Announces Completion of Inventory Management Agreements with Major Wholesalers
BRISTOL, Tenn., May 6 /PRNewswire-FirstCall/ -- King Pharmaceuticals, Inc.
(NYSE: KG) announced today that total revenues decreased 14% to $290.6 million
during the first quarter ending March 31, 2004, compared to $338.4 million in
the first quarter of 2003. Including special items, King reported a net loss
of $111.1 million and a diluted loss per share of $0.46 during the first
quarter of 2004, compared to a net loss of $7.2 million and a diluted loss per
share of $0.03 in the same period of the prior year. Excluding special items,
net earnings decreased 69% to $25.9 million and diluted earnings per share
decreased 68% to $0.11 during the first quarter ending March 31, 2004,
compared to net earnings of $82.3 million and diluted earnings per share of
$0.34 in the first quarter of 2003.
Jefferson J. Gregory, Chief Executive Officer of King, stated, "As we
previously disclosed, during the first quarter of 2004 King was actively
negotiating Inventory Management Agreements with our key wholesale customers.
While negotiating these agreements, we anticipated that net sales of our key
branded pharmaceutical products would be negatively affected during the first
half of 2004, particularly in the first quarter. As we also previously
disclosed, the effect on first quarter net sales of branded pharmaceutical
products was even greater than we originally anticipated."
Mr. Gregory continued, "Our financial results during the first quarter of
2004 were disappointing, as net sales of most of the Company's key products
during the quarter ending March 31, 2004 were well below the level that
prescription demand would indicate. However, I am pleased to announce that
following the end of the first quarter we successfully entered into an
Inventory Management Agreement with each of our three key wholesale customers
covering all of our branded pharmaceutical products. The execution of these
Inventory Management Agreements represents an important achievement for our
Company, as they should facilitate enhanced management of wholesale channel
inventories of our products going forward."
King recorded special items resulting in a net charge totaling
$215.2 million, or $137.0 million net of tax, during the first quarter ending
March 31, 2004. More specifically, special items during the first quarter of
2004 include a loss from discontinued operations in the amount of
$171.2 million primarily due to an anticipated loss on disposal of assets
pursuant to the Company's decision to market for divestiture Prefest(R)
(estradiol/norgestimate) and Nordette(R) (levonorgestrel) as discussed more
fully below. Special items during the first quarter ending March 31, 2004
also include i) an intangible asset impairment charge totaling $34.9 million
which primarily relates to Florinef(R) (fludrocortisone acetate, USP) and
Tapazole(R) (methimazole tablets, USP); ii) a charge in the amount of
$4.9 million primarily due to professional fees associated with the previously
announced ongoing investigations of the Company by the Securities and Exchange
Commission ("SEC") and the office of Inspector General of the Department of
Health and Human Services ("OIG"); and iii) a charge in the amount of
$4.2 million which represents the portion of the Company's remaining minimum
purchase commitments under the supply agreement for Procanbid(R) (procainamide
hydrochloride extended-release tablets) that exceeds the Company's estimated
demand for the product. During the three months ending March 31, 2003, King
recorded special items totaling $129.6 million, or $89.4 million net of tax,
primarily due to i) an intangible asset impairment charge for Florinef(R), ii)
charges associated with King's acquisition of Meridian Medical Technologies,
Inc. on January 8, 2003; iii) a loss from discontinued operations; and iv) a
benefit resulting from a decrease in the valuation allowance for Novavax, Inc.
convertible notes held by the Company.
Net revenue from branded pharmaceuticals, including royalty income,
totaled $250.0 million for the first quarter of 2004, an 18% decrease over the
first quarter of 2003. Meridian contributed $34.5 million to the Company's
total revenues during the first quarter of 2004, an increase of 35% over the
same period of the prior year. During the first quarter ending March 31,
2004, net revenue from contract manufacturing and other equaled $6.2 million.
Altace(R) (ramipril) net sales equaled $72.3 million during the first
quarter of 2004, a decrease of 53% from $153.6 million during the first
quarter of 2003. This decrease was primarily due to significant wholesale
channel inventory reductions of the product during the first quarter ending
March 31, 2004, as total prescriptions increased 14% over the same period of
the prior year according to IMS America monthly prescription data.
Net sales of Skelaxin(R) (metaxalone) and Sonata(R) (zaleplon) totaled
$46.0 million and $16.5 million, respectively, during the first quarter of
2004.
Net sales of Levoxyl(R) (levothyroxine sodium tablets, USP) equaled
$28.7 million during the first quarter ended March 31, 2004, a decrease of 14%
from $33.2 million during the first quarter of 2003.
Net sales of Thrombin-JMI(R) (thrombin, topical, bovine, USP) totaled
$39.2 million during the first quarter of 2004, a 20% increase from
$32.8 million during the first quarter of the prior year.
Royalty revenues from Adenoscan(R) (adenosine) and Adenocard(R)
(adenosine) totaled $16.8 million during the first quarter ended March 31,
2004, a 9% increase over $15.4 million during the same period of the prior
year.
In July 2002, data from an ongoing clinical trial being conducted by the
National Institute of Health, the Women's Health Initiative, was released and
indicated that an increase in certain health risks may result from the
long-term use of combination hormone replacement therapy for women. News of
this data and the perception it created has resulted in a dramatic decline in
prescriptions for combination hormone therapies and oral estrogen therapies,
including King's Prefest(R) and Menest(R) (esterified estrogens tablets, USP)
products. Additionally, prescriptions for the Company's product Nordette(R),
an oral contraceptive, have also declined dramatically over the last few years
due to the availability of generics. In light of these events, during the
first quarter of 2004 King's Board of Directors approved management's decision
to market for divestiture many of the Company' women's health products,
including Prefest(R), Menest(R), and Nordette(R). Accordingly, all net sales,
cost of goods, selling, general and administrative expense, and amortization
associated with Prefest(R) and Nordette(R) are now included in discontinued
operations.
James R. Lattanzi, Chief Financial Officer of King, commented, "As we
begin implementing our new inventory management agreements, we anticipate that
net sales of some of our key branded pharmaceutical products may continue to
be affected by additional significant wholesale inventory reductions,
particularly during the second quarter of 2004. In the near term we should
begin to receive inventory data from our wholesale customers as required by
the recently executed Inventory Management Agreements. In the second quarter
of 2004 we plan to assimilate and assess this data for the purpose of
improving our understanding of the current level of inventory held by these
customers and the extent of its potential effect on future net sales of our
branded pharmaceutical products." Mr. Lattanzi added, "Until we complete this
process we believe it is imprudent for us to provide forward-looking revenue
and earnings guidance. Accordingly, we are withdrawing our previously
provided guidance for year-end 2004, as we currently anticipate that actual
results will be lower than we originally estimated."
Kyle P. Macione, President of King, noted, "Other developments during the
first quarter ending March 31, 2004 included continued advances relating to
our growing pipeline opportunities. The commencement of our Phase II clinical
trial program for the development of an extended release formulation of
Sonata(R), a non-benzodiazepine treatment for insomnia, was particularly
significant. The goal of the Phase II clinical trial program is to determine
which new formulation of Sonata(R) utilizing Elan Corporation, plc's
commercially proven Spheroidal Oral Drug Absorption System is the most
efficacious for the purpose of increasing total sleep time and reducing any
potential for premature awakening, while continuing to build upon the quick
onset profile currently available in the immediate release formulation of
Sonata(R)." Mr. Macione emphasized, "With U.S. patent coverage that extends
to 2018, the extended release formulation should establish Sonata(R) as a
long-term cornerstone product for our Company. Moreover, this development
program should provide us with the opportunity to procure additional patents
potentially covering, among other things, unique biopharmaceutical
characteristics and methods-of-use related to the extended release formulation
of Sonata(R)."
Mr. Macione added, "Another development with respect to our product
pipeline in the first quarter of 2004 included the completion of the dosing of
the initial concentration of MRE0094, an investigational drug for the topical
treatment of chronic diabetic neuropathic foot ulcers. MRE0094, an adenosine
A2A receptor agonist, is designed to utilize a novel approach to treating this
condition by concentrating on the inflammation associated with such foot
ulcers. The ongoing Phase I clinical trial program involving MRE0094 is
designed to evaluate the safety of the drug in patients."
Under Generally Accepted Accounting Principles ("GAAP"), "net earnings"
and "diluted earnings per share" include special items. In addition to the
results determined in accordance with GAAP, King provides its net earnings and
diluted earnings per share results for the first quarter ending March 31,
2004, excluding special items. These non-GAAP financial measures exclude
special items which are those particular material income or expense items that
King considers to be unrelated to the Company's ongoing, underlying business,
non-recurring, or not generally predictable. Such items include, but are not
limited to, merger and restructuring expenses; non-capitalized expenses
associated with acquisitions, such as in-process research and development
charges and one-time inventory valuation adjustment charges; charges resulting
from the early extinguishment of debt; asset impairment charges; expenses of
drug recalls; revenues and expenses associated with discontinued operations;
and gains and losses resulting from the divestiture of assets. King believes
the identification of special items enhances an analysis of the Company's
ongoing, underlying business and an analysis of the Company's financial
results when comparing those results to that of a previous or subsequent like
period. However, it should be noted that the determination of whether to
classify an item as a special item involves judgments by King's management. A
reconciliation of non-GAAP financial measures referenced herein and King's
financial results determined in accordance with GAAP is provided below.
Conference Call Information
King will conduct a conference call today to discuss the Company's
first-quarter results, financial projections, inventory management agreements,
and other matters pertaining to the Company. King will provide a live webcast
of its conference call scheduled for today, Thursday, May 6, 2004, at 1:00
p.m., E.D.T. Interested persons may listen to the conference call today at
1:00 p.m., E.D.T. at
http://www.firstcallevents.com/service/ajwz405006268gf12.html or by dialing
1-800-795-1259 (US only) or 1-785-832-1508 (international), pass code KG. If
you are unable to participate during the live webcast, the call will be
archived on King's web site http://www.kingpharm.com for not less than 30 days
following the call. A replay of the conference call will also be available
for not less than 30 days following the call by dialing
1-888-276-5302 (US only) or 1-402-220-2331 (international).
About King Pharmaceuticals
King, headquartered in Bristol, Tennessee, is a vertically integrated
branded pharmaceutical company. King, an S&P 500 Index company, seeks to
capitalize on opportunities in the pharmaceutical industry through the
development, including through in-licensing arrangements and acquisitions, of
novel branded prescription pharmaceutical products in attractive markets and
the strategic acquisition of branded products that can benefit from focused
promotion and marketing and product life-cycle management.
Forward-looking Statements
This release contains forward-looking statements which reflect
management's current views of future events and operations, including, but not
limited to, statements pertaining to the ability to facilitate improved
management of channel inventory levels; statements related to the potential
success of the Sonata(R) extended release Phase II clinical trial program;
statements pertaining to the opportunity to procure additional patents related
to an extended release formulation of Sonata(R); and statements pertaining to
revenue and earnings expectations going forward. These forward-looking
statements involve certain significant risks and uncertainties, and actual
results may differ materially from the forward-looking statements. Some
important factors which may cause results to differ include: dependence on net
sales of King's branded pharmaceutical products, particularly Altace(R),
Skelaxin(R), Levoxyl(R), Sonata(R), and Thrombin-JMI(R); dependence on royalty
revenues from Adenoscan(R) and Adenocard(R); dependence on King's ability to
reposition Sonata(R) in the insomnia marketplace and expand upon its
opportunities in that market with an extended release formulation of
Sonata(R); dependence on the extent to which Inventory Management Agreements
facilitate enhanced management of wholesale channel inventories of our
products going forward; dependence on King's and Elan's ability to
successfully develop new formulations of Sonata(R); dependence on King's
ability to obtain additional patents related to an extended release
formulation of Sonata(R); dependence on whether our customers order
pharmaceutical products in excess of normal quantities during any quarter
which could cause our sales of branded pharmaceutical products to be lower in
a subsequent quarter than they would otherwise have been; dependence on the
availability and cost of raw materials; dependence on no material
interruptions in supply by contract manufacturers of King's products;
dependence on the potential effect on sales of our existing branded
pharmaceutical products as a result of the potential development and approval
of a generic substitute for any such product or other new competitive
products; dependence on the potential effect of future acquisitions and other
transactions pursuant to our growth strategies on King's financial and other
projections; dependence on our compliance with FDA and other government
regulations that relate to our business; and dependence on changes in general
economic and business conditions; changes in current pricing levels; changes
in federal and state laws and regulations; and manufacturing capacity
constraints. Other important factors that may cause actual results to differ
materially from the forward-looking statements are discussed in the "Risk
Factors" section and other sections of King's Form 10-K for the year ended
December 31, 2003, which is on file with the SEC. King does not undertake to
publicly update or revise any of its forward-looking statements even if
experience or future changes show that the indicated results or events will
not be realized.
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
March 31
2004 2003
(Unaudited)
REVENUES:
Total revenues $290,644 $338,421
OPERATING COSTS AND EXPENSES:
Cost of revenues 83,538 75,180
Excess purchase commitment 4,176 --
Writeoff of acquisition related
inventory step-up/recall -- 4,261
Total cost of revenues 87,714 79,441
Selling, general and administrative 80,910 44,115
Special legal and professional fees 5,692 --
Co-promotion fees 27,504 61,700
Total selling, general,
and administrative 114,106 105,815
Depreciation and amortization 39,318 17,637
Research and development 16,023 9,636
Research and development - In-process
upon acquisition -- 18,000
Intangible asset impairment 34,936 110,970
Gain on sale of product lines (858) --
Total operating costs and expenses 291,239 341,499
OPERATING LOSS (595) (3,078)
OTHER (EXPENSES) INCOME:
Interest expense (3,105) (3,034)
Interest income 1,054 2,494
Valuation (charge) benefit -
convertible notes receivable (49) 7,967
Other expenses (703) (83)
Total other (expenses) income (2,803) 7,344
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (3,398) 4,266
Income tax (benefit) expense (1,048) 8,676
LOSS FROM CONTINUING OPERATIONS (2,350) (4,410)
DISCONTINUED OPERATIONS
Loss from discontinued operations,
including expected loss on disposal (171,242) (4,382)
Income tax benefit (62,532) (1,599)
Total loss from discontinued operations (108,710) (2,783)
NET LOSS $(111,060) $(7,193)
Basic loss per common share $(0.46) $(0.03)
Diluted loss per common share $(0.46) $(0.03)
Shares used in basic net loss per share 241,300 240,777
Shares used in diluted net loss per share 241,300 240,777
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
EXCLUDING SPECIAL ITEMS
(in thousands, except per share data)
Three Months Ended
March 31
2004 2003
(Unaudited)
REVENUES:
Total revenues $290,644 $338,421
OPERATING COSTS AND EXPENSES:
Cost of revenues 83,538 75,180
Selling, general and administrative 80,910 44,115
Co-promotion fees 27,504 61,700
Total selling, general,
and administrative 108,414 105,815
Depreciation and amortization 39,318 17,637
Research and development 16,023 9,636
Total operating costs and expenses 247,293 208,268
OPERATING INCOME 43,351 130,153
OTHER (EXPENSES) INCOME:
Interest expense (3,105) (3,034)
Interest income 1,054 2,494
Other expenses (703) (83)
Total other expenses (2,754) (623)
INCOME BEFORE INCOME TAXES 40,597 129,530
Income tax expense 14,657 47,278
NET INCOME $25,940 $82,252
Basic income per common share $0.11 $0.34
Diluted income per common share $0.11 $0.34
Shares used in basic net income per share 241,300 240,777
Shares used in diluted net income per share 241,300 240,777
KING PHARMACEUTICALS, INC.
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share data)
The following tables reconcile Non-GAAP measures to amounts reported
under GAAP:
Three Months Ending
March 31, 2004
Pretax Amount EPS
Net income, excluding special charges $25,940
Diluted income per common share,
excluding special items $0.11
SPECIAL ITEMS:
Excess purchase commitment
(cost of goods sold) (4,176) (0.02)
Special legal and professional fees
(selling, general, and administrative) (5,692) (0.02)
Gain on sale of product lines
(other operating income) 858 0.00
Intangible asset impairment
(other operating expenses) (34,936) (0.14)
Valuation charge - convertible
notes receivable (other expenses) (49) (0.00)
Loss from discontinued operations (171,242) (0.71)
Income tax benefit 78,237 0.32
Net loss $(111,060)
Diluted loss per common share,
as reported under GAAP $(0.46)
Three Months Ending
March 31, 2003
Pretax Amount EPS
Net income, excluding special charges $82,252
Diluted income per common share,
excluding special items $0.34
SPECIAL ITEMS:
Writeoff of acquisition related
inventory step-up/recall
(cost of goods sold) (4,261) (0.02)
In-process research and development
(other operating expenses) (18,000) (0.07)
Intangible asset impairment
(other operating expenses) (110,970) (0.46)
Valuation benefit - convertible
notes receivable (other income) 7,967 0.03
Loss from discontinued operations (4,382) (0.02)
Income tax benefit 40,201 0.17
Net loss $(7,193)
Diluted loss per common share,
as reported under GAAP $(0.03)
KING PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
March 31, December 31,
ASSETS 2004 2003
Current assets:
Cash, cash equivalents
and marketable securities $161,326 $146,053
Restricted cash 147,410 133,969
Accounts receivable, net 193,002 246,417
Inventory 251,193 260,886
Deferred income taxes 127,589 124,930
Prepaid expenses and other assets 46,048 30,036
Assets related to discontinued operations 1,530 4,012
Total current assets 928,098 946,303
Property, plant and equipment, net 263,216 257,659
Intangible assets, net 1,484,708 1,552,492
Goodwill 134,892 121,355
Deferred income tax assets 62,215 19,307
Other assets 45,988 76,117
Assets related to discontinued operations 30,469 204,501
Total assets $2,949,586 $3,177,734
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $7,441 $97
Accounts payable 49,306 83,078
Accrued expenses 480,589 506,033
Income taxes payable 51,530 79,641
Total current liabilities 588,866 668,849
Long-term debt:
Convertible Debentures 345,000 345,000
Other long-term liabilities 83,585 121,705
Total liabilities 1,017,451 1,135,554
Shareholders' equity:
Common shares no par value,
300,000,000 shares authorized,
241,368,644 and 241,190,852 shares
issued and outstanding, respectively 1,206,916 1,205,970
Retained earnings 724,037 835,097
Other comprehensive income 1,182 1,113
Total shareholders' equity 1,932,135 2,042,180
Total liabilities
and shareholders' equity $2,949,586 $3,177,734
SOURCE King Pharmaceuticals, Inc.
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Related links:
http://www.kingpharm.com
Company News On-Call:
http://www.prnewswire.com/comp/120319.html
CONTACT:
James E. Green, Executive Vice President,
Corporate Affairs of King Pharmaceuticals, +1-423-989-8125
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