bladder cancer. Under the collaboration, Spectrum is conducting two Phase III clinical trials to explore apaziquone’s safety and efficacy as a potential treatment for non-muscle invasive bladder cancer following surgery. In 2009, the FDA granted Fast Track Designation for the investigation of apaziquone for the treatment of non-muscle invasive bladder cancer. Spectrum completed enrollment in the two Phase III clinical trials in 2009. Spectrum is conducting the apaziquone clinical trials pursuant to a joint development plan, and we bear the majority of these expenses. We will also make certain additional payments to Spectrum based on the achievement of certain development, regulatory and commercialization milestones and, following approval in countries outside of the United States and Asia, will make certain royalty payments on sales in such countries.

In the first quarter of 2010, we acquired Serica, a medical device company focused on the development of biodegradable silk-based scaffolds for use in tissue regeneration, including breast augmentation, revision and reconstruction and general surgical applications.

In the first quarter of 2010, we entered into a global agreement with Bristol-Myers Squibb Company, or Bristol-Myers Squibb, for the development and commercialization of AGN-209323, a Phase II-ready, orally administered small molecule in clinical development for neuropathic pain. Under the agreement, we received an upfront milestone payment and, if successful, will receive further milestone payments and royalties.

In the first quarter of 2010, we also entered into a strategic development and license agreement with Serenity Pharmaceuticals, LLC, or Serenity, for the development and commercialization of Ser-120, a Phase III investigational drug currently in clinical development for the treatment of nocturia, a urological disorder in adults characterized by frequent urination at night time. Under the agreement, we received an exclusive worldwide license to develop, manufacture and commercialize Ser-120 for all potential indications, except

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under certain circumstances, pediatric bedwetting, which will remain with Serenity. In the third quarter of 2010, the Phase III clinical trials failed to meet their primary efficacy endpoints and we are currently evaluating a revised clinical plan.

We also continue to invest in research and development around our Juvéderm ^® family of dermal filler products, including preparation for and ongoing clinical trials for Juvederm ^® Voluma ^™ , a volumizing filler.

In connection with our obesity intervention products, we are conducting a clinical study of the Orbera ^™ System, with the goal of obtaining approval in the United States. In addition, in 2008, we completed enrollment in a pivotal adolescent study of Lap-Band ^® patients aged 14 to 17 and submitted a sPMA to the FDA in 2009 seeking approval to market the Lap-Band ^® System for the treatment of obesity in patients aged 14 to 17. In February 2011, the FDA approved the expanded use of the Lap-Band ^® System for weight reduction in obese adults who have failed more conservative weight reduction alternatives and have a BMI of 30 to 40 and at least one comorbid condition, such as type-2 diabetes or hypertension.

The continuing introduction of new products supplied by our research and development efforts, including our clinical development projects, and in-licensing opportunities are critical to our success. There are intrinsic uncertainties associated with research and development efforts and the regulatory process. We cannot assure you that any of the research projects, clinical development projects or pending drug marketing approval applications will result in new products that we can commercialize. Delays or failures in one or more significant research or clinical development projects and pending drug marketing approval applications could have a material adverse effect on our future operations.

Manufacturing

We manufacture the majority of our commercial products in our own plants located at the following locations: Westport, Ireland; Waco, Texas; San José, Costa Rica; Annecy, France; and Guarulhos, Brazil. In connection with our 2010 acquisition of Serica, we produce clinical supplies of biodegradable silk-based scaffolds at a leased facility in Massachusetts. We maintain sufficient manufacturing capacity at these facilities to support forecasted demand as well as a modest safety margin of additional capacity to meet peaks of demand and sales growth in excess of expectations. We increase our capacity as required in anticipation of future sales increases. In the event of a very large or very rapid unforeseen increase in market demand for a specific product or technology, supply of that product or technology could be negatively impacted until additional capacity is brought on line. Third parties manufacture a small number of commercial products for us, including Sanctura ^® , Sanctura XR ^® , Lastacaf t ^™ and Aczone ^® gel. For a discussion of the risks relating to the use of third party manufacturers, see Item 1A of Part I of this report, “Risk Factors — We could experience difficulties obtaining or creating the raw materials or components needed to produce our products and interruptions in the supply of raw materials or components could disrupt our manufacturing and cause our sales and profitability to decline.”

In 2007, we announced the closing of the collagen manufacturing facility in Fremont, California that we acquired in our acquisition of Inamed Corporation, or Inamed, and we substantially completed all restructuring activities and closed the facility in 2008. Before closing the facility, we manufactured a sufficient quantity of our collagen products to meet estimated remaining market demand. In 2009, we closed our Arklow, Ireland breast implant manufacturing facility and transferred manufacturing to our San José, Costa Rica manufacturing plant.

We are a vertically integrated producer of plastic parts and produce our own bottles, tips and caps for use in the manufacture of our ophthalmic solutions. Additionally, we ferment, purify and characterize the botulinum toxin used in our product Botox ^® . With these two exceptions, we purchase all other significant raw materials and parts for medical devices from qualified domestic and international sources. Where practical, we maintain more than one supplier for each material, and we have an ongoing alternate program that identifies additional sources of key raw materials. In some cases, however, most notably with active pharmaceutical ingredients and silicone raw materials, we are a niche purchaser, which, in certain cases, are sole sourced. These sources are identified in

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filings with regulatory agencies, including the FDA, and cannot be changed without prior regulatory approval. In these cases, we maintain inventories of the raw material itself and precursor intermediates to mitigate the risk of interrupted supply. A lengthy interruption of the supply of one of these materials and parts for medical devices could adversely affect our ability to manufacture and supply commercial products. A small number of the raw materials required to manufacture certain of our products are derived from biological sources which could be subject to contamination and recall by their suppliers. We use multiple lots of these raw materials at any one time in order to mitigate such risks. However, a shortage, contamination or recall of these products could disrupt our ability to maintain an uninterrupted commercial supply of our finished goods.

Manufacturing facilities producing pharmaceutical and medical device products intended for distribution in the United States and internationally are subject to regulation and periodic review by the FDA, international regulatory authorities and European notified bodies for certain of our medical devices. All of our facilities are currently approved by the FDA, the relevant notified bodies and other foreign regulatory authorities to manufacture pharmaceuticals and medical devices for distribution in the United States and international markets.

Competition

The pharmaceutical and medical device industries are highly competitive and require an ongoing, extensive search for technological innovation. They also require, among other things, the ability to effectively discover, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers and medical professionals. Numerous companies are engaged in the development, manufacture and marketing of health care products competitive with those that we manufacture, develop and market. Many of our competitors have greater resources than we have. This enables them, among other things, to make greater research and development investments and spread their research and development costs, as well as their marketing and promotion costs, over a broader revenue base. Our competitors may also have more experience and expertise in obtaining marketing approvals from the FDA and other regulatory authorities. In addition to product development, testing, approval and promotion, other competitive factors in the pharmaceutical and medical device industries include industry consolidation, product quality and price, product technology, reputation, customer service and access to technical information. We believe that our products principally compete on the basis of quality, clinical data, product design, an experienced sales force, physicians’ and surgeons’ familiarity with our products and brand names, effective marketing campaigns, including direct-to-consumer advertising, regional warranty programs and our ability to identify and develop or license patented products embodying new technologies. In addition to the information provided below, please see Item 3 of Part I of this report, “Legal Proceedings,” for information concerning current litigation regarding our products and intellectual property.

Specialty Pharmaceuticals Segment

Eye Care Products

Our eye care pharmaceutical products, including Acular ^® , Acular LS ^® , Acular ^® PF, Acuvail ^® , Alocril ^® , Alphagan ^® , Alphagan ^® P 0.15% , Alphagan ^® P 0.1%, Combigan ^® , Elestat ^® , Ganfort ^™ , Lastacaft ^™ , Lumigan ^® 0.03%, Lumigan ^® 0.01%, Ozurdex ^® , Pred Forte ^® , Refresh ^® , Relestat ^® , Restasis ^® , Zymar ^® and Zymaxid ^® , face extensive competition from Alcon Laboratories, Inc./Novartis AG, Bausch & Lomb Inc., Genentech/Hoffman La Roche AG, Inspire, Ista Pharmaceuticals, Inc., Merck & Co., Inc., Pfizer Inc. and Santen Seiyaku. For our eye care products to be successful, we must be able to manufacture and effectively detail them to a sufficient number of eye care professionals such that they use or continue to use our current products and the new products we may introduce. Glaucoma must be treated over an extended period and doctors may be reluctant to switch a patient to a new treatment if the patient’s current treatment for glaucoma is effective and well tolerated.

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        We also face competition from generic drug manufacturers in the United States and internationally. For instance, in 2010, Alphagan ^® P 0.15% and our Acular ^® products faced generic competition in the United States. A generic form of Zymar ^® produced by Apotex Inc. is pending FDA approval. The FDA has granted tentative approval of a generic form of Elestat ^® produced by Sandoz, Inc., PharmaForce, Inc. and Apotex Inc. but as of February 2011 no generic has been launched. In 2009, we received paragraph IV Hatch-Waxman Act certifications from Sandoz, Hi-Tech Pharmacal Co., and Alcon Research, Ltd., seeking FDA approval of generic forms of Combigan ^® and Barr Laboratories, Inc. seeking FDA approval of a generic form of Lumigan ^® . In February 2011, we received a paragraph IV Hatch-Waxman Act certification in which the applicant purports to have sought FDA approval of a generic form of Zymaxid ^® .

Neuromodulators

Botox ^® was the only neuromodulator approved by the FDA until 2000, when the FDA approved Myobloc ^® (rimabotulinumtoxinB), a neuromodulator formerly marketed by Elan Pharmaceuticals and Solstice Neurosciences Inc. and marketed by US Worldmeds since 2010. In 2009, the FDA approved Dysport ^™ (abobotulinumtoxinA) for the treatment of cervical dystonia and glabellar lines, which is marketed by Ipsen Ltd., or Ipsen, and Medicis Pharmaceutical Corporation, or Medicis, respectively. The approved package for Dysport ^™ included a boxed warning regarding the symptoms associated with the spread of botulinum toxin beyond the injection site. Additionally, the FDA approved Ipsen’s and Medicis’ REMS program, which addresses the lack of interchangeability of botulinum toxin products and the risks associated with the spread of botulinum toxin beyond the injection site. Ipsen has marketed Dysport ^™ for therapeutic indications in Europe since 1991, prior to our European commercialization of Botox ^® in 1992. In 2006, Ipsen received marketing authorization for a cosmetic indication for Dysport ^™ in Germany. In 2007, Ipsen granted Galderma, a joint venture between Nestle and L’Oréal Group, an exclusive development and marketing license for Dysport ^™ for cosmetic indications in the European Union, Russia, Eastern Europe and the Middle East, and first rights of negotiation for other countries around the world, except the United States, Canada and Japan. In 2008, Galderma became Ipsen’s sole distributor for Dysport ^™ in Brazil, Argentina and Paraguay. In 2009, the health authorities of 15 European Union countries approved Dysport ^™ for glabellar lines under the trade name Azzalure ^™ . In the fourth quarter of 2010, Galderma announced its plan to acquire Q-Med A.B., a Swedish company that markets several products for various therapeutic areas derived from hyaluronic acid, including Restylane ^® and Perlane ^™ dermal fillers.

In addition, Merz Pharmaceuticals’, or Merz’s, botulinum toxin product Xeomin ^® , is currently approved for therapeutic indications in Germany and several other countries in the European Union. Xeomin ^® was approved by the FDA in the third quarter of 2010 for cervical dystonia and blepharospasm in adults previously treated with Botox ^® . Merz is currently pursuing FDA approval of Xeomin ^® for cosmetic use in the United States. In 2009, Merz received approval of Bocouture ^® (rebranded from Xeomin ^® ) for glabellar lines in Germany. In 2010, Bocouture ^® was approved in significant markets within the European Union. Xeomin ^® is also approved for glabellar lines in Argentina and Mexico. In the first quarter of 2010, Merz acquired Bioform Medical Inc., or Bioform, a California-based company that markets Radiesse ^® , a calcium hydroxylapatite filler. Merz also previously acquired rights from Anteis S.A., a Swiss company, to market Belotero ^® , a hyaluronic acid filler, in certain European markets, the United States and Canada. The FDA accepted Merz’s registration file for Belotero ^® in 2009.

Mentor Worldwide LLC, a division of Johnson & Johnson, or Mentor, is conducting clinical trials for a competing neuromodulator in the United States which Mentor has indicated that it expects to be approved in 2012 or beyond. A Korean botulinum toxin, Meditoxin ^® , was approved for sale in Korea in 2006. The company, Medy-Tox Inc., received exportation approval from Korean authorities in early 2005 to ship their product under the trade name Neuronox ^® . Neuronox ^® is marketed in Hong Kong, India and Thailand. Meditoxin ^® is approved in approximately seven South American countries, including Brazil and Columbia, under various trade names.

In addition, we are aware of competing neuromodulators currently being developed and commercialized in Asia, Europe, South America and other markets. A Chinese entity, Lanzhou Biological Institute, received approval to market a botulinum toxin in China in 1997 under the tradename HengLi, and has launched its botulinum toxin product in other lightly regulated markets in Asia, South America and Central America under

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several trade names. These lightly regulated markets may not require adherence to the FDA’s current Good Manufacturing Practice regulations, or cGMPs, or the regulatory requirements of the European Medical Evaluation Agency or other regulatory agencies in countries that are members of the Organization for Economic Cooperation and Development. While these products are unlikely to meet stringent U.S. regulatory standards, the companies operating in these markets may be able to produce products at a lower cost than we can.

Our sales of Botox ^® could be materially and negatively impacted by this competition or competition from other companies that might obtain FDA approval or approval from other regulatory authorities to market a neuromodulator.

Skin Care Product Line

Our skin care products, including Aczone ^® , Tazorac ^® , Avage ^® , M.D. Forte ^® , Prevage ^® MD, Vivité ^® and Latisse ^® focus on the acne, psoriasis, physician-dispensed skin care and eyelash growth markets, particularly in the United States and Canada, and compete with many other skin care products from companies, including among others, Dermik, a division of Sanofi-Aventis, Galderma, Medicis, Stiefel Laboratories, Inc., a division of GSK, Novartis AG, Merck & Co., Inc., Johnson & Johnson, Obagi Medical Products, Inc., L’Oréal Group, SkinMedica, Inc. and Valeant Pharmaceuticals International, many of which have greater resources than us. We also compete with over-the-counter products that are designed to treat skin care issues similar to those for which our products are indicated. For example, Aczone ^® faces competition from several generic and over-the-counter products, which provide lower-priced options for the treatment of acne. We also face competition from generic skin care products in the United States and internationally.

Urologics

Our products for the treatment of OAB, Sanctura ^® and Sanctura XR ^® , compete with several other OAB treatment products, many of which have been on the market for a longer period of time, including Pfizer Inc.’s Detrol ^® , Detrol ^® LA and Toviaz ^™ , Watson Pharmaceuticals, Inc.’s Oxytrol ^® and Gelnique ^™ , Warner Chilcott PLC’s Enablex ^® and Astellas Pharma US, Inc. and GSK’s Vesicare ^® and certain generic OAB products. We also face competition from generic urologic drug manufacturers in the United States and internationally. In 2009, we received paragraph 4 Hatch-Waxman Act certifications from Watson Pharmaceuticals, Inc. seeking FDA approval of a generic form of Sanctura XR ^® . In 2010, a generic version of Sanctura ^® was launched in the United States. For our urologics products to be successful, we must be able to effectively detail our products to a sufficient number of urologists, obstetrician/gynecologists, primary care physicians and other medical specialists such that they recommend our products to their patients. We will also have to demonstrate that our products are safe and reduce patients’ sense of urgency, frequency and urge urinary incontinence episodes while also having limited side effects, such as dry mouth, constipation, blurred vision, drowsiness and headaches. We also have to demonstrate the effectiveness of our urologics products to Medicare and other governmental agencies to secure an appropriate and competitive level of reimbursement.

Medical Devices Segment

Breast Aesthetics

We compete in the U.S. breast implant market with Mentor. Mentor announced that, like us, it received FDA approval in 2006 to sell its silicone breast implants in the United States. The conditions under which Mentor is allowed to market its silicone breast implants in the United States are similar to ours, including indications for use and the requirement to conduct post-marketing studies. If patients or physicians prefer Mentor’s breast implant products to ours or perceive that Mentor’s breast implant products are safer than ours, our sales of breast implants could materially suffer. In the United States, Sientra, Inc. is conducting clinical studies of saline and silicone gel breast implant products. Internationally, we compete with several manufacturers, including Mentor, Silimed, Arion, BioSil Ltd, Cereplas, Eurosilicone, Nagor, Poly Implant Prostheses, Polytech and several Chinese implant manufacturers.

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Obesity Intervention

Ethicon Endo-Surgery, Inc., a subsidiary of Johnson & Johnson, received FDA approval in 2007 to market its gastric band product, the Realize ^™ Personalized Banding Solution, in the United States. The Realize ^™ band competes with our Lap-Band ^® System. Outside the United States, the Lap-Band ^® System competes primarily with the Realize ^™ band, Helioscopie SA’s Heliogast ^® adjustable gastric ring and Medical Innovation Developpement SAS’s Midband ^™ gastric band. The Lap-Band ^® System also competes indirectly with surgical obesity procedures, including gastric bypass, vertical banded gastroplasty, sleeve gastrectomy, gastric imbrication and biliopancreatic diversion. No intragastric balloons for the treatment of obesity are commercially available in the United States. Outside the United States, our Orbera ^™ products compete with Helioscopie SA’s Heliosphere ^™ intragastric balloon and intragastric balloon products from Silimed and Spatz FGIA, Inc. in certain countries in the European Union and Latin America.

Facial Aesthetics

Our facial products compete in the dermatology and plastic surgery markets with other hyaluronic acid products and animal- or cadaver-based collagen products as well as other polymer/bioceramic- based injectables, and indirectly with substantially different treatments, such as laser treatments, chemical peels, fat injections and botulinum toxin-based products. In addition, several companies are engaged in research and development activities examining the use of collagen, hyaluronic acids and other biomaterials for the correction of soft tissue defects. In the United States, our dermal filler products, including Juvéderm ^® Ultra and Ultra Plus, compete with Medicis’ products’ Restylane ^® and Perlane ^™ , which were approved by the FDA in 2004 and in 2007, respectively. In the first quarter of 2010, the FDA approved our lidocaine containing Juvéderm ^® Ultra XC and Ultra Plus XC. In the first quarter of 2010, the FDA also approved new formulations of Restylane ^® and Perlane ^™ containing lidocaine. In addition, we compete with Merz’s Radiesse ^® , a calcium hydroxylapatite dermal filler from BioForm, which received FDA approval in 2006, as well as Sanofi-Aventis’ Sculptra ^® and Mentor’s Prevelle ^™ . Internationally, we compete with Q-Med’s range of Restylane ^® and Perlane ^™ products, as well as products from Sanofi-Aventis, Teoxane, Anteis and a large number of other hyaluronic acid, bioceramic, protein and other polymer-based dermal fillers.

Government Regulation

Specialty Pharmaceuticals Segment

Drugs and biologics are subject to regulation by the FDA, state agencies and by foreign health agencies. Pharmaceutical products and biologics are subject to extensive pre- and post-market regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising and promotion of the products under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and its implementing regulations with respect to drugs and the Public Health Services Act and its implementing regulations with respect to biologics, and by comparable agencies in foreign countries. Failure to comply with applicable FDA or other requirements may result in civil or criminal penalties, recall or seizure of products, partial or total suspension of production or withdrawal of a product from the market.

The process required by the FDA before a new drug or biologic may be marketed in the United States is long, expensive, and inherently uncertain. We must complete preclinical laboratory and animal testing, submit an Investigational New Drug Application, which must become effective before United States clinical trials may begin, and perform adequate and well controlled human clinical trials to establish the safety and efficacy of the proposed drug or biologic for its intended use. Clinical trials are typically conducted in three sequential phases, which may overlap, and must satisfy extensive Good Clinical Practice regulations and informed consent regulations. Further, an independent institutional review board, or IRB, for each medical center or medical practice proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center or practice and must monitor the study until completed. The FDA, the IRB or the study

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sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, the Food and Drug Administration Amendments Act of 2007, or FDAAA, imposes certain clinical trial registry obligations on study sponsors, including the posting of detailed trial design and trial results in the FDA public databases.

We must submit a New Drug Application, or NDA, for a new drug, or a Biologics License Application, or BLA, for a biologic to the FDA, and the NDA or BLA must be reviewed and approved by the FDA before the drug or biologic may be legally marketed in the United States. To satisfy the criteria for approval, a NDA or BLA must demonstrate the safety and efficacy of the product based on results of preclinical studies and the three phases of clinical trials. Both NDAs and BLAs must also contain extensive manufacturing information, and the applicant must pass an FDA pre-approval inspection of the manufacturing facilities at which the drug or biologic is produced to assess compliance with the FDA’s current cGMPs prior to commercialization. Satisfaction of FDA pre-market approval requirements typically takes several years and the actual time required may vary substantially based on the type, complexity and novelty of the product, and we cannot be certain that any approvals for our products will be granted on a timely basis, or at all.

Once approved, the FDA may require post-marketing clinical studies, known as Phase IV studies, and surveillance programs to monitor the effect of approved products. The FDA may limit further marketing of the product based on the results of these post-market studies and programs. Further, any modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities, may require the submission of a new or supplemental NDA or BLA, which may require that we develop additional data or conduct additional preclinical studies and clinical trials.

The manufacture and distribution of drugs and biologics are subject to continuing regulation by the FDA, including recordkeeping requirements, reporting of adverse experiences associated with the drug, and cGMPs, which regulate all aspects of the manufacturing process and impose certain procedural and documentation requirements. Drug and biologic manufacturers and their subcontractors are required to register their establishments, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with regulation requirements. Further, the FDAAA, which went into law in 2007, provided the FDA with additional authority over post-market safety. The FDAAA permits the FDA to require sponsors to conduct post-approval clinical studies, to mandate labeling changes based on new safety information and to require sponsors to implement a REMS program. The FDA may require a sponsor to submit a REMS program before a product is approved, or after approval based on new safety information. A REMS program may include a medication guide, a patient package insert, a plan for communicating risks to health care providers or other elements that the FDA deems necessary to assure the safe use of the drug. If the manufacturer or distributor fails to comply with the statutory and regulatory requirements, or if safety concerns arise, the FDA may take legal or regulatory action, including civil or criminal penalties, suspension, withdrawal or delay in the issuance of approvals, or seizure or recall of products, any one or more of which could have a material adverse effect upon us.

The FDA imposes a number of complex regulatory requirements on entities that advertise and promote pharmaceuticals and biologics, including, but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities including Internet marketing. Drugs and biologics can only be marketed for approved indications and in accordance with the labeling approved by the FDA. Failure to comply with these regulations can result in penalties, including the issuance of warning letters directing a company to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and federal and state civil and criminal investigations and prosecutions. The FDA does not, however, regulate the behavior of physicians in their practice of medicine and choice of treatment. Physicians may prescribe (although manufacturers are not permitted to promote) legally available drugs and biologics for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties.

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We are also subject to various laws and regulations regarding laboratory practices, the housing, care and experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the FDA and Department of Justice have broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay our operations and issue approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect upon us.

Internationally, the regulation of drugs is also complex. In Europe, our products are subject to extensive regulatory requirements. As in the United States, the marketing of medicinal products has for many years been subject to the granting of marketing authorizations by the European Medicines Agency and national Ministries of Health. Particular emphasis is also being placed on more sophisticated and faster procedures for reporting adverse events to the competent authorities. The European Union procedures for the authorization of medicinal products are intended to improve the efficiency of operation of both the mutual recognition and centralized procedures to license medicines. Similar rules and regulations exist in all countries around the world. Additionally, new rules have been introduced or are under discussion in several areas, including the harmonization of clinical research laws and the law relating to orphan drugs and orphan indications. Outside the United States, reimbursement pricing is typically regulated by government agencies.

The total cost of providing health care services has been and will continue to be subject to review by governmental agencies and legislative bodies in the major world markets, including the United States, which are faced with significant pressure to lower health care costs. Legislation passed in recent years has imposed certain changes to the way in which pharmaceuticals, including our products, are covered and reimbursed in the United States. For instance, federal legislation and regulations have created a voluntary prescription drug benefit, Medicare Part D, and have imposed significant revisions to the Medicaid Drug Rebate Program. The recently enacted Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, collectively, the PPACA, imposes yet additional changes to these programs. Beginning in 2011, PPACA requires manufacturers to participate in a coverage gap discount program, under which they must agree to offer 50 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. PPACA also increases manufacturer’s rebate liability under the Medicaid Drug Rebate Program. In addition, the PPACA establishes annual, non-deductible fees on any entity that manufactures or imports certain branded prescription drugs and biologics, beginning in 2011, and a deductible excise tax on any entity that manufactures or imports certain medical devices offered for sale in the United States, beginning in 2013. Already in 2010, incremental rebates were levied for Medicaid and the 340B program was expanded to extend manufacturers’ rebate responsibilities for outpatient drugs to additional providers, including certain children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals. Finally, there is growing political pressure to allow the importation of pharmaceutical and medical device products from outside the United States. These reimbursement restrictions or other price reductions or controls or imports of pharmaceutical or medical device products from outside of the United States could materially and adversely affect our revenues and financial condition. Additionally, price reductions and rebates have recently been mandated in several European countries, principally Germany, Italy, Spain, the United Kingdom, Turkey and Greece. Certain products are also no longer eligible for reimbursement in France, Italy and Germany. Reference pricing is used in several markets around the world to reduce prices. Furthermore, parallel trade within the European Union, whereby products flow from relatively low-priced to high-priced markets, has been increasing.

We cannot predict the likelihood or pace of any significant regulatory or legislative action in these areas, nor can we predict whether or in what form health care legislation being formulated by various governments will be passed. Initiatives in these areas could subject Medicare and Medicaid reimbursement rates to change at any time. We cannot predict with precision what effect such governmental measures would have if they were ultimately enacted into law. However, in general, we believe that such legislative activity will likely continue.

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Medical Devices Segment

Medical devices are subject to regulation by the FDA, state agencies and foreign government health agencies. FDA regulations, as well as various U.S. federal and state laws, govern the development, clinical testing, manufacturing, labeling, record keeping and marketing of medical device products. Our medical device product candidates, including our breast implants, must undergo rigorous clinical testing and an extensive government regulatory clearance or approval process prior to sale in the United States and other countries. The lengthy process of clinical development and submissions for approvals, and the continuing need for compliance with applicable laws and regulations, require the expenditure of substantial resources. Regulatory clearance or approval, when and if obtained, may be limited in scope, and may significantly limit the indicated uses for which a product may be marketed. Approved products and their manufacturers are subject to ongoing review, and discovery of previously unknown problems with products may result in restrictions on their manufacture, sale, use or their withdrawal from the market.

Our medical device products are subject to extensive regulation by the FDA in the United States. Unless an exemption applies, each medical device we market in the United States must have a 510(k) clearance or a Premarket Approval, or PMA, application in accordance with the FFDCA and its implementing regulations. The FDA classifies medical devices into one of three classes, depending on the degree of risk associated with each medical device and the extent of controls that are needed to ensure safety and effectiveness. Devices deemed to pose a lower risk are placed in either Class I or Class II, which may require the manufacturer to submit to the FDA a premarket notification under Section 510(k) of the FFDCA requesting permission for commercial distribution. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or a device deemed to be not substantially equivalent to a previously cleared 510(k) device, are placed in Class III. In general, a Class III device cannot be marketed in the United States unless the FDA approves the device after submission of a PMA application. The majority of our medical device products, including our breast implants, are regulated as Class III medical devices.

When we are required to obtain a 510(k) clearance for a device we wish to market, we must submit a premarket notification to the FDA demonstrating that the device is “substantially equivalent” to a previously cleared 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA had not yet called for the submission of PMA applications. By regulation, the FDA is required to respond to a 510(k) premarket notification within 90 days after submission of the notification, although clearance can take significantly longer. If a device receives 510(k) clearance, any modification that could significantly affect its safety or efficacy, or that would constitute a major change in its intended use, design or manufacture requires a new 510(k) clearance or PMA approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination that a new clearance or approval is not required for a particular modification, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket approval is obtained.

In response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation of the program, and in January 2011, announced 25 actions that the FDA intends to implement during 2011 to reform the review process governing the clearance of medical devices. Key actions, to be carried out through forthcoming FDA guidance to industry, include clarifying when clinical data should be included in a premarket submission and requiring medical device manufacturers to submit a brief description of scientific information regarding safety and effectiveness for select higher-risk devices. The FDA intends these reform actions to improve the efficiency and transparency of the clearance process, as well as bolster patient safety. The FDA has submitted additional proposed actions to the Institute of Medicine, or IOM, for review and may implement further 510(k) reform measures in the future. We cannot predict the impact that these regulatory actions and FDA’s forthcoming guidance will have on the clearance of any new or modified medical device products that are currently pending FDA review or that we may develop in the future.

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A PMA application must be submitted if the device cannot be cleared through the 510(k) process. The PMA process is much more demanding than the 510(k) clearance process. A PMA application must be supported by extensive information, including data from preclinical and clinical trials, sufficient to demonstrate to the FDA’s satisfaction that the device is safe and effective for its intended use. The FDA, by statute and regulation, has 180 days to review and accept a PMA application, although the review generally occurs over a significantly longer period of time, and can take up to several years. The FDA may also convene an advisory panel of experts outside the FDA to review and evaluate the PMA application and provide recommendations to the FDA as to the approvability of the device. New PMA applications or supplemental PMA applications are required for significant modifications to the manufacturing process, labeling and design of a medical device that is approved through the PMA process. PMA supplements require information to support the changes and may include clinical data.

A clinical trial is almost always required to support a PMA application and is sometimes required for a 510(k) premarket notification. As noted above, the FDA intends to clarify when clinical data should be included in 510(k) premarket submissions. Clinical trials generally require submission of an application for an investigational device exemption, which must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound, as well as approval by the FDA and the IRB overseeing the trial. In addition, the FDAAA imposes certain clinical trial registry obligations on study sponsors. We, the FDA or the IRB at each site at which a clinical trial is being performed may suspend a clinical trial at any time for various reasons, including a belief that the study subjects are being exposed to an unacceptable health risk. The results of clinical testing may not be sufficient to obtain approval of the product.

After a device is placed on the market, numerous regulatory requirements apply. These include:

The FDA imposes a number of complex regulatory requirements on entities that advertise and promote medical devices, including, but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities including Internet marketing. Medical devices can only be marketed for indications approved or cleared by the FDA. Failure to comply with these regulations can result in penalties, the issuance of warning letters directing a company to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and federal and state civil and criminal investigations and prosecutions. The FDA does not, however, regulate physicians in their practice of medicine and choice of treatment. Physicians may prescribe (although manufacturers are not permitted to promote) legally available devices for uses that are not described in the product’s labeling and that differ from those tested by us and approved or cleared by the FDA. Such off-label uses are common across medical specialties.

A Class III device may have significant additional obligations imposed in its conditions of approval. Compliance with regulatory requirements is assured through periodic, unannounced facility inspections by the

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FDA and other regulatory authorities, and these inspections may include the manufacturing facilities of our subcontractors or other third party manufacturers. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: warning letters or untitled letters; fines, injunctions and civil penalties; recall or seizure of our products; operating restrictions, partial suspension or total shutdown of production; refusing our request for 510(k) clearance or PMA approval of new products; withdrawing 510(k) clearance or PMAs that are already granted; and criminal prosecution.

Products that are marketed in the European Union, or EU, must comply with the requirements of the Medical Device Directive, or MDD, as implemented in the national legislation of the EU member states. The MDD, as implemented, provides for a regulatory regime with respect to the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices to ensure that medical devices marketed in the EU are safe and effective for their intended uses. Medical devices that comply with the MDD, as implemented, are entitled to bear a CE marking and may be marketed in the EU. Medical device laws and regulations similar to those described above are also in effect in many of the other countries to which we export our products. These range from comprehensive device approval requirements for some or all of our medical device products to requests for product data or certifications. Failure to comply with these domestic and international regulatory requirements could affect our ability to market and sell our products in these countries.

Medical devices are also subject to review by governmental agencies and legislative bodies in the major world markets, including the United States, which are faced with significant pressure to lower health care costs. Governments may delay reimbursement decisions after a device has been approved by the appropriate regulatory agency, impose rebate obligations or restrict patient access. In the United States, as mentioned in the previous section, the PPACA includes a number of provisions affecting the device industry, such as a new deductible excise tax on any entity that manufactures or imports certain medical devices offered for sale in the United States, beginning in 2013. In addition, among other things, the PPACA also establishes a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research. We expect that the PPACA, as well as other health care reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and our ability to successfully commercialize our products or could limit or eliminate our spending on certain development projects.

Other Regulations

We are subject to federal, state, local and foreign environmental laws and regulations, including the U.S. Occupational Safety and Health Act, the U.S. Toxic Substances Control Act, the U.S. Resource Conservation and Recovery Act, Superfund Amendments and Reauthorization Act, Comprehensive Environmental Response, Compensation and Liability Act and other current and potential future federal, state or local regulations. Our manufacturing and research and development activities involve the controlled use of hazardous materials, chemicals and biological materials, which require compliance with various laws and regulations regarding the use, storage and disposal of such materials. We cannot assure you, however, that environmental problems relating to properties owned or operated by us will not develop in the future, and we cannot predict whether any such problems, if they were to develop, could require significant expenditures on our part. In addition, we are unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal.

Additionally, we are subject to domestic and international laws and regulations pertaining to the privacy and security of personal health information, including but not limited to the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, collectively, HIPAA. HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions (e.g., health care claims information and plan eligibility, referral certification and authorization, claims status, plan enrollment, coordination of benefits and related information), as well as standards relating to the privacy and security of

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individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent then HIPAA.

We are also subject to various federal and state laws pertaining to health care “fraud and abuse” and gifts to health care practitioners. For example, the federal Anti-Kickback Statute makes it illegal to solicit, offer, receive or pay any remuneration, directly or indirectly, in cash or in kind, in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular product, for which payment may be made under government health care programs such as Medicare and Medicaid. The U.S. federal government has published regulations that identify “safe harbors” or exemptions for certain practices from enforcement actions under the Anti-Kickback Statute. We seek to comply with the safe harbors where possible. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent health care reform legislation has strengthened these laws. For example, the PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes.

Furthermore, the federal False Claims Act prohibits anyone from, among other things, knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid), claims for reimbursed products or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. HIPAA prohibits executing a scheme to defraud any health care benefit program or making false statements relating to health care matters. In addition, many states have adopted laws similar to the federal fraud and abuse laws discussed above, which, in some cases, apply to all payors whether governmental or private. Our activities, particularly those relating to the sale and marketing of our products, may be subject to scrutiny under these and other laws. In the third quarter of 2010, we entered into a five-year corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services as part of our settlement agreement with the U.S. Attorney, U.S. Department of Justice for the Northern District of Georgia and other federal agencies regarding our alleged sales and marketing practices in connection with certain therapeutic uses of Botox ^® . Failure to comply with the terms of the corporate integrity agreement could result in substantial civil or criminal penalties and being excluded from government health care programs. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid).

Some states, such as California, Massachusetts and Vermont, mandate implementation of commercial compliance programs to ensure compliance with these laws. Under California law, pharmaceutical companies must adopt a comprehensive compliance program that is in accordance with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers, or OIG Guidance, and the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals, or the PhRMA Code. The PhRMA Code seeks to promote transparency in relationships between health care professionals and the pharmaceutical industry and to ensure that pharmaceutical marketing activities comport with the highest ethical standards. The PhRMA Code contains strict limitations on certain interactions between health care professionals and the pharmaceutical industry relating to gifts, meals, entertainment and speaker programs, among others. Similarly, the Advanced Medical Technology Association’s Revised Code of Ethics, or the AdvaMed Code, also seeks to ensure that medical device companies and health care professionals have collaborative relationships that meet high ethical standards, that medical decisions are based on the best interests of patients, and that medical device companies and health care professionals comply with applicable laws, regulations and government guidance. To that end, the AdvaMed Code provides guidance regarding how medical device companies may comply with certain aspects of the anti-kickback laws and OIG Guidance by outlining

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ethical standards for interactions with health care professionals. In addition, certain states, such as Massachusetts and Minnesota, have also imposed restrictions on the types of interactions that pharmaceutical and medical device companies or their agents (e.g., sales representatives) may have with health care professionals, including bans or strict limitations on the provision of meals, entertainment, hospitality, travel and lodging expenses, and other financial support, including funding for continuing medical education activities.

Patents, Trademarks and Licenses

We own, or have licenses under, numerous U.S. and foreign patents relating to our products, product uses and manufacturing processes. We believe that our patents and licenses are important to all segments of our business.

With the exception of the U.S. and European patents relating to Lumigan ^® , Lumigan ^® 0.01%, Alphagan ^® P 0.15%, Alphagan ^® P 0.1% , Combigan ^® , Ganfort ^™ and the U.S. patents relating to Restasis ^® , Zymaxid ^® , Acuvail ^® , Lastacaft ^™ and Latisse ^® , no one patent or license is materially important to our specialty pharmaceuticals segment. The U.S. patents covering Lumigan ^® 0.03% expire in 2012 and 2014. The European patents covering Lumigan ^® 0.03% expire in various countries between 2013 and 2017. The U.S. marketing exclusivity for Lumigan ^® 0.01% expires in August 2013. The U.S. patents covering Lumigan ^® 0.01% expire in 2012, 2014 and 2027. The European patents covering Lumigan ^® 0.01% expire between 2013 and 2017, and 2026. The U.S. patents covering the commercial formulations of Alphagan ^® P 0.15%, and Alphagan ^® P 0.1% expire in 2012 and 2022. The U.S. patent covering Restasis ^® expires in 2014. One U.S. patent covering Zymar ^® and Zymaxid ^® expired in 2010, and the other U.S. patents covering Zymar ^® and Zymaxid ^® expire in 2016 and 2020. The U.S. patents covering Combigan ^® expire in 2022 and 2023. The marketing exclusivity period for Combigan ^® in the United States expired in October 2010 and expires in Europe in 2015. The European patents covering Ganfort ^™ expire in 2013 and 2022. The marketing exclusivity period for Acuvail ^® expires in the United States in July 2012. The U.S. patent covering Acuvail ^® expires in 2029. The U.S. patents covering Latisse ^® expire in 2012, 2022 and 2024 and the European patents expire in 2013, 2021 and 2023. The marketing exclusivity period for Latisse ^® expires in December 2011.

We have rights in well over 100 issued Botox ^® related U.S. and European use and process patents covering, for example, pain associated with cervical dystonia, treatment of chronic migraine, hyperhidrosis, OAB and benign prostatic hyperplasia. We have granted royalty-bearing patent licenses to Merz with regard to Xeomin ^® in many countries where we have issued or pending patents and to US Worldmeds with regard to MyoBloc ^® / Neurobloc ^® .

With the exception of certain U.S. and European patents relating to the Lap-Band ^® System and our Inspira ^® and Natrelle ^® Collection of breast implants, no one patent or license is materially important to our specialty medical device segment based on overall sales. The patents covering our Lap-Band ^® System, some of which we license from third parties, expire in June 2011, 2014 and 2024 in the United States and in 2014 and 2023 in Europe. The patents covering our Inspira ^® and Natrelle ^® Collection of breast implants expire in 2018 in the United States and in 2017 in Europe.

Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets and other proprietary technologies and processes, operate without infringing upon the proprietary rights of others, and prevent others from infringing on our patents, trademarks, service marks and other intellectual property rights. Upon the expiration or loss of patent protection for a product, we can lose a significant portion of sales of that product in a very short period of time as other companies manufacture generic forms of our previously protected product at lower cost, without having had to incur significant research and development costs in formulating the product. In addition, the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent. It is impossible to anticipate the breadth or degree of protection that any such patents will afford, or that any such patents will not be successfully challenged in the future. Accordingly, our patents may not prevent other companies from developing substantially identical products. Hence, if our patent

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applications are not approved or, even if approved, such patents are circumvented, our ability to competitively exploit our patented products and technologies may be significantly reduced. Also, such patents may or may not provide competitive advantages for their respective products, in which case our ability to commercially exploit these products may be diminished.

Third parties may challenge, invalidate or circumvent our patents and patent applications relating to our products, product candidates and technologies. Challenges may result in significant harm to our business. The cost of responding to these challenges and the inherent costs to defend the validity of our patents, including the prosecution of infringements and the related litigation, can require a substantial commitment of our management’s time, require us to incur significant legal expenses and can preclude or delay the commercialization of products. See Item 3 of Part I of this report, “Legal Proceedings,” for information concerning our current intellectual property litigation.

From time to time, we may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such products may be inhibited or prevented. See Item 1A of Part I of this report, “Risk Factors.”

We market our products under various trademarks, for which we have both registered and unregistered trademark protection in the United States and certain countries outside the United States. We consider these trademarks to be valuable because of their contribution to the market identification of our products and we regularly prosecute third party infringers of our trademarks in an attempt to limit confusion in the marketplace. Any failure to adequately protect our rights in our various trademarks and service marks from infringement could result in a loss of their value to us. If the marks we use are found to infringe upon the trademark or service mark of another company, we could be forced to stop using those marks and, as a result, we could lose the value of those marks and could be liable for damages caused by infringing those marks. In addition to intellectual property protections afforded to trademarks, service marks and proprietary know-how by the various countries in which our proprietary products are sold, we seek to protect our trademarks, service marks and proprietary know-how through confidentiality agreements with third parties, including our partners, customers, employees and consultants. These agreements may be breached or become unenforceable, and we may not have adequate remedies for any such breach. It is also possible that our trade secrets will become known or independently developed by our competitors, resulting in increased competition for our products.

In addition, we are currently engaged in various collaborative ventures for the development, manufacturing and distribution of current and new products. These projects include, but are not limited to, the following:

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In 2004, through our acquisition of Inamed, we entered into a settlement agreement with Ethicon Endo-Surgery, Inc. pursuant to which, among other terms, we were granted a worldwide, royalty-bearing, non-exclusive license with respect to a portfolio of U.S. and international patents applicable to adjustable gastric bands and will pay royalties until the expiry of the applicable patents.

We are also a party to license agreements allowing other companies to manufacture products using some of our technology in exchange for royalties and other compensation or benefits. See “Research and Development” for additional information concerning our current license agreements.

Environmental Matters

We are subject to federal, state, local and foreign environmental laws and regulations. We believe that our operations comply in all material respects with applicable environmental laws and regulations in each country where we have a business presence. We also pride ourselves on our comprehensive and successful environmental, health and safety programs and performance against internal objectives. We have been recognized many times for superior environmental health and safety performance.

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Although we continue to make capital expenditures for environmental protection, we do not anticipate any expenditures in order to comply with such laws and regulations that would have a material impact on our earnings or competitive position. We are not aware of any pending litigation or significant financial obligations arising from current or past environmental practices that are likely to have a material adverse effect on our financial position. We cannot assure you, however, that environmental problems relating to properties owned or operated by us will not develop in the future, and we cannot predict whether any such problems, if they were to develop, could require significant expenditures on our part. In addition, we are unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal.

Seasonality

Our business, both taken as a whole and by our business segments, is not materially affected by seasonal factors, although we have noticed a historical trend with respect to sales of our Botox ^® product. Specifically, sales of Botox ^® have tended to be lowest during the first fiscal quarter, with sales during the second and third fiscal quarters being comparable and marginally higher than sales during the first fiscal quarter. Botox ^® sales during the fourth fiscal quarter have tended to be the highest due to patients obtaining their final therapeutic treatment at the end of the year, presumably to fully utilize deductibles and to receive additional aesthetic treatments prior to the holiday season. Breast augmentation surgery has a seasonal highpoint in spring prior to summer vacations.

Third Party Coverage and Reimbursement

Health care providers generally rely on third-party payors, including governmental payors such as Medicare and Medicaid, and private insurance carriers, to adequately cover and reimburse the cost of pharmaceuticals and medical devices. Such third-party payors are increasingly challenging the price of medical products and services and instituting cost containment measures to control, restrict access or significantly influence the purchase of medical products and services. The market for some of our products therefore is influenced by third-party payors’ policies. This includes the placement of our pharmaceutical products on drug formularies or lists of medications.

Purchases of aesthetic products and procedures using those products generally are not covered by third-party payors, and consequently patients incur out-of-pocket costs for such products and associated procedures. This includes breast aesthetics products for augmentation and facial aesthetics products. Since 1998, however, U.S. federal law has mandated that group health plans, insurance companies and health maintenance organizations offering mastectomy coverage must also provide coverage for reconstructive surgery following a mastectomy, which includes coverage for breast implants. Outside the United States, reimbursement for breast implants used in reconstructive surgery following a mastectomy may be available, but the programs vary on a country by country basis.

Furthermore, treatments for obesity alone may not be covered by third-party payors. For example, in 2006, Medicare began covering certain designated bariatric surgical services, including gastric bypass surgery and procedures using the Lap-Band ^® System, for Medicare patients who have previously been unsuccessfully treated for obesity and who have a BMI equal to or greater than 40 or a BMI of 35 when at least one co-morbidity is present. However, the policy reiterates that treatments for obesity alone are not covered, because such treatments are not considered reasonable and necessary. Without changing current coverage for morbidly obese individuals, effective February 12, 2009, the Centers for Medicare & Medicaid Services, or CMS, the agency responsible for implementing the Medicare program, determined that Type 2 diabetes mellitus is a co-morbid condition related to obesity under the existing policies. While Medicare policies are sometimes adopted by other third-party payors, other governmental and private insurance coverage currently varies by carrier and geographic location, and we actively work with governmental agencies, insurance carriers and employers to obtain reimbursement

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coverage for procedures using our Lap-Band ^® System product. For instance, the Technology Evaluation Center of the Blue Cross/Blue Shield National Association provided a positive assessment of the Lap-Band ^® System, an important step in providing private payor reimbursement for the procedure.

Outside the United States, reimbursement programs vary on a country by country basis. In some countries, both the procedure and product are fully reimbursed by the government health care systems for all citizens who need it, and there is no limit on the number of procedures that can be performed. In other countries, there is complete reimbursement but the number of procedures that can be performed at each hospital is limited either by the hospital’s overall budget or by the national budget for the type of product.

In the United States, there have been and continue to be a number of legislative initiatives to contain health care coverage and reimbursement by governmental and other payors. For example, in March 2010, the President of the United States signed the PPACA, which substantially changes the way health care is financed by both governmental and private insurers, subjects biologic products to potential competition by lower-cost “biosimilars,” and significantly impacts the U.S. pharmaceutical and medical device industries. Among other things, the PPACA:

The PPACA provisions on comparative clinical effectiveness research extend the initiatives of the American Recovery and Reinvestment Act of 2009, also known as the stimulus package, which included $1.1 billion in

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funding to study the comparative effectiveness of health care treatments and strategies. This funding was designated for, among other things, conducting, supporting or synthesizing research that compares and evaluates the risk and benefits, clinical outcomes, effectiveness and appropriateness of products. Although Congress has indicated that this funding is intended to improve the quality of health care, it remains unclear how the research will impact current Medicare coverage and reimbursement or how new information will influence other third-party payor policies. Though there have been initiatives to rescind the PPACA, we expect that its legislative measures, as well as other health care reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and our ability to successfully commercialize our products or could limit or eliminate our spending on certain development projects.

Breast Implant Replacement Programs

We conduct our product development, manufacturing, marketing and service and support activities with careful regard for the consequences to patients. As with any medical device manufacturer, however, we receive communications from surgeons or patients with respect to our various breast implant products claiming the products were defective, lost volume or have resulted in injury to patients. In the event of a loss of shell integrity resulting in breast implant rupture or deflation that requires surgical intervention with respect to our breast implant products sold and implanted in the United States, in most cases our ConfidencePlus ^® programs provide lifetime product replacement, contralateral implant product replacement and some financial assistance for surgical procedures required within ten years of implantation. Breast implants sold and implanted outside of the United States are subject to a similar program. We do not warrant any level of aesthetic result and, as required by government regulation, make extensive disclosure concerning the risks of our products and implantation surgery.

Employee Relations

At December 31, 2010, we employed approximately 9,200 persons throughout the world, including approximately 4,600 in the United States. None of our U.S.-based employees are represented by unions. We believe that our relations with our employees are generally good.