<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


--------------------------------------------------------------------------------
 (Mark One)

    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

 For the quarterly period ended June 30, 1999...........................

                                       OR

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

--------------------------------------------------------------------------------


                          COMMISSION FILE NUMBER
                                0-23641

                      ALLERGAN SPECIALTY THERAPEUTICS, INC.

A DELAWARE CORPORATION                            IRS EMPLOYER IDENTIFICATION
                                                           33-0779207

                   2525 DUPONT DRIVE, IRVINE, CALIFORNIA 92612

                          TELEPHONE NUMBER 714/246-4500


Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

 (1)   X   yes          no
     ------       ------
 (2)   X   yes          no
     ------       ------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

As of July 30, 1999, there were 3,272,690 shares of callable Class A common
stock outstanding, and 1,000 shares of Class B common stock outstanding.



<PAGE>   2

                      ALLERGAN SPECIALTY THERAPEUTICS, INC.

                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999


                                      INDEX


<TABLE>
<CAPTION>

                                                                      Page
<S>                                                                   <C>
PART I - FINANCIAL INFORMATION

    ITEM 1 - FINANCIAL STATEMENTS

               Condensed Statements of Operations                       3

               Condensed Balance Sheets                                 4

               Condensed Statements of Cash Flows                       5

               Notes to Condensed Financial Statements               6-12

    ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS                  13-17

    ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
               ABOUT MARKET RISK                                       18

             CERTAIN FACTORS AND TRENDS AFFECTING ALLERGAN
               SPECIALTY THERAPEUTICS, INC. AND ITS BUSINESSES      19-20


PART II - OTHER INFORMATION

    ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
               SECURITY HOLDERS                                        21

    ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                          21

Signature                                                              22

Exhibits
</TABLE>



                                       2


<PAGE>   3

PART I - FINANCIAL INFORMATION


                      Allergan Specialty Therapeutics, Inc.
                          (a development stage company)

                       Condensed Statements of Operations
                                   (unaudited)

                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                                                                     Inception
                                                                                                                (November 12, 1997)
                                                    Quarter Ended                    Six Months Ended                    to
                                                      June 30,                           June 30,                      June 30,
                                               1999              1998              1999              1998               1999
                                               ----              ----              ----              ----               ----
<S>                                          <C>                <C>             <C>                <C>                <C>
Revenues                                     $  2,342           $ 2,791         $  4,492           $  3,508           $ 13,535

Costs and expenses:
     Research and
       development                             11,957             6,516           22,646             16,128             58,532
     Technology fees                            1,375             1,375            2,750              3,770              9,270
     General and
       administrative                             327               115              611                130              1,544
                                             --------           -------         --------           --------           --------

     Total costs and
       expenses                                13,659             8,006           26,007             20,028             69,346
                                             --------           -------         --------           --------           --------

Loss before income
  taxes                                       (11,317)           (5,215)         (21,515)           (16,520)           (55,811)
Provision for taxes                               874               922            1,475                922              3,987
                                             --------           -------         --------           --------           --------

Net loss                                     $(12,191)          $(6,137)        $(22,990)          $(17,442)          $(59,798)
                                             ========           =======         ========           ========           ========

Basic and diluted
  loss per share                             $  (3.72)          $ (1.87)        $  (7.02)          $  (5.33)          $ (18.27)
                                             ========           =======         ========           ========           ========

Basic and diluted
  shares outstanding                        3,273,690         3,273,690        3,273,690          3,273,690          3,273,690

</TABLE>






See accompanying notes to condensed financial statements.



                                       3

<PAGE>   4

                      Allergan Specialty Therapeutics, Inc.
                          (a development stage company)

                            Condensed Balance Sheets
                                   (unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                             June 30,              December 31,
                                              1999                     1998
                                              ----                     ----
<S>                                          <C>                    <C>
                                     ASSETS

Cash                                         $     65                $     --
Investments                                   132,888                 158,667
Prepaid technology fees                         5,323                   4,723
Other assets                                    2,228                   1,747
                                             --------                --------

                                             $140,504                $165,137
                                             ========                ========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

 Liabilities:
        Payable to Allergan, Inc.            $  4,138                $  4,509
        Accounts payable and
          accrued liabilities                      26                     295
                                             --------                --------

                 Total liabilities              4,164                   4,804


 Stockholders' equity:
        Callable Class A Common stock,
          $.01 par value; 6,000,000 shares
          authorized, 3,272,690 issued
          and outstanding                          33                      33
        Class B Common stock,
          $1.00 par value; 1,000 shares
          authorized, issued and outstanding        1                       1
        Additional paid-in capital            196,753                 196,753
        Accumulated other comprehensive
          (loss)/income                          (649)                    354
        Deficit accumulated during
          development stage                   (59,798)                (36,808)
                                             --------                --------

                 Total stockholders' equity   136,340                 160,333
                                             --------                --------

                                             $140,504                $165,137
                                             ========                ========
</TABLE>

See accompanying notes to condensed financial statements.


                                       4


<PAGE>   5

                      Allergan Specialty Therapeutics, Inc.
                          (a development stage company)

                       Condensed Statements of Cash Flows
                                   (unaudited)

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                             Inception
                                                                        (November 12, 1997)
                                                   Six Months Ended              to
                                                       June 30,               June 30,
                                                  1999           1998           1999
                                                  ----           ----           ----
<S>                                            <C>            <C>            <C>
OPERATING ACTIVITIES:
        Net loss                               $ (22,990)     $ (17,442)     $ (59,798)
        Noncash item included in net loss:
                 Deferred income tax                (335)            --         (1,017)
        Changes in operating assets
          and liabilities:
                 Other assets                        301           (522)          (764)
                 Prepaid technology fees            (600)        (3,085)        (5,323)
                 Payable to Allergan, Inc.          (371)         3,377          4,138
                 Accounts payable and
                   accrued liabilities                 3            996             26
                                               ---------      ---------      ---------

                 Net cash used in
                   operating activities          (23,992)       (16,676)       (62,738)

INVESTING ACTIVITIES:
        Purchases of investments                  (4,373)      (180,038)      (191,524)
        Sales and maturities of
          investments                             28,430             --         57,540
                                               ---------      ---------      ---------

                 Net cash provided by/
                   (used in) investing
                   activities                     24,057       (180,038)      (133,984)

FINANCING ACTIVITIES:
        Issuance of common stock                      --        200,000        200,001
        Offering costs                                --         (3,215)        (3,214)
                                               ---------      ---------      ---------

                 Net cash provided by
                   financing activities               --        196,785        196,787
                                               ---------      ---------      ---------

Net increase in cash                                  65             71             65

Cash - beginning of period                            --              1             --
                                               ---------      ---------      ---------

Cash - end of period                           $      65      $      72      $      65
                                               =========      =========      =========

Supplemental disclosure of cash
  paid for taxes                               $   1,772      $     431      $   5,018
                                               =========      =========      =========

</TABLE>



See accompanying notes to condensed financial statements.




                                       5


<PAGE>   6

Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

1. Basis of Presentation and Significant Accounting Policies

   Allergan Specialty Therapeutics, Inc. ("ASTI" or "the Company") was
   incorporated in Delaware on November 12, 1997 and commenced operations on
   March 10, 1998. ASTI was formed for the purpose of conducting research and
   development of potential human pharmaceutical products, and to commercialize
   such products, most likely through licensing to Allergan, Inc. (Allergan).

   The Company is subject to risks associated with development stage companies.
   All of the Company's efforts to date have been limited to obtaining capital
   and conducting research and development. The Company does not yet generate
   any revenues from product sales or royalties. Research and development is
   performed by Allergan and the costs incurred are reimbursed by ASTI.

   The accompanying financial statements at June 30, 1999, December 31, 1998,
   for the quarter and six month periods ended June 30, 1999 and 1998 and for
   the period from inception to June 30, 1999 are unaudited, and in the opinion
   of management, include all adjustments (consisting only of normal recurring
   accruals) necessary to present fairly the financial information contained
   therein. These statements do not include all disclosures required by
   generally accepted accounting principles. The results of operations for the
   period ended June 30, 1999 and for the period from inception (November 12,
   1997) to June 30, 1999 are not necessarily indicative of the results to be
   expected for the year ending December 31, 1999.

   Accounting for revenues and expenses

   ASTI's revenues consist of interest and investment income and Pre-Selection
   Product Payments (see Note 2). In later years ASTI may also derive revenues
   from the sale or license of its products, most likely through the sale of
   licensed products by Allergan. Royalty and other product revenue will be
   recorded as earned.

   ASTI incurs most of its expenses under its agreements with Allergan. Research
   and development costs paid to Allergan under a Research and Development
   Agreement (R&D Agreement) are recorded as research and development expenses
   when incurred. Technology fees paid to Allergan under a Technology License
   Agreement (Technology Agreement) are recorded as technology fees on a
   straight-line basis over the life of the Technology Agreement. Amounts paid
   to Allergan under a Services Agreement are recorded as administrative
   expenses as incurred. See Note 2 for a description of the agreements between
   ASTI and Allergan.




                                       6

<PAGE>   7
Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

1. Basis of Presentation and Significant Accounting Policies (Continued)

   Use of estimates

   The preparation of financial statements in accordance with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the amounts reported in the financial statements and accompanying
   notes. Actual results could differ from those estimates.

   The Company invests its excess cash in money market funds, equity securities
   and debt instruments of financial institutions and corporations with strong
   credit ratings. The Company has established guidelines with respect to
   diversification and maturities in order to maintain safety and liquidity. At
   June 30, 1999, all excess cash amounting to $132,888,000 was invested
   primarily in debt securities. ASTI classifies investments as
   available-for-sale securities with net unrealized gains or losses as a
   component of other comprehensive income. Amounts classified as investments
   are liquidated and used to pay operating expenses as needed.

   Per share information

   Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
   Share," (EPS) requires calculations for "basic earnings per share" including
   only actual weighted shares outstanding and "diluted earnings per share"
   including the effect of any common equivalent shares or other items that are
   dilutive. The Company has no common equivalent shares or other items that are
   dilutive. The reconciliations of the numerators and denominators of the basic
   and diluted loss per share computations for the quarter and six month periods
   ended June 30, 1999 and 1998 and for the period from inception to June 30,
   1999 are as follows:

<TABLE>
<CAPTION>
                                                                                             Inception
                               Quarter Ended                    Six Months Ended         (November 12, 1997)
                                  June 30,                          June 30,                 to June 30,
                            1999            1998             1999             1998              1999
                            ----            ----             ----             ----              ----
<S>                    <C>              <C>              <C>              <C>             <C>
Loss during period
(in thousands)         $   (12,191)     $    (6,137)     $   (22,990)     $   (17,442)     $   (59,798)

Basic and
diluted shares
outstanding              3,273,690        3,273,690        3,273,690        3,273,690        3,273,690

Per share loss
during period               $(3.72)          $(1.87)          $(7.02)          $(5.33)         $(18.27)
</TABLE>

Reclassifications

   Certain reclassifications have been made to prior periods in order to conform
   with current period presentation.



                                       7


<PAGE>   8

Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

2. Arrangements with Allergan, Inc.

   On March 10, 1998, 3,272,690 shares of callable Class A Common Stock of ASTI,
   representing all of the issued and outstanding shares of such class, were
   distributed by Allergan to the holders of record of Allergan common stock at
   the close of business on February 17, 1998 (the "Distribution"). Prior to the
   Distribution, Allergan contributed $200,000,000 in cash to ASTI in exchange
   for all of the shares of ASTI Common Stock.

   On March 10, 1998, 1,000 shares of Class B Common Stock of ASTI, representing
   all of the issued and outstanding shares of such class, were issued to
   Allergan. As sole holder of all of the issued and outstanding shares of Class
   B Common Stock, Allergan has the option to repurchase all of the outstanding
   Class A Common Stock under specified conditions.

   In connection with the Distribution, ASTI and Allergan entered into a number
   of agreements, including the R&D Agreement, Technology Agreement, Services
   Agreement and License Option Agreement (License Agreement).

   Research and development costs are comprised of costs incurred pursuant to
   the R&D Agreement with Allergan and R&D Collaborations. The components of the
   research and development costs for the quarter and six month periods ended
   June 30, 1999 and 1998 and for the period from inception to June 30, 1999 are
   as follows:

<TABLE>
<CAPTION>
                                                                  Inception
                      Quarter Ended         Six Months Ended   (November 12, 1997)
                        June 30,                June 30,          to June 30,
                    1999         1998       1999         1998        1999
                    ----         ----       ----         ----        ----
<S>                <C>        <C>          <C>         <C>         <C>
(in thousands)

R&D Agreement
with Allergan      $11,082     $ 6,266     $20,896     $14,653     $55,307

R&D
Collaborations         875         250       1,750       1,475       3,225
                   -------     -------     -------     -------     -------

                   $11,957     $ 6,516     $22,646     $16,128     $58,532
                   =======     =======     =======     =======     =======
</TABLE>

   There were two existing R&D Collaborations for both six month periods ended
   June 30, 1999 and 1998.

   From time to time in the future, Allergan shall propose work plans, subject
   to ASTI board approval, for the continued development of each ASTI Product as
   well as other product candidates. ASTI is required to utilize the cash
   initially contributed to ASTI by Allergan plus interest




                                       8


<PAGE>   9

Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

2. Arrangements with Allergan, Inc. (Continued)

   and investment income thereon, less administrative expenses and technology
   fees to conduct activities under the R&D Agreement. The R&D Agreement
   specifies payment of Developed Technology Royalties and Pre-Selection Product
   Payments by Allergan to ASTI under certain conditions. Through June 30, 1999,
   no amounts have been earned by ASTI with respect to Developed Technology
   Royalties.

   In July 1998, Allergan entered into a multi-year research and development
   collaboration with Parke-Davis Pharmaceutical Research Division of
   Warner-Lambert Company to identify, develop and commercialize up to two RXR
   subtype selective retinoid compounds for the treatment of metabolic diseases,
   including adult onset diabetes, insulin resistant syndromes and dyslipidemias
   (Collaboration Agreement). The technologies involved in the collaboration
   were previously licensed by ASTI from Allergan pursuant to the Technology
   Agreement. In accordance with a letter agreement between Allergan and ASTI,
   ASTI is entitled to receive Pre-Selection Product Payments representing ten
   percent of the potential $104 million in technology access fees and
   development milestones to be received by Allergan pursuant to Allergan's
   agreement with Warner-Lambert. For the quarter and six month period ended
   June 30, 1999, ASTI earned $400,000 of Pre-Selection Product Payments in
   accordance with the letter agreement. For the period from inception to June
   30, 1999, ASTI earned $900,000. Such amounts are included in revenues in the
   accompanying condensed statement of operations. There were no Pre-Selection
   Product Payments earned for the quarter or six months ended June 30, 1998. In
   addition, ASTI is entitled to royalties on net sales of developed products,
   depending on actual lead compound selection and sales results.

   Subject to certain limitations, the Technology Agreement grants ASTI an
   exclusive license to research and develop all of Allergan's proprietary and
   contractual rights with respect to certain retinoid and neuroprotective
   technologies. As consideration for the exclusive license, ASTI will pay a
   technology fee of $10,000,000 in year one; $6,700,000 in year two; $3,300,000
   in year three; and $2,000,000 in year four commencing October 24, 1997. The
   technology fee is charged to operations on a straight-line basis over the
   life of the Technology Agreement. The technology fee is payable monthly in
   arrears provided, however, that ASTI shall no longer be obligated to make
   such payments beginning with any month following the date on which the total
   number of ASTI Products either under development or licensed to Allergan
   pursuant to the License Agreement is less than two. From Period of Inception
   through June 30, 1999, ASTI paid $14,593,000 in technology fees, of which
   $5,323,000 is included in prepaid technology fees in the accompanying
   condensed balance sheet.


                                       9

<PAGE>   10

Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

2. Arrangements with Allergan, Inc. (Continued)

   ASTI has granted Allergan an option to acquire a license to each product
   developed under the R&D Agreement, including the Initial Products on a
   country-by-country basis at any time until (a) with respect to the United
   States, 30 days after clearance by the FDA to commercially market such ASTI
   Product and (b) with respect to any other country, 90 days after the earlier
   of (i) clearance by the appropriate regulatory agency to commercially market
   the product and (ii) clearance by the FDA to market the product in the United
   States.

   Upon exercise of the license option, Allergan will make Product Payments to
   ASTI as defined in the R&D Agreement. Through June 30, 1999, no license
   option has been exercised. The license option will expire to the extent not
   previously exercised, 30 days after the expiration of Allergan's option to
   purchase all of the outstanding ASTI Shares, described below.

   In accordance with ASTI's Restated Certificate of Incorporation, Allergan has
   the right to purchase all (but not less than all) of the ASTI Class A Common
   Stock (the "Purchase Option"). Allergan may exercise the Purchase Option by
   written notice to ASTI at any time during the period beginning immediately
   after the Distribution and ending on December 31, 2002; provided that such
   date will be extended for successive six month periods if, as of June 30,
   2001, ASTI has not paid or accrued expenses for at least 95% of all Available
   Funds, as defined, pursuant to the R&D Agreement. In any event, the Purchase
   Option will expire 90 days after Allergan receives notice that the Available
   Funds (as defined in the R&D Agreement) held by ASTI is less than $15
   million. Through June 30, 1999, Allergan has not exercised the Purchase
   Option.

   If the Purchase Option is exercised, the exercise price will be the greatest
   of: (a) (i) 25 times the aggregate of (1) all worldwide payments with respect
   to all Licensed Products, Developed Technology Products and Pre-Selection
   Products for the four calendar quarters immediately preceding the quarter in
   which the Purchase Option is exercised (Base Period) and (2) all payments
   that would have been made and all payments due to be made by Allergan to ASTI
   during the Base Period if Allergan had not previously exercised its payment
   buy-out option with respect to any product; provided, however, that, for the
   purposes of the foregoing calculation, for any product which has not been
   commercially sold during each of the four calendar quarters in the Base
   Period, Allergan will be deemed to have made Product Payments, Developed
   Technology Royalties and Pre-Selection Product Payments to ASTI for each such
   quarter equal to the average of the payments made during each of such
   calendar quarters during which such product was commercially sold, less (ii)
   any amounts previously paid to exercise any payment buy-out option for any
   product; (b) the fair market value of 500,000 shares of Allergan Common Stock
   determined as the average of the closing sales price of Allergan Common Stock
   on the New York Stock Exchange for the 20 trading days



                                       10


<PAGE>   11
Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

2. Arrangements with Allergan, Inc. (Continued)

   ending with the trading day that is two trading days prior to the date of
   determination;

   (c) $250 million less the aggregate amount of all technology fee payments and
   research and development costs paid or incurred by ASTI as of the date the
   Purchase Option is exercised; or

   (d) $60 million.

   In each case, the amount payable as the Purchase Option Exercise Price will
   be reduced to the extent, if any, that ASTI's liabilities at the time of
   exercise (other than liabilities under the R&D Agreement, Services Agreement
   and the Technology Agreement) exceed ASTI's cash and cash equivalents and
   short-term and long-term investments (excluding the amount of Available Funds
   remaining at such time). Allergan must pay the Purchase Option Exercise Price
   in cash.

   ASTI and Allergan have entered into a Services Agreement pursuant to which
   Allergan has agreed to provide ASTI with administrative services, including
   accounting and legal services on a fully-burdened cost reimbursement basis.
   The Services Agreement expires on December 31, 1999 and will be renewed
   automatically for successive one year periods during the term of the R&D
   Agreement. ASTI may terminate the Services Agreement at any time upon 60 days
   written notice.

3. Comprehensive Income (Loss)

   SFAS No. 130, "Reporting Comprehensive Income," established standards for
   reporting comprehensive income and its components. Other comprehensive loss
   is comprised of unrealized loss on investments. Other comprehensive loss for
   the quarters and six month periods ended June 30,1999 and 1998 and for the
   period from inception to June 30, 1999 are as follows:

<TABLE>
<CAPTION>
                                                                  Quarter Ended June 30,
                           ---------------------------------------------------------------------------------------------------
(in thousands)                                  1999                                                 1998
                           ---------------------------------------------   ---------------------------------------------------
                                                 Tax                                                  Tax
                           Before-tax          (expense)      Net-of-tax         Before-tax        (expense)        Net-of-tax
                             amount           or benefit        amount             amount          or benefit          amount
                             ------           ----------        ------             ------          ----------          ------
<S>                        <C>                <C>            <C>                 <C>               <C>              <C>
Unrealized holdings loss
arising during period        $(764)              $303         $   (461)            $(144)              --             $  (144)
                             =====               ====                              =====

Net loss                                                       (12,191)                                                (6,137)
                                                              --------                                                -------

Total comprehensive loss                                      $(12,652)                                               $(6,281)
                                                              ========                                                =======

</TABLE>



                                       11


<PAGE>   12

Allergan Specialty Therapeutics, Inc.

Notes to Condensed Financial Statements

3.  Comprehensive Income (Loss) (Continued)


<TABLE>
<CAPTION>
                                                                 Six Months Ended June 30,
                           --------------------------------------------------------------------------------------------------
(in thousands)                                  1999                                                 1998
                           ---------------------------------------------         --------------------------------------------
                                                 Tax                                                  Tax
                           Before-tax          (expense)      Net-of-tax         Before-tax        (expense)       Net-of-tax
                             amount           or benefit        amount             amount         or benefit         amount
                             ------           ----------        ------             ------         ----------         ------
<S>                        <C>                <C>             <C>                 <C>             <C>              <C>
Unrealized holdings loss
arising during period      $(1,723)              $720         $ (1,003)            $(144)              --          $   (144)
                           =======               ====                              =====

Net loss                                                       (22,990)                                             (17,442)
                                                              --------                                             --------

Total comprehensive loss                                      $(23,993)                                            $(17,586)
                                                              ========                                             ========
</TABLE>


<TABLE>
<CAPTION>

                                      Inception to June 30, 1999
                            -------------------------------------------------
(in thousands)
                            Before-tax       Tax (expense)           Net of
                             amount           or benefit           tax amount
                             ------           ----------           ----------
<S>                         <C>              <C>                  <C>
Unrealized holdings loss
arising during period       $(1,096)            $447               $   (649)
                            =======             ====

Net loss                                                            (59,798)
                                                                   --------

Total comprehensive loss                                           $(60,447)
                                                                   ========
</TABLE>




                                       12


<PAGE>   13

                      ALLERGAN SPECIALTY THERAPEUTICS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999

This Quarterly Report on Form 10-Q may contain certain projections, estimates
and other forward-looking statements that involve a number of risks and
uncertainties. While this outlook represents management's current judgment on
the future direction of the business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
The Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.

The following should be read in conjunction with the section entitled "--Risks
and Uncertainties" included in the Company's annual report on Form 10-K for the
year ended December 31, 1998 and the Company's Financial Statements and notes
thereto in Item 1 above.

RESULTS OF OPERATIONS
---------------------

Net interest and investment income earned on investments were $1,942,000 and
$2,791,000 for the quarters ended June 30, 1999 and 1998, respectively, and
$4,092,000 and $3,508,000 for the six month periods ended June 30, 1999 and
1998, respectively. ASTI earned investment income of $12,635,000 for the period
from inception through June 30, 1999. Interest and investment income was earned
subsequent to March 10, 1998, the date Allergan contributed $200 million to
ASTI. In the future, as ASTI's funds are used pursuant to the R&D Agreement and
to pay the Technology Fee pursuant to the Technology Agreement, lower cash
balances will be available for investment and therefore interest and investment
income is expected to decrease.

In July 1998, Allergan entered into a multi-year research and development
collaboration with Parke-Davis Pharmaceutical Research Division of
Warner-Lambert Company to identify, develop and commercialize up to two RXR
subtype selective retinoid compounds for the treatment of metabolic diseases,
including adult onset diabetes, insulin resistant syndromes and dyslipidemias
(Collaboration Agreement). The technologies involved in the collaboration were
previously licensed by ASTI from Allergan pursuant to the Technology Agreement.
As a result, ASTI is entitled to receive Pre-Selection Product Payments
representing ten percent of the potential $104 million in technology access fees
and development milestones to be received by Allergan pursuant to Allergan's
agreement with Warner-Lambert. For the quarter and six month period ended June
30, 1999, ASTI earned $400,000 of Pre-Selection Product Payments in accordance
with the letter agreement. For the period from inception to June 30, 1999, ASTI
earned $900,000. There were no Pre-Selection Product payments earned for the
quarter or six month period ended June 30, 1998. In addition, ASTI is entitled
to royalties on net sales of developed products, depending on actual lead
compound selection and sales results.




                                       13

<PAGE>   14

Allergan Specialty Therapeutics, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 (Continued)

RESULTS OF OPERATIONS (Continued)
---------------------------------

Research and development expenses were $11,957,000 and $6,516,000 for the
quarters ended June 30, 1999 and 1998, respectively, and $22,646,000 and
$16,128,000 for the six month periods ended June 30, 1999 and 1998,
respectively. Research and development expenses were $58,532,000 for the period
from inception through June 30, 1999. ASTI's Board of Directors approved work
plans and cost estimates presented by Allergan in accordance with the R&D
Agreement for the remainder of the 1999 calendar year. The approved work plans
and cost estimates are similar to the estimates provided in ASTI's prospectus
dated March 6, 1998. ASTI paid technology fees of $1,675,000 and $2,500,000 to
Allergan during the quarters ended June 30, 1999 and 1998, respectively, and
$3,350,000 and $6,855,000 for the six month periods ended June 30, 1999 and
1998, respectively. ASTI paid technology fees of $14,593,000 for the period from
inception to June 30, 1999, of which $5,323,000 is included in prepaid
technology fees in the accompanying condensed balance sheet.

General and administrative expenses for the quarters ended June 30, 1999 and
1998 were $327,000 and $115,000, respectively, and were $611,000 and $130,000
for the six month periods ended June 30, 1999 and 1998, respectively. For the
period from inception through June 30, 1999, general and administrative expenses
were $1,544,000. Expenses are incurred primarily under the Services Agreement
pursuant to which Allergan provides ASTI with administrative services, including
accounting and legal services, on a fully-burdened cost reimbursement basis.
ASTI did not incur significant general and administrative expenses in the first
quarter of 1998 as ASTI operated from March 10 to March 31 in 1998.

The results of operations of ASTI are expected to reflect primarily interest and
investment income on the funds contributed by Allergan, and research and
development expenses related to development of ASTI Products and the Technology
Fee. ASTI's net loss for the quarters ended June 30, 1999 and 1998 were
$12,191,000 or $3.72 per share and $6,137,000 or $1.87 per share, respectively.
For the six month periods ended June 30, 1999 and 1998, ASTI's net losses were
$22,990,000 or $7.02 per share and $17,442,000 or $5.33 per share, respectively.
ASTI's net loss for the period from inception through June 30, 1999 was
$59,798,000 or $18.27 per share. ASTI is expected to continue to record
significant net losses in future periods, as expenses under its agreements with
Allergan are expected to continue to exceed investment income.

Provision for taxes were $874,000 and $922,000 for the quarters ended June 30,
1999 and 1998, respectively and $1,475,000 and $922,000 for the six month
periods ended June 30, 1999 and 1998, respectively. Provision for taxes for the
period from inception through June 30, 1999 was $3,987,000. ASTI expects to have
taxable income as a result of the requirement to capitalize technology fees and
its election to capitalize research and development expenses for tax purposes.



                                       14


<PAGE>   15

Allergan Specialty Therapeutics, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 (Continued)

LIQUIDITY AND CAPITAL RESOURCES
--------------------------------

On March 9, 1998, Allergan contributed $200 million in cash to ASTI in exchange
for all of the issued and outstanding shares of callable Class A Common Stock of
ASTI. On March 10, 1998, Allergan distributed the Class A shares to holders of
Allergan common stock and ASTI commenced operations. The funds contributed by
Allergan, plus investment income earned thereon, will be used primarily to fund
the development of ASTI Products and to conduct related activities. Funds not
immediately required for development activities will be invested in investment
grade securities.

At June 30, 1999, ASTI had cash on hand of approximately $65,000. The Company
invests its excess cash in money market funds, equity securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines with respect to diversification
and maturities in order to maintain safety and liquidity of its investment
portfolio.

At June 30, 1999, ASTI had $132,888,000 in investments. ASTI classifies all
investments as available-for-sale securities with net unrealized holding gains
or losses as a component of other comprehensive income. ASTI liquidates
investments to pay for operating expenses as needed.

Based on anticipated spending levels for the continued development of all the
current ASTI Products, it is expected that ASTI's funds for product development
will be exhausted during the next few years. At that time, product development
funding by ASTI will cease. However, several factors could impact the level and
timing of ASTI funding, including the addition of any new ASTI Products, the
discontinuation of the development of any ASTI Products, any commercial
arrangements between Allergan and other companies which would cause Allergan to
exercise its License Option with respect to any ASTI Product, any change in the
number of projects advancing to or continuing in later stages of development or
any adjustments in the rate of spending on products currently in development.

When ASTI's Available Funds (as defined in the R&D Agreement) are below $15
million, certain events will be triggered. First, Allergan's Purchase Option
with respect to all of the ASTI Class A Common Stock will terminate on the 90th
day after ASTI provides Allergan with a statement that, as of the end of any
calendar month, there are less than $15 million of Available Funds remaining.
Such statement will be accompanied by a report of ASTI's independent auditors.
In addition, Allergan has the right, for 30 days after expiration of the
Purchase Option, to license any or all ASTI Products which have not yet been
licensed, on a product-by-product and country-by-country basis. Allergan is
under no obligation to exercise the Purchase Option or the License Option with
respect to any ASTI Product. In the event that Allergan does not exercise the
Purchase Option or the License Option for all ASTI Products after ASTI's cash
available



                                       15


<PAGE>   16
Allergan Specialty Therapeutics, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 (Continued)

LIQUIDITY AND CAPITAL RESOURCES (Continued)
-------------------------------------------

for product development is exhausted, ASTI will not have funds to continue or
complete development of any remaining products.

YEAR 2000 COMPLIANCE
--------------------

Most businesses, including the Company, are faced with a potentially serious
threat to their operations, known as the "year 2000 issue" which has been widely
publicized. The year 2000 issue is a general term used to describe the various
problems arising from the inability of computers to properly identify the year
associated with information. This problem could potentially cause system
interruptions or failures or result in systems providing incorrect data. The
effect of the year 2000 issue could impact the performance of operations within
the Company as well as the Company's relationships with third parties, including
vendors and customers who could also experience year 2000 compliance issues.

ASTI understands the importance of identifying and addressing year 2000
compliance issues and places a high priority on the project. However, inasmuch
as ASTI relies almost entirely upon Allergan's operating and accounting systems,
ASTI relies upon Allergan's efforts to ensure that its systems will be year 2000
compliant. Allergan has formed a year 2000 task force (the "Y2K Task Force")
which includes an ASTI officer as a member. The Y2K Task Force is assessing
internal operations and the operations of significant suppliers, vendors, and
other providers of goods and services.

Although the certification process is not yet complete, it has begun and, based
on the findings to date, Allergan has indicated that its Y2K Task Force
currently believes Allergan's operating and accounting systems will be year 2000
compliant without material impact on the financial position, results of
operations or cash flows of either Allergan or ASTI. However, given that
Allergan cannot control or thoroughly assess the compliance of its third party
suppliers, vendors, providers of goods and services, or governmental agencies
with which it interacts or upon which it relies, no assurance can be made that
Allergan, and in turn, ASTI, will not be affected by the inability of some
computer systems and programs to properly process the year 2000 and beyond.

ASTI has not incurred expenses to date to promote or ensure year 2000
compliance. ASTI has not yet estimated its future costs to remedy any year 2000
issues but does not anticipate that any future expenses would be material to
ASTI's financial position, results of operations or cash flows.





                                       16

<PAGE>   17

Allergan Specialty Therapeutics, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999 (Continued)

YEAR 2000 COMPLIANCE (Continued)
--------------------------------

In the event that Allergan's operating and accounting systems are not year 2000
compliant or if any of Allergan's significant suppliers, vendors, other
providers of goods or services, or governmental agencies with which it interacts
or upon which it relies, are not year 2000 compliant, ASTI's financial condition
and/or results of operations could be materially adversely affected. ASTI has
not yet prepared any contingency plans in the event of a problem relating to the
year 2000 issue. Once the Y2K Task Force completes its contingency plans, ASTI
will determine whether additional contingencies are necessary.


















                                       17



<PAGE>   18

                      ALLERGAN SPECIALTY THERAPEUTICS, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASTI does not use derivative financial instruments in its non-trading investment
portfolio. The Company's primary investment objective is preservation of capital
in order to fund research and development of potential pharmaceutical products
incurred pursuant to the Company's agreement with Allergan, Inc. (See note 2 to
Condensed Financial Statements). As such, the Company invests its excess cash in
investment grade securities consisting of money market funds, equity securities
and debt instruments. Interest and investment income earned on the Company's
investment portfolio is most sensitive to fluctuations in the general level of
U.S. interest rates. The Company mitigates interest rate risk by a program of
diversification so that exposure to risks relating to a single security or
investment manager is minimal. Further, the Company invests in money market
funds and debt instruments with varying maturity dates to correspond to
anticipated research and development expenses. These securities typically bear
minimal credit risk and ASTI has not experienced any losses on its investments
to date due to credit risk.

The Company's investments in equity securities, which are subject to price risk,
are generally invested in companies that have a history of paying dividends. The
Company addresses price risk by a program of diversification so that exposure to
risks relating to a single security is minimal.






                                       18


<PAGE>   19

                      ALLERGAN SPECIALTY THERAPEUTICS, INC.

CERTAIN FACTORS AND TRENDS AFFECTING ASTI AND ITS BUSINESSES

The Company believes that certain statements made by the Company in this report
and in other reports and statements released by the Company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, such as comments which express the Company's
opinions about trends and factors which may impact future operating results.
Disclosures which use words such as the Company "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from expectations. Any such
forward-looking statements, whether made in this report or elsewhere, should be
considered in context with the various disclosures made by the Company in its
press releases and publicly filed reports such as the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, which disclosures are
incorporated herein by this reference. In addition to those risks identified
elsewhere in this report on Form 10-Q and those risks described in the Company's
press releases and publicly filed reports, the Company's business and results of
operations are subject to other risks, including the following risk factors:

o    ASTI is a newly formed company and is subject to the risks inherent in the
     establishment of a new business enterprise in the biotechnology industry.
     ASTI will incur substantial losses for several years due to the long-term
     nature of the research and development of pharmaceutical products through
     clinical testing and the regulatory process, which losses may never be
     recovered.

o    There can be no assurance that the ASTI Board of Directors will continue
     the funding of the research and development of all of the current ASTI
     Products or Pre-Selection Work, or that any ASTI Products can be
     successfully researched, developed and/or commercialized within the
     anticipated cost estimates or time frames, if at all. Certain of the ASTI
     Products are at critical stages of research and development, and technical
     and clinical outcomes are impossible to predict. Because of the long-range
     nature of any pharmaceutical product research and development plan,
     research and development of a particular product or project could
     accelerate, slow down or be discontinued, and other unforeseen events could
     occur, all of which would significantly affect the timing and amount of
     ASTI's expenditures on a particular product, or in total. As a result,
     estimates of costs and timing of research and development programs and for
     the use of Available Funds may not be accurate.

o    All ASTI Products, Developed Technology Products and Pre-Selection Products
     will require FDA clearance before such products may be lawfully marketed in
     the United States. Applications for FDA clearance must be based on costly
     and extensive clinical trials designed to demonstrate safety and efficacy.
     Clearance to market such products will also be required from corresponding



                                       19


<PAGE>   20

Allergan Specialty Therapeutics, Inc.

CERTAIN FACTORS AND TRENDS AFFECTING ASTI AND ITS BUSINESSES (Continued)

     regulatory authorities in foreign countries before such products may be
     marketed in those countries. There can be no assurance that the necessary
     regulatory clearances and approvals will be obtained in a timely fashion
     or, if obtained, that such clearances and approvals will not be revoked or
     withdrawn.

o    Allergan has contributed $200 million in cash to ASTI. Allergan has no
     obligation to contribute additional funds to ASTI, and, to the best of
     ASTI's knowledge, has no present intention to do so. For the foreseeable
     future, ASTI's only ongoing source of revenue will be investment income and
     certain milestone payments. There can be no assurance that ASTI will have
     sufficient funds to complete the research and development of any or all of
     the ASTI Products.

o    Allergan is not obligated to exercise the License Option for any ASTI
     Product or to exercise the Purchase Option, and Allergan will exercise any
     such option only if it is in Allergan's best interest to do so. The timing
     of the exercise of the Purchase Option is within Allergan's sole
     discretion. The timing of the exercise of the License Option with respect
     to any Licensed Product is also within Allergan's sole discretion and
     thereafter research, development and funding of any such product will be
     controlled by Allergan.

o    ASTI Products, Developed Technology Products and Pre-Selection Products are
     likely to face competition from other therapies for the same indications.
     Competitors potentially include any of the world's pharmaceutical and
     biotechnology companies. A number of companies have developed and are
     developing competing technologies and products.

o    In February 1999, the Financial Accounting Standards Board released a
     revised Exposure Draft of a Proposed Statement of Financial Accounting
     Standards - Consolidated Financial Statements: Purpose and Policy. If
     adopted as a SFAS, the terms of this Exposure Draft could require Allergan
     to include the financial position and results of operations of ASTI in its
     consolidated results on a retrospective basis. ASTI is currently evaluating
     the effect that implementation of this proposed statement may have on ASTI.


                                       20
<PAGE>   21

Allergan Specialty Therapeutics, Inc.

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

     The annual meeting of stockholders of the registrant was held on April 23,
1999. At such meeting, five directors, constituting the entire Board of
Directors, were re-elected to serve on the Board of Directors until the next
annual meeting of stockholders. The names of the persons elected as directors
are:

                               William C. Shepherd
                             Lester J. Kaplan, Ph.D.
                              Alan J. Lewis, Ph.D.
                               Gary L. Neil, Ph.D.
                           Marvin E. Rosenthale, Ph.D.

     The only other matter considered by the stockholders at the annual meeting
was ratification of the selection of KPMG LLP as independent auditors of the
registrant for the fiscal year ended December 31, 1999.

     A summary of the voting follows:

<TABLE>
<CAPTION>
                                                                                         Broker
         Election of Directors                  For                Withheld             Non-Votes
         ---------------------                  ---                --------             ---------
         <S>                                  <C>                  <C>                  <C>
         William C. Shepherd                  2,620,411              6,116                 0
         Lester J. Kaplan, Ph.D.              2,620,711              5,816                 0
         Alan J. Lewis, Ph.D.                 2,620,304              6,223                 0
         Gary L. Neil, Ph.D.                  2,621,221              5,306                 0
         Marvin E. Rosenthale, Ph.D.          2,620,163              6,364                 0
</TABLE>

<TABLE>

                                                                                                   Broker
         Other Matter(s)                        For             Against         Abstain           Non-Votes
         ---------------                        ---             -------         -------           ---------
         <S>                                  <C>               <C>             <C>               <C>
         Ratification of
          KPMG LLP as
          Auditors for 1999                   2,617,458          7,098            1,971               0
</TABLE>


Item 6. Exhibits and Reports on Form 8-K

        -  Exhibits
           (numbered in accordance with Item 601 of Regulation S-K)

           27.1       Financial Data Schedule

        -  Reports on Form 8-K.   None.




                                       21

<PAGE>   22

                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


 Date:  August 13, 1999                   ALLERGAN SPECIALTY THERAPEUTICS, INC.
        ---------------


                                          /s/ Dwight J. Yoder
                                          --------------------------------------
                                          Dwight J. Yoder
                                          Chief Financial Officer
                                          and Duly Authorized Officer





                                       22

<PAGE>   23

                                 EXHIBIT INDEX


EXHIBIT
NUMBER              DESCRIPTION
-------             -----------

27.1                Financial Data Schedule











                                       23