CONFIDENTIAL - 00-10-02 DERMATOLOGY LINE ACQUISITION CC SCRIPT.DOC
10/02/00
Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12
Subject Company: Elan Corporation, plc
Commission No. 333-10726
FINAL
DURA PHARMACEUTICALS
DERMATOLOGY LINE ACQUISITION CONFERENCE CALL
Monday, October 2, 2000
10:30a.m. Pacific Daylight Time
Dial In #: (212)346-0130
Playback #: (800)633-8284; reservation #1652-5817
OPERATOR:
Welcome to today's conference call with Dura Pharmaceuticals. Participating from
Dura will be Cam Garner, Dura's Chairman and Chief Executive Officer, Bob
Whitehead, Dura's President and Chief Operating Officer, Diane Goostree, Dura's
Vice President, Business Development and Mike Borer, Dura's Senior Vice
President and Chief Financial Officer. Mr. Garner, please begin.
CAM:
Good morning! Thank you for participating in Dura's conference call for the
announcement of our acquisition of the exclusive U.S. distribution rights for,
and an option to acquire, the dermatology product line from Glaxo Wellcome and
the creation of a new Dura Dermatology Division. Although we are very excited
about our pending merger with Elan, this conference call will focus exclusively
on the acquisition of the dermatology product line. We will not discuss our
pending merger with Elan during this call or during the Q&A session as it is
premature to do so at this time. We will
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defer all questions about the merger until after the transaction closes. At that
time, both companies intend to give guidance and information on strategy,
vision, potential synergies and the management structure going forward.
We will proceed with today's conference call as follows: Diane, who was
responsible for negotiating this transaction, will provide a strategic overview
of the transaction, Bob will cover the dermatology line and outline our plans to
create a Dermatology Division, Mike will discuss the financial implications of
this transaction, and I will close. After our prepared presentation, we will be
available to answer your questions. Before we begin, Mike will review with you
our policy regarding forward-looking statements.
MIKE:
Thanks Cam. Except for the historical and factual information discussed in
this call, statements made during this telephone conference may constitute
forward-looking statements, including targets, estimates, plans,
expectations, goals and projections, which involve risks and uncertainties.
Those risks and uncertainties include, among others: our ability to complete
our merger with Elan, our ability to execute our refocused strategy, risks
associated with the creation and successful operation of a to-be-formed
dermatology division, the effectiveness of our sales forces in promoting our
products, our success in acquiring additional marketed products, risks
associated with the successful development and commercialization of the
inhaled insulin product candidate and our Spiros-Registered Trademark- S2
technology, our dependence on third
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parties for manufacturing and development, the competitiveness of the
pharmaceutical industry, and other risks detailed from time to time in our
filings with the Securities and Exchange Commission. Actual results may differ
materially from those projected, including future growth in product sales and
earnings. Any forward-looking statements represent our judgment as of the date
and time of this call. We do not intend to update any such forward-looking
statements at any time.
OVERVIEW OF THE TRANSACTION
CAM:
Thanks Mike. Now, Diane will share with you the details of the transaction
announced this morning.
DIANE:
Thanks Cam. Dura has signed an exclusive U.S. distribution agreement with a
purchase option for Glaxo Wellcome's dermatological product line, consisting of
Cutivate-Registered Trademark-, Temovate-Registered Trademark-,
Aclovate-Registered Trademark-, Oxistat-Registered Trademark- and
Emgel-Registered Trademark-. Under the distribution agreement, Glaxo will be
responsible for the manufacture and supply of the products for Dura and Dura
will be responsible for marketing and distribution. As such, we will begin
booking revenues immediately. At the end of 2002, Dura can exercise an option to
acquire the products at a predetermined multiple of 2002 sales, subject to
specified minimum and maximum amounts. If the option to purchase the products is
exercised, Dura will also assume responsibility for manufacture and supply of
the products.
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Strategically, this transaction and the creation of a Dura Dermatology Division
demonstrate our continued commitment and ability to execute our growth strategy.
By building a Dermatology Division, we are adding another high-potential
platform for additional product acquisitions. During the 1990s, Glaxo Wellcome's
dermatology division has been rated one of the top dermatology divisions by
Scott Levin based on the quality of their products and services. A dermatology
franchise is especially attractive to us as it addresses a very narrow and deep
therapeutic channel where we can be competitive without substantial increases in
selling infrastructure. These five dermatology products further diversify our
product portfolio, and broaden our scope into another specialty-focused market
adding to our hospital based and primary care portfolio and business base.
As part of our Business Development strategy moving forward, we will continue to
examine multiple in-line product opportunities, as well as transactions that
fall into what we're describing as specialty-focused markets - markets where a
relatively small number of physicians write a majority of the prescriptions for
the class of products.
Now, I'll turn the presentation over to Bob to provide more detail on the
product line as well as our plans to create a Dermatology Division.
PRODUCTS & DERMATOLOGY DIVISION
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BOB:
Thanks Diane. I'd like to talk briefly about the dermatology market, the
products and our plans for building a new division.
First however, let me say that we are extremely pleased that Glaxo Wellcome
selected Dura as its "partner of choice" to promote their entire dermatological
line in the U.S. We competed against approximately 30 companies, some of whom
have significant dermatology franchises already in place.
We believe Glaxo selected Dura for four specific reasons.
1. Our history of acquiring under-resourced brands, and dedicating resources
to them creating substantial revenue growth, as we have most recently done
with Azactam-Registered Trademark- and Nasarel-Registered Trademark-,
2. Our recent success in professionally building an experienced
specialty-focused sales team, albeit in the hospital sector, and
3. The quality of our management team and our sophisticated sales and
marketing organization with capabilities to increase revenue for the
product line.
4. Our ability to complete transactions with and deliver on commitments to
other partners such as Lilly, Bristol Myers Squibb and Allergan.
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As Diane mentioned, the Glaxo line consists of five brands, Cutivate-Registered
Trademark-, Temovate-Registered Trademark-, Aclovate-Registered Trademark-,
Oxistat-Registered Trademark- and Emgel-Registered Trademark-.
First, Cutivate-Registered Trademark-, Temovate-Registered Trademark- and
Aclovate-Registered Trademark- - These are three products indicated for the
relief of inflammation, redness, swelling, pain and itching associated with
corticosteroid-responsive dermatosis, such as psoriasis and eczema. For patients
who suffer from these symptoms, dermatologists will consider different potency
classes of medication depending on the severity of the patient's condition. The
goal for physicians is to prescribe the lowest potency class of steroid
possible, while still achieving a therapeutic effect. Accordingly, we will offer
three different potency classes beginning with the lowest, Aclovate-Registered
Trademark-. Cutivate-Registered Trademark- is a medium potency treatment, while
Temovate-Registered Trademark- is for patients who require a high potency
medication. While these three products complement one another very well, we see
the greatest revenue and growth potential in Cutivate-Registered Trademark-. We
will position this product first in our dermatology products call plan.
Regarding the other two products in the franchise, Oxistat-Registered Trademark-
is an antifungal indicated to treat dermal fungal infections such as athlete's
foot, and Emgel-Registered Trademark- is a topical antibiotic indicated for
acne.
Steroids, anti-fungals and topical antibiotic products account for over 50% of
all dermatology product sales. Within these three therapeutic areas, a market of
over $1.4 billion in 1999 in the U.S., the Glaxo product line was the third
largest in IMS audited product sales, making Dura a significant player in this
specialty-focused niche literally overnight. The dermatology
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market is one in which strong brand franchises have historically done well.
Dermatologists tend to be more loyal to a brand than other physicians and the
Glaxo line, while not promoted significantly over most recent periods, enjoys an
excellent image among this group. We believe the growth potential as a result,
with substantial promotion, is very significant.
With our promotional plan for 2001, we expect the products will contribute to
pharmaceutical revenues in 2001 in the mid $60 million range. Beyond 2001, we
expect to grow the product revenues through focused promotional efforts, line
extensions of the existing product lines and additional product acquisitions.
Effective immediately, Dura is responsible for the sales and marketing of these
five products. We plan to expeditiously build an experienced Dermatology
Division that will start to personally promote the product line in the fourth
quarter of this year. We are recruiting approximately 75 sales and marketing
professionals for our division, including a senior level executive who will
oversee the Division's sales, marketing and support functions. Of the 75 people,
we plan to hire approximately 60 sales representatives to personally promote the
product line. This number of sales representatives compares well to other
Dermatology sales groups such as Watson/Oclassen with approximately 60
representatives, Medicis with approximately 70 representatives, and Ortho
Dermatology with approximately 50 representatives. Based on our sales target for
2001 and our target of managing this revenue stream with 60 representatives,
sales per
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representative should approximate $1 million with the opportunity to grow higher
with our successful promotion.
While we are in the process of creating the Dermatology Division, we will employ
a variety of non-personal promotional initiatives to promote and sample the
product line.
In addition to building a top-notch Dermatology Division, we recognize that
product line extensions and additional product acquisitions are viable
strategies to grow the business. Given the strong brand recognition for the
Glaxo line, we believe that pursuing development of new forms of these products
is financially prudent and could add to revenue growth. Therefore, we plan to
fund such activities as well as build the business as I mentioned, through
additional transactions. Our goal is to become the most capable and most
professional of the competing companies in the category.
Let me now turn the call over to Mike to review the financial implications of
this transaction.
FINANCIAL IMPLICATIONS
MIKE:
Thanks Bob. I will address in summary the financial terms of the transaction and
provide guidance regarding the financial impact expected from the dermatology
product line and division.
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Under the distribution agreement, Dura will make annual distribution payments in
2001 and 2002 to Glaxo of approximately $45 million. At the end of 2002, Dura
can exercise an option to acquire the products at a predetermined multiple of
the 2002 sales, subject to specified minimum and maximum amounts. The option
exercise price, if the option is exercised, will be paid in the first quarter of
2003 and in 2004. The payment structure under the distribution agreement
preserves a substantial portion of our current cash resources and allows the
cash flow generated from sales of the products to contribute significantly to
covering the required payments through 2002.
Financially, the addition of the dermatology product line should have a
significant impact on Dura's pharmaceutical sales and earnings. As Bob
mentioned, we will immediately begin to build our Dermatology Division to
aggressively promote and begin to grow the dermatology product line in late
2000. We expect the dermatology product line to generate sales in the fourth
quarter of 2000 of approximately $13 million and sales in 2001 in the mid $60
million range.
Glaxo will continue to manufacture the dermatology products through the term of
the distribution agreement at costs that are expected to produce gross margins
for the product line in the low 70% range.
Incremental operating expenses pertaining to the dermatology division are
expected to be in the high $30 to $40 million range for 2001. Included in
operating expenses will be an annual distribution fee in the $15 to $17
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million range through 2002 with product rights amortization in the low $20
million range beginning in 2003.
The expected earnings impact from the Dermatology Division, after giving effect
to incremental income taxes in the high 30% range, is as follows:
- - For the fourth quarter of 2000, we expect the Dermatology Division to be
slightly accretive to earnings.
- - For 2001 and beyond, we expect the Dermatology Division to contribute
significantly to our earnings growth adding to our previously communicated
goal of growing annual earnings in the low-to-mid 20% range.
In summary, the dermatology product line adds to our growing portfolio of
promoted pharmaceutical products and confirms our commitment to acquire products
that will add to our annual earnings growth target on our core business in the
low-to-mid 20% range.
Now, I'll turn the presentation back to Cam to close.
CAM:
Thanks, Mike.
I appreciate you taking time to learn about the transaction and our plans to
create a first-class Dermatology Division.
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We are very excited about this transaction as it provides Dura and its
stockholders with significant opportunities.
- - By acquiring the product line and creating a Dermatology Division, we are
establishing another platform for growth in terms of acquiring other
products to leverage the to-be-created sales and marketing infrastructure.
- - We expect the dermatology products to contribute significantly to our
revenue and earnings growth moving forward, and finally
- - We have established an important relationship with yet another major
pharmaceutical company.
As we move into the latter part of 2000 and while we are working towards
completing the merger with Elan, we will continue to focus on executing our
strategy and achieving our stated goals. We are focused on:
1. Continuing the growth of our current six patent-protected, promoted
products and acquiring additional commercialized products that fall
into what we're describing as specialty-focused markets;
2. Advancing the development and commercialization of inhaled insulin,
which we are pursuing in collaboration with Eli Lilly & Company;
3. Continuing development of the Spiros-Registered Trademark- S2
technology. We are very excited about the capabilities and
opportunities of this new inhaler technology and we are aggressively
seeking partnering relationships to expedite the full market potential
of this technology platform; and
4. Expeditiously building a first-class Dermatology Division.
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In terms of the acquisition of Dura by Elan, we are diligently working together
to meet the regulatory requirements and prepare for a special meeting of Dura
stockholders to vote on this transaction. We will not comment any further on the
pending merger with Elan. As mentioned at the beginning of the call, we will not
address any questions about the merger during the question and answer session.
We will defer questions until after the merger closes. At that time, both
companies intend to give guidance and information on strategy, vision, potential
synergies and the management structure going forward.
Thank you for your attention and participation in this conference call. We
appreciate your interest in and your support of Dura Pharmaceuticals.
We are now available to take your questions. Operator, will you please review
the instructions?
THE FOREGOING COMMUNICATION IS BEING FILED PURSUANT TO RULE 425 UNDER THE
SECURITIES ACT OF 1933 AND DEEMED FILED PURSUANT TO RULE 14A-12 UNDER THE
SECURITIES EXCHANGE ACT OF 1934. THIS COMMUNICATION DOES NOT CONSTITUTE AN OFFER
OR SALE OF SECURITIES. STOCKHOLDERS OF DURA PHARMACEUTICALS, INC. ARE URGED TO
READ THE PROXY STATEMENT-PROSPECTUS WHICH WILL BE INCLUDED IN THE REGISTRATION
STATEMENT ON FORM F-4 TO BE FILED BY ELAN CORPORATION, PLC IN CONNECTION WITH
THE PROPOSED MERGER BECAUSE IT WILL
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CONTAIN IMPORTANT INFORMATION. AFTER SUCH DOCUMENT IS FILED, IT WILL BE
AVAILABLE FROM DURA PHARMACEUTICALS, INC. THROUGH THE CONTACT LISTED BELOW.
DURA PHARMACEUTCALS, INC.
7475 LUSK BOULEVARD
SAN DIEGO, CALIFORNIA 92121
ATTENTION: CORPORATE SECRETARY
(800) 859-8585
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