Archive for 'Pharmaceuticals'

– Determines that proposal fails to recognize full value of Cephalon shares

Cephalon, Inc. (NASDAQ: CEPH) announced today that after a thorough review, its Board of Directors has formally rejected Valeant Pharmaceuticals International, Inc.’s March 29th unsolicited proposal to purchase the Company for $73 per share.  In a letter to Valeant CEO J. Michael Pearson, the full text of which is included below, the Cephalon Board of Directors concluded, after an analysis by its financial and legal advisors, that Valeant’s non-binding proposal is inadequate and not in the best interests of Cephalon’s shareholders.

The following reasons, among others, support the Board’s conclusion:

  • The Valeant Non-Binding Proposal Does Not Fully Reflect Cephalon’s Standalone Value. The Board determined that Valeant’s proposed price significantly undervalues the Company, including the greater value obtainable from the Company’s strategic plan, especially the value inherent in the Company’s diversified and robust portfolio of marketed and pipeline products.  The Board believes that the Valeant non-binding proposal is an opportunistic attempt by Valeant to shift this value to Valeant and its shareholders and away from the Company’s shareholders.
  • Valeant Values Cephalon Using “Worst-Case Scenario.” By Valeant’s own admission, its analysis of Cephalon’s value is based on a worst-case scenario, which is an inappropriate methodology.
  • Valeant’s Timing is Opportunistic. The 30-day average Cephalon share price of $56.74 on which Valeant based their proposal is near the stock’s 52-week low.  Valeant’s proposal represents virtually no premium to Cephalon’s 52-week high.
  • The Valeant Non-Binding Proposal Ascribes Little to No Value to Cephalon’s Pipeline. Cephalon has created one of the broadest pipelines in the industry, with 10 late-stage product candidates targeted at novel and “best-in-class” therapeutics.  This includes six indications with blockbuster potential which are projected to begin launching in the next three years.  These programs represent tremendous value that is not reflected in Valeant’s current proposal.  Additionally, this proposal ignores the proven ability of the Cephalon Board and management to successfully identify, develop and commercialize pipeline opportunities.

 

Kevin Buchi, Cephalon’s Chief Executive Officer, said “This is all about shareholder value.  The Cephalon Board of Directors is committed to maximizing value for our shareholders, and we take this responsibility very seriously.”

On March 30th, Valeant stated that it intended to commence a consent solicitation process during the week of April 4th to remove all of Cephalon’s directors and replace them with Valeant’s nominees.  In the interests of allowing consideration of this matter on a timely basis by Cephalon’s shareholders and significant participation in the process by Cephalon’s many long-term shareholders, pursuant to the Company’s by-laws, the Cephalon Board of Directors has set a record date for the consent solicitation of Friday, April 8, 2011.  The consent solicitation period will last for 60 days from the date of the earliest dated consent delivered to the Company.

Deutsche Bank Securities Inc. and BofA Merrill Lynch are acting as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is acting as Cephalon’s legal counsel.

April 5, 2011

J. Michael Pearson

Chairman and Chief Executive Officer

Valeant Pharmaceuticals International, Inc.

14 Main Street, Suite 140

Madison, New Jersey 07940

Dear Mr. Pearson:

After a thorough review, the Cephalon Board of Directors has unanimously concluded that your March 29th unsolicited non-binding proposal is inadequate and not in the best interests of Cephalon shareholders.  In reaching this conclusion, the Board took into account the advice of its independent financial advisors.  The Cephalon Board believes that your proposed price significantly undervalues Cephalon, its key assets and its prospects.

From the standpoint of the Cephalon shareholder, a transaction with Valeant at this time and at the price you proposed would mean foregoing the greater value obtainable from Cephalon’s strategic plan, including the value inherent in our diversified and robust portfolio of marketed and pipeline products.  Cephalon’s Board and management will, as we always have, continue to review, develop and adapt our plan to maximize value for our shareholders.

Sincerely,

J. Kevin Buchi

Chief Executive Officer

Cephalon, Inc.

cc: Cephalon Board of Directors

About Cephalon, Inc.

Cephalon is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world.  Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas.  Cephalon has the distinction of being one of the world’s fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide.  The company sells numerous branded and generic products around the world.  In total, Cephalon sells more than 150 products in nearly 100 countries.  More information on Cephalon and its products is available at http://www.cephalon.com/.

Additional Information:

Cephalon, Inc. (the “Company”), its directors and certain of its officers and employees may be deemed to be participants in the solicitation of consent revocations from stockholders in connection with a consent solicitation by Valeant Pharmaceuticals International, Inc. (“Valeant”) to replace the Company’s current Board of Directors with nominees of Valeant. The Company plans to file a consent revocation statement with the Securities and Exchange Commission (the “SEC”) in connection with the solicitation of written consent revocations in connection with Valeant’s consent solicitation (the “Consent Revocation Statement”). Information regarding the names of the Company’s directors and other participants in the solicitation and their respective interests in the Company by security holdings or otherwise is set forth in the Company’s proxy statement relating to its 2011 annual meeting of stockholders, which may be obtained free of charge at the SEC’s website at http://www.sec.gov and the Company’s website at http://www.cephalon.com.  Additional information regarding the interests of such potential participants will be included in the Consent Revocation Statement and other relevant documents to be filed with the SEC in connection with the consent solicitation.

Promptly after filing its definitive Consent Revocation Statement with the SEC, the Company will mail the definitive Consent Revocation Statement and a form of white consent revocation card to each stockholder entitled to deliver a written consent in connection with the consent solicitation.

WE URGE INVESTORS TO READ THE CONSENT REVOCATION STATEMENT (INCLUDING ANY SUPPLEMENTS THERETO), THE COMPANY’S  SOLICITATION/RECOMMENDATION STATEMENT REGARDING ANY TENDER OFFER THAT MAY BE COMMENCED BY VALEANT, AND ANY OTHER RELEVANT DOCUMENTS THAT THE COMPANY WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.  Stockholders will be able to obtain, free of charge, copies of the Consent Revocation Statement, the solicitation/recommendation statement and any other documents filed by the Company with the SEC in connection with the consent solicitation or any tender offer at the SEC’s website at http://www.sec.gov, at the Company’s website at http://www.cephalon.com, or by contacting Innisfree M&A Incorporated at (877) 800-5186 (banks and brokers call collect at (212) 750-5833).
Media:
Cephalon Contacts:

Fritz Bittenbender
O: 1 610 883 5855
C: 1 610 457 7041
fbittenb@cephalon.com

Natalie de Vane
O: 1 610 727 6536
C: 1 610 999 8756
ndevane@cephalon.com

Steve Lipin/Jennifer Lowney
Brunswick Group
O: 1 212 333 3810

Investors:
Cephalon Contacts

Chip Merritt
O: 1 610 738 6376
cmerritt@cephalon.com

Joseph Marczely
O: 1 610 883 5894
jmarczel@cephalon.com

Alan Miller / Scott Winter
Innisfree M&A Incorporated
O: 1 212 750 5833

http://www.cephalon.com

Mangrove Partners, owners of 149,373 shares representing approximately 5.71% of the outstanding shares of CPEX Pharmaceuticals, Inc (Nasdaq: CPEX), believes its analysis and intentions were inaccurately portrayed in CPEX’s March 2, 2011 letter to stockholders, which appears to use scare tactics in order to pressure stockholders into accepting an inadequate price for their shares.

Commenting on the merger, Nathaniel August replied, “At its most basic level the merger makes no sense. The buyer is funding only $3 million of equity yet there is approximately $10 million in transaction fees being paid to management and advisors.”

As regards CPEX’s scare tactics, Nathaniel August remarked, “When we first purchased CPEX stock last April, management told us the outlook for Testim was wonderful following the FDA’s response to Auxilium Laboratories, Inc.’s Citizen’s Petition, which states that future generic competitors must file a full NDA. Now that management is about to capture their change of control payments, CPEX is only too willing to tell stockholders how awful the outlook is for Testim.”

Mangrove Partners would like to highlight the following inaccuracies in CPEX’s letter:

  • CPEX’s letter fails to inform stockholders of the Citizen’s Petition regarding generic versions of Testim (and a subsequent affirmation of that response), which requires potential competitors to file a full NDA, an extremely costly process, in order to be approved.
  • Competing and generic products have been well known since before CPEX issued its proxy statement, which forecasts continued growth in the Testim royalty over the next four years despite the new competition. Is CPEX backing away from this projection? Although our analysis suggests that Testim is often used after AndroGel® has been ineffective, in which case we see little threat to the existing user base, we used CPEX’s own projections in the proxy statement showing slower future revenue growth as compared to the historic rate. Even with this slowdown, we show the DCF value of CPEX using the proxy statement’s projections far exceeds the merger price.
  • CPEX claims we don’t account for legal costs of maintaining the patents, but the truth is we use the proxy statement’s projected G&A expenses. On page 36 of the Company’s most recent 10-K legal costs are clearly included in G&A. Is CPEX now saying management’s figures were wrong?
  • CPEX claims we make dividend projections for future years, but the truth is we just show potential 2011 dividends based on CPEX’s projections in its proxy statement. If CPEX thinks the proxy statement is correct, then the dividend will actually grow for the next 3-4 years. Many royalty trusts we use as comparables already have declining production yet trade at 7-8% yields.

We are frustrated that CPEX seems to simply disavow their own figures in an effort to scare stockholders into accepting an offer that undervalues CPEX but provides management with lucrative change of control payments and its advisors with substantial fees.

Mangrove Partners believes there are two questions in evaluating the merger. First, is this a fair price? CPEX’s advisors use a DCF valuation and Mangrove Partners used CPEX’s own projections from the proxy statement to show that a DCF valuation far exceeds the $27.25 per share offered in the merger. CPEX has failed to show or even assert that our DCF analysis contains any errors. Second, is there a better alternative to the merger? Mangrove Partners has suggested either creating a royalty trust or refocusing on dividends. CPEX has failed to show any errors with our analysis showing that CPEX could pay an $8-9 per share annual dividend as a royalty trust or an $8-10 per share special dividend and a $4-5 per share annual dividend as a standalone company. Mangrove Partners stands behind its analysis, all of which is based on management’s projections in the proxy statement.

Mangrove Partners did have several discussions with CPEX’s advisors, but it was denied access to management and to the elected stockholder’s representatives of CPEX, the Board. In our discussions, we never made an offer to purchase CPEX and we currently have no intention of making such an offer. CPEX’s advisors conditioned a management call on agreeing to onerous confidentiality restrictions and limiting discussion to written questions submitted in advance. The simple truth is that the Board and management have refused to have any dialogue with us and have never returned our calls. What is so scary about a conversation with one of your stockholders?

Mangrove Partners was further confused by CPEX’s assertion that voting down the merger is “Mangrove’s only path to a profitable investment.” Had the Board read our filings, they would know that we have made money on our investment in CPEX. At this point, Mangrove Partners only cares about maximizing value and our future per share returns will replicate the returns earned by all other stockholders. In fact, publicizing our opposition to the transaction comes at our sole expense, yet a better outcome will be shared by all stockholders. This is the opposite outcome of the merger, which has management receiving large change of control payments while stockholders are denied better alternatives such as a royalty trust, dividend focused company, or dividend recapitalization. Our interests are aligned with fellow stockholders.

Instead of addressing stockholders’ concerns, CPEX has derided Mangrove Partners for its investment in CPEX. We understand the sale process was time consuming and the Board is recommending the merger, but that does not excuse CPEX’s unwillingness to engage with shareholders. We strongly encourage the Board and management to open a two-way dialogue with their stockholders and question why Robert Hebert was listed as the investor contact on CPEX’s press release when to the best of our knowledge he has not returned shareholder calls for months.

Mangrove Partners opposes the proposed merger based on the following factors:

  • Inadequate Price: The merger represents only 3.6x 2011 forecast operating profit and is a discount to the debt being raised by the acquirer. The inadequate price was further revealed when the acquirer’s stock more than doubled after announcing it will acquire CPEX.
  • Better Alternatives: CPEX can refocus itself on paying its earnings out can afford a dividend of over $4 per share without touching its estimated net cash position of over $9 per share. Alternatively, CPEX may be able to spinoff Testim into a royalty trust paying over $8 per share in annual dividends. We believe CPEX is worth substantially more as a standalone company than the merger consideration being offered.
  • Conflicted Management: Management is set to receive change of control payments of over $7.3 million or over 10% of the value of CPEX.
  • Faulty Fairness Opinion: The fairness opinion is lacking key elements such as comparable transactions and comparable companies analyses. The DCF analysis provided to stockholders appears misguided and we could not replicate its conclusions using the banker’s methodology.

Investors with questions concerning our reasons for voting against the merger should call Steven C. Balet or Geoff Sorbello at Okapi Partners LLC, which is advising Mangrove Partners, toll free at 1-877-285-5990.

Mangrove Partners’ prior letters and presentations to CPEX can be found here:

CONTACT: Steven C. Balet or Geoff Sorbello, both of Okapi Partners LLC, for Mangrove Partners, 1-877-285-5990

Special Meeting Scheduled to Take Place March 24, 2011

Mangrove Partners, owners of 149,373 shares representing approximately 5.71% of the outstanding shares of CPEX Pharmaceuticals, Inc. (Nasdaq: CPEX), today announced that it has decided to vote against the sale and against giving CPEX the right to adjourn the special meeting. Mangrove Partners made its decision after critically examining the merits of the proposed sale of CPEX for $27.25 per share or only 3.6x management’s forecast operating profit in 2011.  Mangrove Partners has prepared a presentation containing analysis regarding the merger for both CPEX’s Board of Directors and fellow stockholders and has posted the analysis to the new website www.cpexripoff.com.

Commenting on the transaction, Nathaniel August, Director of Mangrove Partners, said “Our analysis led us to the clear conclusion that CPEX is worth far more than $27.25 per share and that there are straightforward means of achieving a higher value. To share this analysis, we created the website www.cpexripoff.com. We welcome feedback from our fellow stockholders.”

Mangrove Partners has voiced its opposition to the proposed transaction based upon the following factors:

  • Inadequate Price: The merger represents only 3.6x 2011 forecast operating profit and is a discount to the debt being raised by the acquirer. The inadequate price was further revealed when the acquirer’s stock more than doubled after announcing it will acquire CPEX.
  • Better Alternatives: CPEX can refocus itself on paying its substantial earnings out to stockholders and can afford a dividend of over $4 per share without touching its estimated net cash position of over $9 per share. Alternatively, CPEX may be able to spinoff Testim into a royalty trust paying over $8 per share in annual dividends. We believe CPEX is worth substantially more as a standalone company than the merger consideration being offered.
  • Conflicted Management: Management is set to receive change of control payments of over $7.3 million or over 10% of the value of CPEX.
  • Faulty Fairness Opinion: The fairness opinion is lacking key elements such as comparable transactions and comparable companies analyses. The DCF analysis provided to stockholders appears misguided and we could not replicate its conclusions using the banker’s methodology.

Investors with questions concerning our reasons for voting against the merger should call Steven C. Balet or Geoff Sorbello at Okapi Partners LLC, which is advising Mangrove Partners, toll free at 1-877-285-5990.

Mangrove Partners’ original letter to CPEX can be found here:

CONTACT: Steven C. Balet, +1-212-297-0724

Web Site: http://www.cpexripoff.com

Pharmaceuticals to Undergo Major Changes

Pharmaceuticals to Undergo Major Changes

Pharmaceuticals to Undergo Major Changes-Image via Wikipedia

New Report Outlines Six Trends That Will Change the Way Drugs are Manufactured and Distributed

While recent attention has focused on issues such as the challenges associated with drug discovery and the regulatory review process, pharmaceutical companies have invested comparatively little effort in updating their manufacturing and distribution operations, many of which are inefficient, under-utilized and ill-equipped to cope with new medicines, cost pressures and health reform expectations, according to the latest report in the Pharma 2020 series, Supplying the Future: Which path will you take ?, released today by PwC US.

Representing a significant amount of the cost base of most bio-pharmaceutical companies, the supply chain is the link between the laboratory and the marketplace and includes everything from sourcing raw materials to manufacturing and packaging to inventory warehousing, transportation and distribution.  As demand grows for more customized products and services — and as the nature of those products and services becomes more complex — the next generation pharmaceutical supply chains will become an increasingly important source of differentiation for makers of medicines, and will be a more prominent part in the strategic thinking of industry leaders, according to PwC.

In the report, PwC outlines six trends that will fundamentally change the way pharmaceutical companies make and distribute their products.

  1. Health reform shifts emphasis from product features to patient outcomes: The government’s emphasis on health outcomes as a basis for payments will require pharmaceutical companies to not only manage the manufacturing and distribution of medicines and companion diagnostics, but also to combine product offerings with data and supplemental services that add value through improved outcomes and efficiencies.
  2. New products types: The growth of biologics, bioengineered vaccines and advancements such as stem cell research and nanotechnology are diversifying pharma’s portfolio with products that have a shorter shelf life and require more complex manufacturing and distribution processes than shelf-stable pills and conventional medicines.
  3. Incremental product launch alters the sales curve: Both the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) have shown interest in limited label approvals, granting “live licenses” contingent on ongoing testing versus the all-or-nothing phase I through IV approach.  Current processes support revenue projections for “big bang” product launches, with peak sales upfront.  Pharma companies will need more adaptable cost structures that preserve gross margins at each stage of the product lifecycle.
  4. New modes of healthcare delivery: Greater use of electronic health records, e-prescribing, mobile health applications and remote monitoring are moving healthcare delivery, including medication management, beyond hospitals and physicians offices into homes, communities and direct to patients.  Pharmaceutical companies will need real-time information to manage wider distribution networks and demand-driven manufacturing and distribution processes.
  5. Growing importance of emerging markets:  The growing importance of the emerging markets will require pharmaceutical companies to understand patient needs and preferences in the developing world and modify cost and design of product offerings and services accordingly.
  6. Greater public scrutiny: Globalization, the foreign sourcing and manufacture of regulated products, and an increase in the volume and complexity of imported products have increased the need for supply chain control to identify the risk of contamination and fake medicines.  Regulators are raising the bar on supply chain safety, demanding sophisticated technology solutions to track and trace product throughout the supply chain.

“The current pharmaceutical supply chain worked well when the ‘blockbuster’ paradigm prevailed, but pharma’s focus in a post-health reform world is shifting from products to patients, and their supply chain processes need to adopt the speed and agility of other, more consumer-oriented industries such as consumer electronics and mass retailing,” said Wynn Bailey, head of supply chain strategies, PwC.  “In a world where outcomes count for everything, health organizations need to acquire a much deeper understanding of patients and their healthcare needs.  Information is the new currency, and the data behind the product may soon be as valuable as the product itself.”

PwC predicts that the pharmaceutical supply chain will undergo three key changes over the next decade.  It will become fragmented, with different models for different product types and patient segments; It will become a means of market differentiation and source of economic value; and It will become a two-way street, with information flowing upstream to drive the downstream flow of products and services, and the management of information transferred between the pharma company, the patient and healthcare provider will become as important as the movement of product.

“The most successful pharma companies will be those that recognize the underlying value locked in their supply chain and can leverage it as a value and brand differentiator rather than just a cost,” said Steve Arlington, global advisory pharmaceutical and life sciences leader, PwC. “Companies that recognize information is the currency of the future, will be those that go the final mile and stand out by 2020.”

In its report, PwC outlines four potential scenarios that pharmaceutical companies might explore as a way to restructure their supply chains.  Depending on their product and channel portfolio, most companies will have to manage to more than one scenario simultaneously.

Companies that concentrate on specialist therapies might exit from manufacturing altogether and, instead, become a virtual manufacturer, outsourcing the entire supply from production of the earliest clinical batches to full-scale manufacturing, packaging and distribution through a network of integrated supply partners.  Alternatively, they might position themselves as service innovators, building supply chains that are capable of manufacturing and distributing complex treatments as well as managing multiple suppliers of integrated, valued-added health management services.

Mass-market manufacturers, such as the makers of generic drugs, might position themselves as high-volume, low-cost providers, borrowing lessons in lean manufacturing, strategic pricing and inventory management from the consumer products industry.   Another option for mass mass-market manufacturers is to turn their supply chains into profit centers that combine economic manufacturing and distribution of satellite services, such as direct-to-patient delivery, secondary packaging or distribution to hospitals and pharmacies, and then to franchise it as a stand-alone offering for both internal and external customers.

The report provides an in-depth explanation of these scenarios and is available for download at www.pwc.com/pharma2020supplychain.  All of the reports in the Pharma 2020 series are available at www.pwc.com/pharma2020.

About PwC’s Pharmaceutical and Life Sciences Industry Group

PricewaterhouseCoopers Pharmaceutical and Life Sciences Industry Group (www.pwc.com/pharma or www.pwc.com/medtech) provides assurance, tax and advisory services to proprietary, generic and specialty drug manufacturers, medical device and instrumentation suppliers, biotechnology companies, wholesalers, pharmacy benefit managers, contract research organizations, and industry associations. The firm is dedicated to delivering effective solutions to the complex strategic, operational, and financial challenges facing pharmaceutical, biotechnology and medical device companies. Follow PwC Health Industries at http://twitter.com/PwCHealth.

About the PwC Network

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network shadre their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

© 2011 PwC. All rights reserved. “PwC” and “PwC US” refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

CONTACT: Art Karacsony, PwC US, attila.karacsony@us.pwc.com, +1-973-236-5640, or Lisa Stearns, The Hubbell Group, Inc., lstearns@hubbellgroup.com, +1-781-878-8882

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