King Pharmaceuticals, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 18, 2007 (October 17, 2007)
King Pharmaceuticals, Inc.
(Exact name of registrant as specified in charter)
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Tennessee
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001-15875
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54-1384963 |
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(State or other jurisdiction
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(Commission
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(I.R.S. Employer |
of incorporation)
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File Number)
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Identification No.) |
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501 Fifth Street, Bristol, Tennessee
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37620 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (423) 989-8000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
The information appearing in Items 2.05 and 2.06 of this report is incorporated herein by
reference.
Item 2.05. Costs Associated with Exit or Disposal Activities.
As explained in detail in Section 2.06 of this report, on September 11, 2007, the Court of
Appeals for the Federal Circuit invalidated King Pharmaceuticals, Inc.s (the Company) patent No.
5,061,722 (the 722 patent), related to Altace®. Invalidation of this patent will likely lead to
generic versions of Altace® entering the market sooner than previously anticipated, and the
Companys sales of Altace® are anticipated to decline significantly as a result.
Following the decision of the Court of Appeals, the Companys senior management team conducted
an extensive examination of the Company and developed a restructuring initiative designed to
accelerate a planned strategic shift toward a focus in neuroscience and hospital / acute care. This
initiative includes, based on an analysis of the Companys strategic needs, a reduction in
personnel, staff leverage, expense reductions and additional controls over spending, reorganization
of sales teams and a realignment of research and development priorities.
On October 17, 2007, the Board of Directors of the Company approved the restructuring
initiative, effective immediately. Pursuant to this initiative, the Company will terminate
approximately 20% of its current workforce. These reductions will
be effective in late December 2007. The Company estimates that the 2008 cost savings resulting from
the restructuring initiative will be between $75 million and $90 million.
The
Company anticipates that it will incur total restructuring costs of approximately $70
million, all of which are expected to be incurred during the second half of 2007 and almost all of which will
be cash expenditures. Of the $70 million in costs, approximately $40 million
relate to severance pay and other employee termination expenses and
approximately $30 million
relate to contract termination costs.
A
copy of the Companys press release summarizing the reorganization initiative is attached as
Exhibit 99.1 to this Form 8-K and is incorporated by reference herein.
See
Forward-Looking Statements below.
Item 2.06. Material Impairments.
Lupin Ltd. (Lupin) filed an Abbreviated New Drug Application with the U.S. Food and Drug
Administration (the FDA) seeking permission to market a generic version of Altace® (Lupins
ANDA). In addition to its ANDA, Lupin filed a Paragraph IV certification challenging the validity
and infringement of the Companys patent No. 5,061,722 (the 722 patent), related to Altace®, and
seeking to market its generic version of Altace® before expiration of the 722 patent. In July
2005, the Company filed civil actions for infringement of the 722 patent against Lupin in the U.S.
District Courts for the District of Maryland and the Eastern District of Virginia. Pursuant to the
Hatch-Waxman Act, the filing of the lawsuit against Lupin provided the Company with an automatic
stay of FDA approval of Lupins ANDA for up to 30 months (unless the patents are held invalid,
unenforceable, or not infringed) from no earlier than June 8, 2005. On February 1, 2006, the
Maryland and Virginia cases were consolidated into a single action in the Eastern District of
Virginia. On June 5, 2006, the District Court granted the Company
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summary judgment and found Lupin
to infringe the 722 patent. On June 14, 2006, during the trial, the District Court dismissed
Lupins unenforceability claims as a matter of law, finding the 722 patent enforceable. On July
18, 2006, the District Court upheld the validity of the 722 patent. Lupin filed a notice of appeal
on July 19, 2006. All appellate briefing was completed as of March 19, 2007, and the Court of
Appeals for the Federal Circuit heard oral arguments on July 12, 2007.
On September 11, 2007, the Court of Appeals reversed the decision of the District Court and
invalidated the Companys 722 patent. The decision applied the recent U.S. Supreme Court decision
in KSR International Co. v. Teleflex Inc. to invalidate the patent on the basis of obviousness. The
Company has filed with the Circuit Court a petition for rehearing and rehearing en
banc. The Circuit Court has not yet responded to this petition.
Following
the Court of Appeals decision, the Company began an analysis of its
potential effects upon future sales of
Altace®.
On October 17, 2007, the Company completed it analysis and determined that it
will be required to take charges in the third quarter of 2007 to reflect impairment of assets
related to Altace®.
As of June 30, 2007, the Company had net intangible assets related to Altace® of approximately
$213 million. The related pre-tax charge for impairment of these assets will be approximately $150
million. The Company determined the fair value of these assets based on probability-weighted
estimated discounted future cash flows. If, however, the petition for
rehearing and rehearing en banc is unsuccessful, the estimated
cash flows associated with the remaining assets
would be materially adversely affected. In that case, the Company may have to reduce the estimated
remaining useful life and/or take an additional charge against a portion or all of the value of
the remaining intangible assets.
The
Company presently estimates that there will be a pre-tax charge associated with the impairment of
inventories related to
Altace®
of approximately $60 million. The Company also estimates that there will be
a pre-tax charge associated with
Altace®
inventory related
loss contracts of approximately $30 million.
See
Forward-Looking Statements below.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements which reflect managements current views of
future events and operations, including, but not limited to, statements pertaining to the Companys
expectations regarding the timing of actions it is taking to realign its organization and cost
structure and its estimate of related cost savings; statements pertaining to the Companys
expectations regarding future cash flow; statements pertaining to the Companys plan to continue
investing in its pipeline and business development opportunities; statements pertaining to the
Companys plan to further strengthen its neuroscience and hospital/acute care platforms; and
statements pertaining to the Companys plan to provide more details regarding todays announcement
and release its financial results for the third quarter ended September 30, 2007 on November 8,
2007. 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 the Companys ability to fully realize the
benefit of actions it is taking to realign its organization and cost structure commencing in 2008;
dependence on the actual amount of the cost savings arising from these initiatives; dependence on
the Companys ability to continue to generate strong cash flow; dependence on the Companys ability
to continue to acquire branded products, including products in development; dependence on the
Companys ability to continue to successfully execute the Companys strategy and to continue to
capitalize on strategic opportunities in the future for sustained long-term growth; dependence on
the Companys ability to successfully integrate its acquisitions; dependence on the Companys
ability to continue to advance the development of its pipeline products as planned; dependence on
the high cost and uncertainty of research, clinical trials, and other development activities
involving pharmaceutical products in which the Company has an interest; dependence on the
unpredictability of the duration and results of the U.S. Food and Drug Administrations (FDA)
review of Investigational New Drug applications (IND), New Drug Applications (NDA), and
Abbreviated New Drug Applications (ANDA) and/or the review of other regulatory agencies worldwide
that relate to products in development; dependence on the availability and cost of raw materials; dependence
on no material interruptions in supply by contract manufacturers of the Companys products;
dependence on the potential effect on sales of the Companys 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 the Companys growth strategy; and dependence on
the Companys ability to provide more details regarding todays announcement and release its
financial results for the third quarter ended September 30, 2007 as planned on November 8, 2007.
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 the Companys Form
10-K for the year ended December 31, 2006, and Form 10-Q for the second quarter ended June 30,
2007, which are on file with the U.S. Securities and Exchange Commission. The Company 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.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Press release of King Pharmaceuticals, Inc. dated October 18, 2007.
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SIGNATURES
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 hereunto duly authorized.
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Date: October 18, 2007 |
KING PHARMACEUTICALS, INC.
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By: |
/s/ Joseph Squicciarino
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Joseph Squicciarino |
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Chief Financial Officer |
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EXHIBIT INDEX
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Exhibit |
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No. |
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Description |
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99.1 |
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Press release of King Pharmaceuticals, Inc. dated October 18, 2007. |
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