Item 2.05. Costs Associated with Exit or Disposal Activities.
As previously disclosed, King Pharmaceuticals, Inc. ("the Company") has been
involved in multiple legal proceedings over patents relating to its product
Skelaxin® (metaxalone). On January 20, 2009 the U.S. District Court for the
Eastern District of New York, in the case of King Pharmaceuticals, Inc., et al.
v. Eon Labs, Inc., Case No. 04-cv-5540 (DGT), issued an Order invalidating two
of these patents, United States Patent Nos. 6,407,128 (the "128 patent") and
6,683,102 (the "102 patent"). The Order was issued without the benefit of a
hearing in response to Eon's motion for summary judgment. The Company plans to
appeal the Order, upon the entry of an appropriate judgment, and intends to
vigorously enforce its interests.
Invalidation of the '128 and '102 patents may lead to generic versions of
Skelaxin® entering the market sooner than previously anticipated, and the
Company's sales of Skelaxin® are expected to decline significantly in that
event.
Following the decision of the District Court, the Company's senior management
team conducted an extensive examination of the Company and developed a
restructuring initiative designed to partially offset the anticipated decline in
Skelaxin sales in the event that a generic competitor entered the market. This
initiative includes, based on an analysis of the Company's strategic needs: a
reduction in sales, marketing and other personnel; leveraging of staff; expense
reductions and additional controls over spending; and reorganization of sales
teams. The Company's Animal Health activities are not affected by the
restructuring.
On January 29, 2009, management of the Company approved the restructuring
initiative, effective immediately. Pursuant to this initiative, the Company will
reduce its workforce by approximately 520 positions, including approximately 380
field sales positions. This reduction, which the Company expects to be
substantially complete by late March 2009, represents approximately 17% of the
Company's current workforce after taking into account a previous reduction in
workforce following the Company's acquisition of Alpharma Inc.
The Company estimates that, in connection with the restructuring initiative,
it will incur total restructuring costs of between $50 million and $55 million,
all of which are expected to be incurred during the first half of 2009 and
almost all of which will be cash expenditures. These costs all relate to
severance pay and other employee termination expenses.
A copy of the Company's press release summarizing the restructuring
initiative is attached as Exhibit 99.1 and is incorporated by reference herein.
Please see the section entitled "Forward-Looking Statements".
Table of Contents
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Press release of King Pharmaceuticals, Inc. dated February 3,
2009.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements which reflect management's
current views of future events and operations, including, but not limited to,
statements pertaining to the Company's expectations regarding reductions in
workforce and costs associated with its restructuring. 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
Company's ability to fully realize the benefit of actions it is taking with
respect to its cost structure; dependence on the actual amount of the costs
incurred as a result of these initiatives; dependence on the Company's cash
flows; dependence on the Company's ability to continue to successfully execute
its strategy and to continue to capitalize on strategic opportunities in the
future for sustained long-term growth; dependence on the Company's ability to
successfully capture synergies from its recent acquisition of Alpharma Inc.;
dependence on the Company's 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
Administration's ("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 Company's products; dependence on the potential effect on
sales of the Company's 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; and dependence on the potential
effect of future acquisitions and other transactions pursuant to the Company's
growth strategy. 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 Company's Form 10-K for the year
ended December 31, 2007, and Form 10-Q for the third quarter ended September 30,
2008, 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.
Table of Contents
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