King will not pursue a new merger partner following the collapse of its proposed agreement to be acquired by Mylan.

King said its long-term focus is now on remaining an independent company, with growth coming from marketed products as well as future business development deals.

Changes King has made in its commercial operations and business development organization in the past year have "repositioned" it for growth as an independent entity, the company maintained.

King has reorganized its commercial operations, reduced and reallocated its sales force, and turned its marketing focus to three core products: the ACE inhibitor Altace , the insomnia agent Sonata and the hemostasis aid Thrombin JMI .

King is also citing a recent agreement with Palatin for the development of a sexual dysfunction therapy as the type of business development deal it is interested in pursuing.

End Of Mylan Merger Plans

Mylan and King jointly announced the end of their merger plans on Feb. 27, one day before the deadline on which either company could walk away if the deal was not completed.

"The companies have mutually agreed to terminate the agreement pursuant to which Mylan was to acquire King," a joint press release said. "Following discussions, the companies were not able to agree upon terms for a revised transaction."

Mylan announced plans for an all-stock acquisition of King in July; at that time, the deal was valued at $4 bil. (¹ Also see "Mylan Places Big Bet On Antihypertensives: $4 Bil. Deal For King" - Pink Sheet, 2 August, 2004., p. 6).

However, the proposed merger has been beset by problems, including an initial negative reaction by Wall Street and the intervention of investor Carl Icahn, who is launching a fight for control of Mylan.

The final blow was King's announcement in December that it would have to restate its earnings due to "methodological flaws" in how it accounted for product returns (² 'The Pink Sheet' Dec. 13, 2004, In Brief).

Both companies left the door open to possible renegotiation of the agreement in light of the restatement (³ Also see "Mylan Unlikely To Crown King: $3.8 Bil. Bid In Jeopardy Over Restatement" - Pink Sheet, 17 January, 2005., p. 27). King released its restated results Feb. 22, and the parties did not consummate a new deal before the deadline.

Another complication in the negotiations may have come from FDA's extension of the user fee deadline for Mylan's NDA for the beta blocker nebivolol. The original user fee goal date was Feb. 28, but FDA is extending the review to May 31 after receiving an amendment to the application.

Mylan's development of nebivolol was one of the driving forces behind the merger; the company had hoped to use King's cardiovascular marketing platform for Altace (ramipril) to launch its first major branded product.

King To Outline Strategic Plan

King will discuss its "strategic plan for renewed growth as an independent company" during a conference call following the filing of its third quarter 10-Q and 2004 10-K. Those documents are expected to be filed with the Securities & Exchange Commission by March 16.

King is expected to highlight recent changes in its sales and marketing organization.

Steve Andrzejewski was named head of commercial operations in May 2004.

King subsequently moved its sales and marketing functions from Bristol, Tenn. to Princeton, N.J. and reorganized its commercial group into three areas: cardiovascular, central nervous system and hospital.

The company has trimmed the size of its overall sales force in recent months. The field force currently totals approximately 1,050 individuals (including managers), down from approximately 1,200 at the end of July.

The company cut its primary care sales force by 25% (from 1,000 to 750). It simultaneously increased its hospital force from 35 to 100 by adding 65 contract employees. King also has 80 specialty sales reps.

King said its decision to reduce the primary care force reflects both its desire to focus on those products offering the most significant opportunities and the loss of exclusivity for the levothyroxine brand Levoxyl in June (⁴ [A#00660260001], p. 3).

King said it does not foresee any further adjustments in the size of the field force, unless it sees opportunities to expand with future licensing or development deals.

The company is building a business development team around Harsha Murthy, who joined King in early 2004 as corporate head and exec VP-strategic planning and business development (⁵ Also see "King Ups Medicaid Rebate Underpayment Estimate To $65 Mil.; CEO To Depart" - Pink Sheet, 23 February, 2004., p. 10).

King is focusing business development efforts on products in late-stage clinical trials that fit into the cardiovascular/CNS/hospital areas.

The Palatin agreement is one example, King said. The deal, announced in August, is for development of PT-141, an intranasal agent to treat sexual dysfunction (⁶ Also see "King/Mylan Merger Will Provide Critical Mass To Develop Palatin ED Agent" - Pink Sheet, 23 August, 2004., p. 18).

PT-141 fits in the CNS area as well as the cardiovascular category; unlike PDE-5 inhibitors ( Viagra , Levitra , Cialis ), PT-141 is not believed to have any drug interactions with nitrates, King said.

"By sensibly adding products with significant growth potential and divesting underperforming assets, King expects to improve the company's long-term prospects and build value for its shareholders," the company said.

King has divested the bulk of its women's health care line.

An Eye On Inventory Work-Down

King said other "significant accomplishments" that will re-position the company for growth include: reprioritizing the R&D portfolio "with an enhanced focus on projects with the greatest probability to deliver long-term value," implementing processes and policies to enhance financial controls and reducing wholesaler inventory levels through implementation of inventory management agreements.

In conjunction with the Feb. 22 restatement, King announced it is amending those inventory management agreements to further reduce wholesaler inventory levels to 1.5 months of product on-hand by the end of March.

Inventory levels of King's key products were just over two months as of Sept. 30, the company said.

Inventory levels have been problematic for King. One year ago, the company said it hoped inventory management agreements would help stabilize sales of Altace (⁷ Also see "King Altace Inventory Levels To Be Stabilized Through Wholesaler Agreements" - Pink Sheet, 23 February, 2004., p. 11).

The 1.5-month target for inventory levels reflects a change in attitude at King regarding appropriate inventory levels.

During an August earnings call, CEO Brian Markison said that approximately two months of inventory on-hand "should be the appropriate level" for King's products (⁸ Also see "Bristol And SEC Define “Normal” Inventory Levels As One Month" - Pink Sheet, 9 August, 2004., p. 27).

In contrast, as part of an SEC settlement over "channel stuffing" practices, Bristol-Myers Squibb agreed to define "normal" wholesale inventory levels as one month on hand.

The Future Of Mylan

Mylan also plans to offer a look at its post-King future soon; the company will hold an investor call March 10 to discuss nebivolol and provide updated financial guidance.

In early February, Mylan issued revised guidance of 75¢-80¢ earnings per share for fiscal 2005, but that figure did not reflect any write-off related to the King deal if the transaction is not completed. If Mylan revises annual earnings guidance downward again, it would mark the third time it has done so for fiscal 2005.

Mylan also appears to be taking measures to protect against a takeover bid by Icahn or other potential suitors.

Icahn controls voting rights for almost 10% of Mylan stock. He has offered to buy the company for $20 per share, and is seeking to run a slate of nominees (including himself) for election to the Mylan board at the company's annual meeting in October.

Mylan changed its bylaws relating to advance notice of director nominations Feb. 18, which prompted a legal challenge by Icahn.

Mylan's most recent 10-Q filing includes amended "transition and succession" agreements and retirement agreements for several top executives.

The filing also includes a severance plan "intended to help retain qualified employees, maintain a stable work environment and provide economic security to eligible employees in the event of certain terminations of employment."

King Says It Can Grow On Its Own Following Collapse Of Mylan Merger Plans

More from Archive

More from Pink Sheet