King Pharmaceuticals, Inc. / Alpharma Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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ALPHARMA INC.
(Name of Registrant as Specified in its Charter)
KING PHARMACEUTICALS, INC.
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Forward-looking Statements
This communication contains forward-looking statements for purposes of the Private Securities
Litigation Reform Act of 1995 (the Act). King Pharmaceuticals, Inc. (King) disclaims any
intent or obligation to update these forward- looking statements, and claims the protection of the
Safe Harbor for forward- looking statements contained in the Act. All statements contained in this
communication that are not clearly historical in nature or that necessarily depend on future events
are forward-looking, and the words anticipate, believe, expect, estimate, plan, and
similar expressions are generally intended to identify forward-looking statements. Such statements
are based on managements current expectations, but actual results may differ materially due to
various factors such as Kings ability to achieve the synergies and value creation contemplated by
the proposed transaction; Kings ability to promptly and effectively integrate the businesses of
Alpharma Inc. (Alpharma) and King and any necessary actions to obtain required regulatory
approvals; the potential of Kings branded pharmaceutical products; expectations regarding the
enforceability and effectiveness of product-related patents; expected trends and projections with
respect to particular products, reportable segment and income and expense line items; the adequacy
of Kings liquidity and capital resources; anticipated capital expenditures; the acceptance,
priority review or approval of certain New Drug Applications; the development, approval and
successful commercialization of certain products; the successful execution of growth and
restructuring strategies, including Kings accelerated strategic shift; anticipated developments
and expansions of Kings business; plans for the manufacture of some of Kings products; the
potential costs, outcomes and timing of research, clinical trials and other development activities
involving pharmaceutical products; the development of product line extensions; the expected timing
of the initial marketing of certain products; products developed, acquired or in-licensed that may
be commercialized; Kings intent, beliefs or current expectations, primarily with respect to future
operating performance; expectations regarding sales growth, gross margins, manufacturing
productivity, capital expenditures and effective tax rates; expectations regarding the outcome of
various pending legal proceedings; expectations regarding Kings financial condition and liquidity
as well as future cash flows and earnings; expectations regarding the ability to liquidate Kings
holdings of auction rate securities and the temporary nature of the unrealized losses recorded in
connection with these securities. Forward-looking statements involve risks and uncertainties. For
further information regarding these and other risks related to Kings business, investors should
consult Kings most recent Annual Report on Form 10-K for the year ended December 31, 2007 and
Kings quarterly reports on Form 10-Q and other documents filed by King with the U.S. Securities
and Exchange Commission (SEC).
Important Additional Information
This communication is not a substitute for any disclosure documents, including any proxy statement,
King will with the SEC and send to Alpharma stockholders in connection with any solicitation of the
stockholders of Alpharma or in connection with any business combination transaction with Alpharma,
as required. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ ANY SUCH DISCLOSURE DOCUMENTS FILED
WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. INVESTORS AND SECURITY HOLDERS WILL BE ABLE TO OBTAIN FREE COPIES OF ANY
SUCH DOCUMENTS FILED WITH THE SEC BY KING AT WWW.KINGPHARM.COM AND THROUGH THE WEB SITE MAINTAINED
BY THE SEC AT WWW.SEC.GOV. FREE COPIES OF ANY SUCH DOCUMENTS CAN ALSO BE OBTAINED BY DIRECTING A
REQUEST TO KINGS PROXY SOLICITOR, INNISFREE M&A INCORPORATED AT (877) 687-1875.
King and certain of its directors and executive officers and other persons may be deemed to be
participants in the solicitation of proxies in respect of any business combination transaction or
solicitation of the stockholders of Alpharma. As of the date of this communication, King is the
beneficial owner of 10 shares of Alpharma Class A Common Stock. INFORMATION REGARDING KINGS
DIRECTORS AND EXECUTIVE OFFICERS IS AVAILABLE IN ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2007, WHICH WAS FILED WITH THE SEC ON FEBRUARY 29, 2008, AND ITS PROXY STATEMENT FOR
ITS 2008 ANNUAL MEETING OF STOCKHOLDERS, WHICH WAS FILED WITH THE SEC ON APRIL 15, 2008.
*******
The following is the final transcript of the presentation delivered by King Pharmaceuticals, Inc.
at the Thomas Weisel Partners Healthcare Conference on September 3, 2008:
King Pharmaceuticals at Thomas Weisel Partners Healthcare Conference
September 3, 2008 / 9:10AM ET
Conference Call Participants
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Don Ellis of Thomas Weisel Partners |
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David Robinson, Senior Director of Corporate Affairs, King Pharmaceuticals |
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James Green, Executive Vice President of Corporate Affairs, King Pharmaceuticals |
Don Ellis
(Audio joined in progress)
....David Robinson, the Companys Senior Director of Corporate Affairs.
David Robinson, Senior Director of Corporate Affairs
Thanks a lot, Don. Good morning, ladies and gentlemen. We appreciate the opportunity to be here
with you today and to share an overview of our Company and our strategy for long-term growth.
Before continuing, you should note that this presentation will include forward-looking statements.
Forward-looking statements reflect managements current view of future events and operations and
include, but are not limited to, statements pertaining to the Companys strategic plan for growth,
strategic opportunities, development pipeline, and certain financial expectations.
Forward-looking statements involve risks and uncertainty. Certain 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 the Companys current Form 10-K for the year ended December 31, 2007,
which is on file with the SEC.
James Green, Executive Vice President of Corporate Affairs
King Pharmaceuticals is a developer and acquirer of novel branded prescription pharmaceutical
products that have significant market potential and complement our focus in specialty driven
markets, particularly neuroscience, hospital, and acute care. And we strive to be a leader and a
partner of choice in bringing innovative, clinically-differentiated products and technologies to
market.
Our growth strategy is focused in two main areas, organic growth and business development. To
support organic growth, we will continue to have a strong commitment to R&D, especially with
respect to those initiatives that complement our neuroscience, hospital, and acute care medicine
platforms.
Our business development initiatives will leverage our core capabilities and assets and our target,
specialty-driven markets to continue forming exciting new partnerships and with companies that have
promising products and technologies in Phase II or later. In addition, with our strong
capabilities, we have the flexibility to expand opportunistically into additional specialty
markets.
As part of the continued execution of our strategy, a little over a week ago, we announced our
proposal to acquire Alpharma. I would like to take this opportunity to share with you an overview
of the strategic rationale for this proposed transaction.
We believe that a King-Alpharma combination would accelerate the expansion of our neuroscience
business and create a stronger platform for future growth. Compelling benefits would include
greater scale and commercialization capabilities, enabling the combined company to maximize the
potential of its marketed and pipeline products. These enhanced capabilities are expected to
contribute to the successful launch of new products such as Remoxy, Embeda, and Acurox.
Another key benefit of the proposed transaction is that it would provide greater diversification of
our business. Much like our Meridian franchise, which manufactures EpiPen, the addition of
Alpharmas Animal Health division would provide us with an additional source of steady cash flow to
fuel future strategic initiatives.
Furthermore, we expect to achieve annual synergies of $50 million to $70 million in the second year
following the close of the transaction, principally from G&A, R&D, and savings to be achieved by
avoiding the expense of hiring additional sales representatives for the anticipated launch of
Remoxy in 2009.
As I mentioned, the addition of Alpharma would significantly expand our portfolio and provide
multiple additional sources of revenue. As you look at the breadth of the combined portfolio, it is
important to take into account the wide array of marketed and pipeline products to treat pain.
According to the American Pain Foundation, over 75 million Americans suffer from pain, more than
the number of people with diabetes, heart disease and cancer combined. Of these 75 million
Americans, 50 million suffer with chronic pain and 25 million with acute pain each year due to
injuries or surgery.
This large, unmet medical need, coupled with the growing abuse and misuse of opioid products, has
resulted in demand for enhanced research and development that will lead to the introduction of new
and advanced pharmaceutical products to treat these conditions and address this very serious
societal issue. A combined King and Alpharma would better position the company to meet this demand,
having the products, resources, and technologies required to accelerate the delivery of innovative
solutions for effective pain management.
The combined R&D pipeline would present multiple late-stage opportunities to potentially treat the
pain associated with a wide spectrum of conditions, ranging from sprains and strains to severe
cancer pain. This promising pipeline is led by Remoxy, an abuse-resistant formulation of
long-acting oxycodone. The NDA for Remoxy was recently accepted for filing by the FDA and granted
priority review. Similarly, the NDA for Alpharmas Embeda, an abuse-deterrent formulation of
long-acting morphine, was also recently accepted by the FDA and granted priority review.
Acurox, a short-acting oxycodone formulation designed to resist and/or deter common methods of
misuse and abuse, has completed Phase III clinical trials and we expect the NDA for this drug to be
submitted to the FDA by the end of this year. Finally, Alpharmas ketoprofen in Transfersome gel, a
topical NSAID product, entered Phase III in the second quarter of this year.
In addition to these late-stage products, there are several other pain medicines in early to
mid-stage development. Of particular note is T-62, which is scheduled to begin in Phase II later
this year for the treatment of neuropathic pain. Additionally, the combined companys platform
technologies provide multiple opportunities to develop other follow-on products.
We see a compelling strategic and financial rationale for bringing together King and Alpharma to
create a leading specialty pharmaceutical company. With greater commercialization capabilities, an
expanded portfolio of pain management products, and an even stronger pipeline, this transaction
would create a platform for enhanced growth and value creation for King shareholders and all of our
key stakeholders.
By moving expeditiously, we expect that this transaction could be completed by the end of this
year. We hope to work cooperatively with Alpharma and have expressed our preference to discuss all
aspects of our proposal with Alpharma, including structure and economics, and we are committed to
consummating this transaction.
Now I would like to spend just a few minutes reviewing with you some of the key aspects of our
current business. The size and focus of our three selling teams is structured to best support the
current priorities of our strategic plans and appropriately meet the needs of customers in our
target markets. As depicted on this chart, our field sales force presently consists of
approximately 690 individuals. As depicted here, you can see that this organization includes a
primary care group of 415, a neuroscience specialty force of 155 and a hospital specialty force of
120.
We are promoting Avinza and Skelaxin using both our primary care team and our neuroscience
specialists, as we are developing strong relationships with these prescribing physicians to enhance
the market potential of Remoxy and Acurox. The companys hospital specialists promote Thrombin-JMI
and our other innovative Thrombin-JMI-based products.
Our selling teams provide us with a strong presence in these specialty-driven markets as well as
targeted primary care markets, where we believe our experience will enable us to maximize the
revenue potential of our product portfolio.
The important element of our growth strategy is to maximize the value of our marketed products. The
performance of our products has produced strong operating cash flow, with 2007 totaling nearly $675
million. Importantly, in 2008, we expect cash flow from operations to range from $400 million to
$450 million.
Taking a look at our hospital franchise, it is anchored by Thrombin-JMI. This product is trusted by
physicians as it possesses a 12-year track record of safety and efficacy in an estimated 12 million
patient procedures. To better meet the needs of our customers and in advance of increased
competition, we introduced new Thrombin-JMI-based products, broadening the array of delivery
options. These new delivery systems include Thrombi-Pad, Thrombi-Gel, and the Thrombin-JMI
Epistaxis Kit.
We are also excited about the positive results from our two Phase III clinical trials evaluating
CorVue, our next-generation cardiac pharmacologic stress-imaging agent, and we expect to submit an
NDA for CorVue by the end of this year.
Turning now to our neuroscience portfolio, which is anchored in pain management, our investment in
this market is directly correlated with our conviction that this represents an exciting, long-term
growth platform for King. As you can see, we have strong promoted neuroscience products and a
robust pipeline. Our promoted brands include Skelaxin, a muscle relaxant, and Avinza, a once-a-day
morphine product. Our pipeline is led by agreements with Acura Pharmaceuticals and Pain
Therapeutics to develop a variety of opioid formulations designed to resist or deter common methods
of abuse.
As I mentioned a little earlier, more than 75 million Americans suffer from pain, and approximately
50 million Americans have chronic pain, and many of these individuals are debilitated by this
serious and complex medical condition. An additional 25 million Americans suffer from episodes of
acute pain each year following injuries or surgery.
However, pain often remains undertreated because diagnosis may be complex and because long-term
management can be difficult. Although opioids play an important role in the effective treatment of
moderate to severe pain, increases in misuse, abuse and diversion of opioids is very concerning to
many physicians. And as a result, patient access to appropriate medication and care is negatively
affected.
The statistics, as you can see on this slide, are staggering. Data shows that in 2006 over 5
million Americans used prescription pain relievers for nonmedical uses. Many of these were
children. In fact, research tells us that in 2006, approximately 10% of high school seniors abused
hydrocodone products and over 4% abused long -acting oxycodone.
Clearly, something needs to be done about this alarming and enormously expensive societal issue.
And we are committed to addressing this critical health problem and the needs of patients and
physicians by developing viable pain medicines that resist and/or deter common methods of abuse.
Remoxy represents one of the first of a new class of proprietary drugs, extended release opioid
analgesics, specifically formulated with an extraction-resistant technology. This formulation
technology provides a unique physical barrier that is designed to provide controlled, consistent
pain relief and resist common methods used to extract the opioid more rapidly than intended. Common
methods of extraction include crushing, chewing or dissolution in alcohol.
The FDA has accepted the NDA for filing and granted it priority review, as I mentioned a few
minutes ago. The NDA includes data from several clinical studies, including the pivotal Phase III
clinical trial which convincingly met its primary endpoint, pain relief versus placebo, that was
pre-specified as part of the FDA special protocol assessment process. We plan to develop and
commercialize Remoxy plus up to three other extended-release opioid analgesics that are formulated
with this platform technology. And two of those additional products are already in the early stages
of development.
Last year, we entered into an agreement with Acura Pharmaceuticals to license and develop and
commercialize a wide range of immediate-release opioid products using Acuras aversion technology
platform. The agreement initially targets development and commercialization of four
immediate-release opioid products, including Acurox tablets, which is a pharmaceutical composition
of oxycodone for treating moderate to severe acute pain. We recently announced positive top-line
results from the Phase III clinical trial evaluating Acurox tablets, and expect to submit the NDA
for the product by the end of this year.
This slide outlines the manner in which the Aversion Technology Platform is designed to resist
and/or deter the three most common methods of abuse. Attempts to extract oxycodone from an Acurox
tablet by dissolving it in liquid results in the formation of a very viscous gel. And this viscous
gel sequesters the opioid and deters IV injection or oral abuse.
On the other hand, crushing an Acurox tablet for the purpose of snorting or inhaling releases an
ingredient that causes nasal irritation and thereby discourages abuse. And finally, the unpleasant
side effects associated with the ingestion of large amounts of niacin are intended to deter
deliberate swallowing of excessive numbers of Acurox tablets.
We are really excited about the potential market opportunity for Remoxy and Acurox and the other
opioids that we plan to develop utilizing these two platforms. Achieving a 5% marketshare of the
immediate-release and extended-release opioid markets would translate into an opportunity of over
$700 million in annual revenue at branded pricing. And importantly, our market research indicates
that approximately 75% of the physicians who prescribe long-acting opioids also prescribe
short-acting opioids like Acurox. And this would provide us with excellent synergies for the
purpose of promoting these two brands, Remoxy and Acurox, once approved. Clearly, this market
represents a very significant opportunity.
King is well positioned to achieve long-term growth and deliver value to its shareholders, and we
believe we have a robust business model with many key competitive strengths, including
well-established commercial capabilities, disciplines and effective business development, as well
as strong capabilities in R&D, medical affairs and manufacturing. We will continue to leverage
these strengths and our strong balance sheet and cash flow as we focus on specialty-driven markets
where the Company has significant presence and
strong capabilities and assets. Were excited about our current portfolio, with strong marketed
products and a growing development pipeline.
Now, before we begin the question-and-answer session, I would ask that you limit your questions to
our existing business, as we really have nothing more to add today about our proposed acquisition
of Alpharma. However, if you do have questions about the proposed transaction, please feel free to
give us a call, or you can go and visit our website and play back the conference call we held on
the date that we first announced the proposal, which includes a question-and-answer session. Of
course, we will continue to provide you with further updates with respect to future developments.
At this time, I am happy to open it up to questions.
Questions and Answers
Don Ellis
Thank you. I will start with questions from the audience, if there are any. Anybody?
Unidentified Audience Member
Can you start out and just describe the competitive market in the thrombin market? With some new
entrants in that market, how are you guys doing?
James Green, Executive Vice President of Corporate Affairs
So far, things are going very well. We are very pleased with the success that we have had to date.
We have got two new entrants in the topical hemostatic market with Omrix back in October, I believe
it was, of last year. And then weve got Recothrom, which entered the market in about February of
this year. And so far, we have managed to maintain our share of that market pretty well. We are
very pleased with the work that our hospital sales team has done to maintain our position in that
market.
Don Ellis
Now, are these annual contracts for thrombin that you sign with hospitals?
James Green, Executive Vice President of Corporate Affairs
Well, we have long-term contracts in place with most of our customers. And, you know, that so far
has seemed to be very effective in terms of being able to maintain our position in that market.
Don Ellis
Have most of those contracts come due and been renewed? Are you still ?
James Green, Executive Vice President of Corporate Affairs
Well, they are long-term contracts, so there may be some that have been renewed during the period
of time of competition. But I would imagine that most of those have continued to stay in place. And
they do provide us with some competitive advantages, for sure.
Don Ellis
Okay. Anything else in the audience? Up here in the front?
Unidentified Audience Member
Can you talk about Skelaxin (inaudible question microphone inaccessible)?
James Green, Executive Vice President of Corporate Affairs
Year every year, Skelaxin scripts have declined about 10%. We also have where before we had
about 100% share of voice, starting at about September last year, that declined significantly with
new competitors that entered the market. And so our share of voice has declined dramatically.
It seems that most of that share that we are losing isnt necessarily going some of it has gone
to those new products, but most of it has gone to generic Flexeril, for the most part. That is
where we have seen seen generic Flexeril picking up scripts, and that is where we have lost some
scripts over the past year.
Unidentified Audience Member
(Inaudible question microphone inaccessible) Avinza?
James Green, Executive Vice President of Corporate Affairs
Avinza? You know, we acquired Avinza back in February of 2007. At the time, Avinza scripts were
declining significantly. Our first goal was to stem that decline. I believe that we accomplished
that last year. And so far this year, we have seen some small increases there. So we are hopeful
that we can keep that going in the right direction and continue to grow Avinza.
Importantly, the really important part about Avinza is the relationships that is helping us to
develop with physicians and with the marketplace, which should better enable us to successfully
launch new products like Remoxy and Acurox, once they are approved.
Don Ellis
Right here in the front.
Unidentified Audience Member
Yes, I have a question about the (inaudible question microphone inaccessible).
James Green, Executive Vice President of Corporate Affairs
Well, I really a question about what our rationale was for going public with the Alpharma
transaction. And really I dont want to address any further questions that relate at all to the
Alpharma transaction. I just want to stick with my prepared remarks today. I appreciate your
question, though.
Don Ellis
If we can come back to Skelaxin for a second, can you just update us on the trial with Eon Labs and
where you stand there?
James Green, Executive Vice President of Corporate Affairs
Its a question about where we are in terms of the Paragraph IV Litigation with respect to
Skelaxin. The one remaining litigant that we have is Sandoz, and they have filed a motion for
summary judgment, which they filed some time ago. And at this point in time, we really havent seen
any movement at all in those proceedings. There is no hearing date, as far as I am aware, yet, for
a hearing on the motion for summary judgment. So we are just kind of waiting.
Maybe now that the summer is over, maybe we will start to see some movement on that. But it is kind
of at a standstill at the moment.
Don Ellis
The last question I have is about pricing strategy. It used to be that companies such as yours
would launch an approved product and put a premium price on it, and then you are fighting managed
care to get on formulary and where you are going to tier it. How much thought have you guys given
to coming out at a much more reasonable, conservative price, gaining share, and then raising the
price pretty aggressively every year as you get market share?
James Green, Executive Vice President of Corporate Affairs
Yes, there has been a lot of thought given to what the appropriate pricing should be for launching
these new products. And I think that you will find that the pricing will be pretty competitive with
what is out there. And then we will have to see how things develop as to where it goes from there.
Don Ellis
Okay. Anything else from the audience? All right. Great. Thank you very much.
James Green, Executive Vice President of Corporate Affairs
All right. Thank you. Appreciate your interest in King.