BRISTOL, Tenn., Nov. 1 /PRNewswire-FirstCall/ -- King Pharmaceuticals,
Inc. (NYSE: KG) announced today that it has entered into definitive agreements
with the U.S. Department of Justice, the U.S. Attorney's Office for the
Eastern District of Pennsylvania, the Office of Inspector General of the U.S.
Department of Health and Human Services (HHS/OIG) and the U.S. Department of
Veterans Affairs to resolve the previously-disclosed governmental
investigations related to the Company's unintentional underpayment of rebates
owed to Medicaid and other governmental pricing programs during the period
from 1994 to 2002. The Company has reached similar agreements with 48 states
and the District of Columbia, and has reached agreement with the National
Association of Medicaid Fraud Control Units (NAMFCU) as to the terms on which
King can resolve the claims of the one remaining state that participates in
relevant healthcare programs. If approved by the United States District Court
for the Eastern District of Pennsylvania, the agreements will fully resolve
these matters.
"We are extremely pleased to report the execution of virtually all
agreements necessary to finally resolve the Medicaid issues," said Brian A.
Markison, President and Chief Executive Officer of King Pharmaceuticals.
"While none of these issues resulted from intentional misconduct, we
nevertheless have taken them very seriously and believe we have taken the
necessary steps to avoid any recurrences. King has cooperated fully with the
government since the Company was first informed of the previously reported
inquiry by the U.S. Securities and Exchange Commission (SEC). Indeed,
virtually all the matters resolved by these agreements were first identified
and reported to the government by King."
All pharmaceutical companies that participate in federal and state
Medicaid and other governmental pricing programs are required to perform
calculations involving highly complex formulas and provide the results to the
governmental authorities that administer the programs. These authorities then
utilize the results in assessing rebate obligations to participants.
Unintentional errors in the application of these complex formulas by King from
1994 to 2002 led to its underpayment of rebates owed to Medicaid and other
governmental pricing programs.
Pursuant to the agreements with federal and state healthcare authorities,
King will pay an aggregate of $124.1 million, plus interest accruing at the
rate of 3.75% from July 1, 2005. This amount includes $62.1 million
representing the agreed amount of underpayments to Medicaid and other
governmental pricing programs from 1994 to 2002 and an equal amount to cover
interest, costs, and penalties. The $62.1 million underpayment from January
1, 1994 to December 31, 2002 represents less than 1% of King's total revenues
during that period.
The Company accrued in prior years a total of $130.4 million in respect of
its estimated underpayments to Medicaid and other governmental pricing
programs and estimated settlement costs with all relevant governmental
parties, which sum is classified as restricted cash and an accrued expense on
King's balance sheet. King believes that the existing accrual is sufficient
to cover the full cost of all sums owed the federal and state governments
pursuant to the agreements announced today, together with related obligations
to reimburse the expenses of some of the parties.
King also has entered into a five-year corporate integrity agreement with
HHS/OIG under which the Company is required, among other things, to keep in
place its current compliance program, to provide periodic reports to HHS/OIG
and to submit to audits relating to its Medicaid rebate calculations. This
agreement will not affect King's ongoing business with any customers,
including the federal and state governments.
As previously disclosed, the SEC has also been conducting an investigation
relating to King's underpayments to governmental programs, as well as into the
Company's previously disclosed errors relating to reserves for product
returns. While the SEC's investigation is continuing with respect to the
product returns issue, the Staff of the SEC has advised King that it has
determined not to recommend enforcement action against King with respect to
the aforementioned governmental pricing matter. The Staff notified King of
this determination pursuant to the final paragraph of Securities Act Release
5310. Although the SEC could still consider civil charges against individuals
currently or formerly associated with King in connection with the governmental
pricing matter, King does not believe that any governmental unit with
authority to assert criminal charges is considering any charges of that kind.
King continues to cooperate with the SEC's ongoing investigation. Based
on all information currently available to it, King does not anticipate that
the results of the SEC's ongoing investigation will have a material adverse
effect on King, including by virtue of any obligations to indemnify current or
former officers and directors.
The agreements with federal and state governments described above will not
resolve any of the previously disclosed civil suits that are pending against
King and related individuals and entities.
A total of $50.6 million of the $124.1 million resolution amount is
earmarked for payment to 49 states and the District of Columbia. To date, King
has received signed agreements from 48 states and the District of Columbia,
which in the aggregate are allocated $50.4 million of the resolution amount.
Consummation of the federal agreement and some state agreements is subject
to court approval. The federal action against King was filed under seal in
the U.S. District Court for the Eastern District of Pennsylvania by an
individual purportedly acting as a "relator" pursuant to the federal False
Claims Act. King understands that the relator objects to the resolution
provided in the federal agreement and that he may assert his right to a
"fairness hearing," which might not take place before mid-2006. King believes
that the relator will not object to the amount of the settlement, but instead
will argue that he should be awarded a larger share of the proceeds than the
government believes is appropriate. The relator's share, if any, would be
paid solely by the government and would not affect the amount King is required
to pay to resolve the matter.
The relator also filed claims in the U.S. District Court for the Eastern
District of Pennsylvania against King purportedly on behalf of 13 states
pursuant to the laws of those states. King believes that the relator also
objects to King's settlement with those states, as well as to its proposed
settlements with the other states, because of disagreements over the relator's
share of the states' proceeds. Resolution of the relator's claim for a share
is not expected to increase King's settlement cost, but could delay
consummation of some or all state settlement agreements until a hearing can be
held, which might not take place before mid-2006.
King understands that the relator has filed a motion for preliminary
injunction in the U.S. District Court seeking to require that King's payments
under the settlement agreements be held in the registry of the court pending a
determination of the relator's share. King has not yet been served with this
motion, but expects to vigorously oppose it. King expects that the federal
government, and possibly some of the states, will also oppose the motion.
King believes it is likely that the court will decide the relator's motion
before year-end.
If the court were to grant the relator's motion for a preliminary
injunction or uphold any fairness objections raised by the relator, the
affected governmental parties would not be required to consummate their
settlement agreements. In that event, King believes that it is likely that
most or all of the parties would enter into new agreements with King on
substantially the same financial terms as the existing agreements, but can
provide no assurance that they would do so.
The relator has also filed a claim in the U.S. District Court for the
Eastern District of Pennsylvania seeking damages from King because of
allegations that King improperly retaliated against the relator. King denies
the allegations and will vigorously contest this action. Resolution of this
claim will not delay consummation of the governmental settlements and is not
expected to have a material adverse effect on King.
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 sufficiency of the Company's existing
accrual to cover the full cost of its obligations to the federal and state
governments; statements pertaining to any future government action; statements
pertaining to the final outcome of any ongoing government investigation of the
Company or related individuals; and statements pertaining to the relator's
actions, claims, or objections and the likely outcome or effect of such
actions, claims, or objections. 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 actual results to differ materially from the forward-looking
statements include: dependence on the execution and terms of any additional
agreements necessary to fully resolve the federal and state governmental
investigations; dependence on the Company's compliance with the five-year
corporate integrity agreement; dependence on the final results of any ongoing
government investigations of the Company or any related individuals; and
dependence on the final outcome and effect of any actions, claims, or
objections of the relator. 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 ending December 31, 2004 and Form 10-Q for the second quarter ended June
30, 2005, which are 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.
SOURCE King Pharmaceuticals, Inc.
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Related links:
http://www.kingpharm.com
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CONTACT:
James E. Green, Executive Vice President,
Corporate Affairs, +1-423-989-8125, or David E. Robinson, Senior
Director, Corporate Affairs, +1-423-989-7045, both of King
Pharmaceuticals, Inc.
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