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Filed by Dura Pharmaceuticals, Inc.
Pursuant to Rule 425 under the
Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12
Subject Company: Spiros Development Corporation II, Inc.
Commission No. 000-23501
DURA PHARMACEUTICALS, INC.
2Q00 EARNINGS AND REFOCUSED STRATEGY CONFERENCE CALL
Tuesday, July 25, 2000
5:30 a.m. Pacific Daylight Time
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, and Mike Borer, Dura's
Senior Vice President and Chief Financial Officer. Mr. Borer, please begin.
MIKE:
Good morning! Thank you for participating in Dura's conference call for the
announcement of our Second Quarter 2000 Financial Results and discussion around
the announcement of a significant refocusing of the Company's strategy. The two
press releases issued yesterday afternoon will be the basis of our call. We will
proceed as follows: I will review the financial results of the second quarter,
Cam will outline our refocused strategy and provide some detail regarding the
immediate impact on the Spiros-Registered Trademark- technology, Bob will
provide an update on commercial operations, both current results as well as
prospects moving forward, I will discuss our
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new financial targets going forward, and then Cam will summarize. After our
prepared presentation, we will be available to answer your questions.
Before we proceed, I would like to share with you our policy regarding
forward-looking statements. 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: the effectiveness of our
sales forces in promoting our products, our ability to acquire 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 parties for manufacturing and development,
the competitiveness of the pharmaceutical industry, the successful completion of
the merger with Spiros Development Corporation II, Inc. 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.
FINANCIAL REVIEW FOR 2Q00
Now, I will share with you the details of our second quarter 2000 results that
we announced yesterday.
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- Net income and earnings for the second quarter both increased over the
second quarter of 1999 by 24% to $9.4 million and $0.21, per share
respectively, with EPS exceeding First Call consensus of $0.18 by $0.03.
The results were achieved with strong year over year growth from our
promoted products along with prudent investment in our sales and marketing
assets. We are pleased with our results for the quarter as they were
achieved while launching Alocril-TM- and Ocuflox-Registered Trademark-, and
in the face of a weak flu season in the early part of the year.
- Pharmaceutical sales totaled $60.9 million for the second quarter of 2000,
an increase of 19% over the second quarter of 1999. In a few moments, Bob
will comment more specifically on individual product performance in the
quarter and our product goals for 2000.
- Dura continued to post strong gross margins on pharmaceutical sales, which
were 80.4% for the second quarter, up slightly from the 1999 quarter. With
the continued strong growth of our hospital products, we expect gross
margins moving forward to fluctuate between 78% and 80%. Gross profit from
pharmaceutical sales was $49.0 million in the second quarter of 2000, an
increase of 20% over the same period in 1999.
- Contract revenue for the second quarter of 2000 totaled $20.6 million and
resulted primarily from development activity on behalf of both Spiros
Development Corporation II for the Spiros-Registered Trademark- respiratory
compounds, and Eli Lilly & Company for inhaled insulin. Contract
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Revenue from Spiros Development Corporation II during the second quarter of
2000 was $15.4 million.
- In aggregate, total revenues for the second quarter of 2000 were $81.5
million, an increase of 20% over the second quarter of 1999.
- SG&A expenses for the second quarter of 2000, exclusive of product rights
amortization, totaled $35.5 million, an increase of 22% over the same
period last year. The increase in SG&A expenses primarily reflects the full
effect of our hospital sales force which we were just starting to build in
early 1999.
- Operating income from pharmaceutical sales was $9.6 million for the second
quarter of 2000, an increase of 15% over the $8.4 million in the second
quarter of 1999.
- Adding to our positive second quarter results was the cash flow generated
from operations during the quarter which totaled $22.0 million, bringing
the year-to-date total to $50.3 million. Non-cash depreciation and
amortization totaled $9.1 million for the second quarter 2000 and accounts
receivable and inventory balances were $29.0 million and $14.5 million,
respectively, at June 30, 2000.
- Our cash and short-term investments totaled $295.1 million at June 30,
2000, up $20.7 million from $274.4 million at December 31, 1999. We believe
our current cash balance and strong cash flow from
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pharmaceutical sales position us to successfully execute our transaction
and collaboration strategy moving forward.
Now, I'll turn the presentation over to Cam to review our refocused strategy.
REFOCUSED STRATEGY
CAM:
Thanks Mike.
I would now like to share with you an overview of what we are going to do
differently moving forward and our thinking behind this important decision.
As you would expect, we continually step back and assess our current business to
make decisions that are in the best interest of our stockholders. Our executive
management team and board of directors have carefully examined our current
business strategy, our pipeline development programs and other business issues,
and have concluded that implementing change NOW is in the best interest of our
stockholders in the short term, as well as in the medium and long term. This
strategy is designed to enable us, in effect, to almost double our current
earnings target for the year 2001 and achieve strong annual earnings growth
going forward, excluding the impact of product acquisitions, in the low-to-mid
20% range. The enhancement to stockholder value should improve our ability in
the long term to pursue a
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range of strategic alternatives in building our pipeline that otherwise might
not be available to us today.
It's no secret that, for a considerable time, our stock price has remained
frustratingly below where either our investors, or we think it should be. There
are, of course, innumerable factors that affect any public company's stock
price, but we strongly believe that we've been hampered by the following
conditions: uncertainty as to the future prospects and funding needs for
Spiros-Registered Trademark- development programs, concern over our sustainable
earnings growth profile and confusion in quality of earnings due to our
contractual relationship with Spiros Development Corporation II. Our goal is to
address each of these factors and to put the Company on a solid path to strong
earnings growth by pursuing a more focused growth strategy. The following are
our three primary objectives moving forward.
1. Continue to optimize our sales and marketing assets
2. Renew our focus on acquiring marketed products, and
3. Achieve value from our drug delivery technology platforms exclusively
through partnering.
I'll now focus on changes in our strategy regarding the technology platforms and
then Bob will discuss commercial operations.
We plan to realize greater value from our pulmonary delivery technology platform
exclusively through partnering. Our objective will be to establish Dura and its
inhalation delivery technology as the partner of choice for delivering drugs
through or to the lung.
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- In pursuing this strategy, we have decided, upon the successful acquisition
of Spiros Development Corporation II, to discontinue ALL current
Spiros-Registered Trademark- cassette development programs, including the
development programs for Beclomethasone and Budesonide in the motorized
Spiros-Registered Trademark- cassette system. Our decision is based on
several factors including: the significant advancements in the new
Spiros-Registered Trademark- S2 technology platform, the significant costs
associated with completing the cassette programs and the normal clinical
and regulatory risks associated with pharmaceutical product development,
all weighed against our outlook for the growing, but highly competitive
U.S. oral inhaled steroid market in 2002 and beyond when these product
candidates were targeted to reach the market.
- With respect to the Beclomethasone Spiros-TM- clinical programs, we plan to
complete the ongoing reliability study this quarter. The life-cycle data
captured from this particular study will assist our scientists as they
focus their attention on the inhaled insulin development program.
Successful results will confirm our ability to develop a robust, reliable
motorized Spiros-Registered Trademark- system. However, we do plan to
terminate the Beclomethasone Spiros-TM- 12-week safety and efficacy study
that was initiated in late May and we will not proceed to compile and file
the Beclomethasone Spiros-TM- NDA.
- With respect to the Budesonide Spiros-TM program, we plan to complete the
dose-confirmation study initiated in the second quarter as the data from
this study are relevant to the development of the Spiros-Registered
Trademark- S2 technology.
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- In addition, we will shift additional resources to our inhaled insulin
program with Lilly, substantially increasing the number of Dura associates
currently assigned to the program. The inhaled insulin program has
progressed to a juncture where additional resources are required to
maintain the momentum of this valuable program. Our working relationship
with Lilly is BETTER THAN EVER, as reflected by Jim Harper's quote in our
press release, and both parties are committed to this program.
- In addition to an expanding focus on the Lilly collaboration, we will also
focus our attention on the continued development of the new
Spiros-Registered Trademark- S2 technology that we announced earlier this
year. We are very excited to have invented a technology that is designed to
maintain the advantages of the Spiros-Registered Trademark- motorized
system, mainly to deliver a uniform drug dose with low inspiratory effort,
without the need for a battery-powered motor. We believe the
Spiros-Registered Trademark-S2 will have significant improvements over the
motorized Spiros-Registered Trademark- system - it is smaller, lighter,
much simpler to make and assemble, and has a significantly lower projected
cost to manufacture - which are beneficial in certain therapeutic
categories. We have applied for broad patent coverage on the core powder
dispersion technology and on the design and function of the advanced
inhalers that incorporate this invention. In addition, the
Spiros-Registered Trademark- S2 inhalers will be designed to have the
flexibility to be used with our existing blisterdisk powder storage
systems, used in the motorized inhaled insulin system, as well as our new
unit dose systems. Development of new inhalation products using the
existing blisterdisk powder storage systems will benefit from Dura's
technical experience and commercial scale
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manufacturing capacity. We have already experienced significant interest in
the Spiros-Registered Trademark- S2 technology and have begun active
discussions with potential partners. In June, we gave the first
Spiros-Registered Trademark- S2 technical presentation at a management
forum meeting on dry powder inhalers in London. The technology and the
quality of the IN VITRO data presented were very well received. We plan to
reaffirm our IN VITRO data with an IN VIVO scintigraphy study by year-end.
In alignment with our refocused strategy, we will commit a targeted and
adequate level of funding to the Spiros-Registered Trademark- S2
development program, but like the Lilly collaboration, will seek partner
funding to complete development and undertaken clinical programs.
- Often a significant change in strategy brings with it changes in
leadership. Such is the case at Dura where leadership will be changing on
the technology side. Upon completion of Spiros Development Corporation II
acquisition, David Kabakoff plans to leave Dura to pursue other interests.
We would like to take the opportunity to thank him for his commitment to
the Company over the past years. It has been a pleasure working with David
and we wish him the best as he moves on to pursue other interests. In his
place, Dr. Lloyd Flanders, currently Senior Vice President of Program
Management and Research and Development Planning, will assume
responsibility as Senior Vice President of Technology Operations. Lloyd
joined Dura in 1998 and has an excellent R&D background at Searle, Warner
Lambert and Ligand Pharmaceuticals. Lloyd has been involved in the
management of new product development activities since 1980 during which
time he has participated in the management of nine approved NDAs.
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Our decision to drop the Spiros-Registered Trademark- motorized cassette
programs and focus on developing our Spiros-Registered Trademark- S2 system
through collaborative relationships, like that for inhaled insulin with Lilly,
confirms our continuing commitment to delivering stockholder value. While this
decision allows us to generate stronger earnings and at the same time invest in
our sales and marketing assets, it will result in a restructuring of our
research and development operations while maintaining the core competencies
required to succeed. Significant research and development resources will be
moving to the Lilly program, however, a restructuring of the organization is
currently ongoing with a commitment to our stockholders to effectively manage
R&D investments and deliver on our new earnings targets.
In our decision to discontinue internal development programs and focus our
acquisition efforts exclusively on marketed products, we recognize that our long
term strategy must include strategic transactions to build our product pipeline.
We are confident in our ability to generate high sustainable growth over the
next several years through the continued growth of our current products and
incremental product acquisitions. Our refocused strategy, aimed at enhancing
stockholder value, should improve our ability in the longer-term to pursue
synergistic strategic transactions to bring together our commercial capabilities
and strengths with strong product pipeline opportunities.
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Now, I'll turn the presentation over to Bob to review the product performance
during the second quarter and the excitement that we share for the continued
success of our sales and marketing efforts moving forward.
COMMERCIAL OPERATIONS
BOB:
Thanks Cam. Let me first cover our year-to-date performance and then I'll talk
about growth strategies moving forward. Total pharmaceutical sales were $128
million for the first six months of this year, up 20% from last year. Sales from
promoted products were $82 million for the first six months, up 32% from the
same period in 1999. We realized the greatest growth from our hospital product
line, up 51% from last year, while primary care promoted product sales grew at a
more modest rate. Maxipime-Registered Trademark- has become our largest selling
product and is growing at the significant rate we anticipated when we acquired
it. Also during the second quarter, we launched our first two products from
Allergan and the early results on both are positive. Let me provide you a little
more detail, as well as convey our enthusiasm for our prospects moving forward.
MAXIPIME-Registered Trademark-
First, let me start with Maxipime-Registered Trademark-. On a year-to-date
basis, Maxipime-Registered Trademark- is up 61% over 1999. I'm also pleased by
the consistency in our national growth patterns, as every single major
metropolitan statistical area is significantly up over last year.
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We've implemented a number of programs this year to impact upon
Maxipime-Registered Trademark-'s success, including continued growth of our
hospital sales organization (now at 150 representatives), expansion of the CERIS
trials, expansion of our scientific communications activity publications
(multiple presentations later this year at ICAAC and IDSA) and through our
medical science liaisons. All of these activities have had a substantial impact
on sales and formulary approvals.
You may recall that we had a target of moving Maxipime-Registered Trademark-
formulary acceptance from the low 30% range last year to approximately 50% of
the top 1500 institutions this year. I'm pleased to report that we have had over
150 formulary acceptances in the first half, totaling over 650 hospitals, and
are approaching our annual target of 750. While it does take some time from
acceptance to achieve substantial pull through, we believe that these recent
wins will have a major impact on adding incremental sales to our already highly
growing base. Since the beginning of the year, we have achieved approval status
on a number of major teaching institution formularies including: Stanford, Duke,
UCLA, USC, Latter Day Saints System in Salt Lake City, Methodist in Houston,
University of Michigan, Fred Hutchison Cancer Center in Seattle and the
University of Wisconsin.
Maxipime-Registered Trademark- has become Dura's largest selling product and it
is now the fastest growing injectable antibiotic, faster than any quinolone or
beta-lactam and, as you might suspect, faster than all earlier generation
cephalosporins. We are working aggressively to develop additional clinical
support for Maxipime-Registered Trademark- that differentiates the brand from
the competition.
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Several important abstracts will be presented at the fall infectious disease
meetings (ICAAC and IDSA). Assuming we can continue down this track,
Maxipime-Registered Trademark- has the potential to generate multi-hundred
million dollar sales levels. We are selectively evaluating additional investment
options now to accelerate growth even more and I'll talk about that in concert
with other potential strategic initiatives in just a few moments.
AZACTAM-Registered Trademark-
Our other hospital product, Azactam-Registered Trademark-, has also done very
well in the first half. We have been able to turn around the year-over-year
sales decline that resulted from several years of limited to no promotion by
Bristol-Myers Squibb. Azactam-Registered Trademark- is now growing and is ahead
of our expectations. For the first six-months of 1999, Azactam-Registered
Trademark- declined by 24%. Thus far this year, we are 40% ahead of 1999. In
addition, we are encouraged by the fact that all of our gains are from hospitals
that we currently call on, thus assuming we continue to expand our reach, we
should be able to generate yet additional sales. So thus far this year, we are
performing ahead of consensus estimates for Azactam-Registered Trademark-
revenues.
Turning to our primary care promoted products, I'll talk about Ceclor-Registered
Trademark- CD which is not where we hoped it would be, Nasarel-Registered
Trademark- which is tracking toward plan, and the exciting second quarter
launches of Alocril-TM- and Ocuflox-Registered Trademark-.
CECLOR-Registered Trademark- CD
As we discussed at the end of the first quarter, this past flu season was very
weak, peaking early in January and dropping precipitously in February and
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March. We estimate that total prescriptions of all second and third generation
oral cephalosporins were almost 20% behind where we expected them to be through
June as the effects of the poor flu season in the first quarter continued to
impact physician prescribing of all of Ceclor-Registered Trademark- CD's
competitive class in the second quarter. As a result, inspite of the fact that
our sales are ahead of 1999 and that our market share is up compared to last
year at this time and that our sales per representative are up significantly, we
just haven't been able to reach our expectations. Secondarily, as we experienced
during the second quarter in the prior two years, we lost modest market share
during the second quarter to other second and third generation cephalosporins
with broader therapeutic indications, primarily skin and soft tissue infections.
We are optimistic that share growth will move significantly in the second half
of the year as it has historically with the onset of the past two flu seasons.
That said, we believe that Ceclor-Registered Trademark- CD has strong growth
potential within the second and third generation cephalosporin market given its
proven efficacy, convenient dosing and competitive pricing, and we expect to
grow the product in a normalized season. We are tracking behind our communicated
target for 2000 of the mid $50 million range and are now revising our
Ceclor-Registered Trademark- CD target to the mid-to-upper $40 million range
which is based on a normal upcoming flu season.
NASAREL-Registered Trademark-
- The Nasarel-Registered Trademark- product line on the other hand is
tracking toward our annual expectations in the mid $30 million range, but
in a similar manner, the overall market growth for intranasal steroids is
not growing
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as fast as it did in 1999. Last year the market grew about 13% in total
prescriptions, but this year is up only about 5%. Nasarel-Registered
Trademark- market share is about even with last year, which is a little
disappointing. We believe that our enthusiasm for and the time committed to
the Alocril-TM- launch in the second quarter has probably affected
Nasarel-Registered Trademark- in the short term, but we remain optimistic
about the mutual prospects for these two brands since allergic rhinitis and
allergic conjunctivitis often occur at the same time in allergy patients.
In fact, the promotional opportunities are so synergistic, we'll put them
in one single visual aid for our fall campaign.
ALLERGAN
- That brings me to the launch of the Allergan products. Alocril-TM-, for the
treatment of allergic conjunctivitis, was launched in late March. In that
relatively short period, we've moved share of market in our promoted
specialties from zero to 5.5%. We're pleased with our success, as is
Allergan. Ocuflox-Registered Trademark-, an ophthalmic quinolone antibiotic
for the treatment of bacterial conjunctivitis, was launched in late June.
It's too early to judge its success, but new prescriptions were up in the
first week. Ocuflox-Registered Trademark- has been on the market for
several years, but never actively promoted to primary care physicians. It
is the brand leader in ophthalmology and we are very enthusiastic about its
prospects. We have not provided specific guidance on the revenue impact
from these brands, but have said that they would be accretive beginning in
2001 and we remain confident about that.
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STRATEGIC CONSIDERATIONS AND INVESTMENTS
Moving forward, we believe the residual growth prospects in our entire promoted
product line are excellent and can drive annual earnings growth, excluding
acquisitions, in the low-to-mid 20% range. Historically, we have had a focus on
respiratory products. The acquisition and successful start we have experienced
with Maxipime-Registered Trademark- and Azactam-Registered Trademark- broadens
our sales and marketing expertise substantially. Still, we will maintain our
interest in what we call specialty-focused markets, and our hospital products
and the Allergan launches are excellent examples of that.
This year we have grown our sales organization by about 17%. We've done so with
a realignment of resources from exclusively primary care, where we were at the
beginning of 1999, to now acute care or hospital sales representatives and a
better targeted, more focused primary care team. While I'm enormously
enthusiastic about our performance with Maxipime-Registered Trademark- in
particular, I'm also pleased with year-over-year sales increases and substantial
improvements in productivity of our primary care group.
We believe we've engineered some sound changes and we'll continue to examine and
implement expansion initiatives in the future to optimize our revenue and
profitability run rates. Looking ahead, we will design and implement incremental
scientific and educational programs over the balance of this year to support
Maxipime-Registered Trademark-. We'll continue to expand the hospital sales
organization to benefit both Maxipime-Registered Trademark- and
Azactam-Registered Trademark-. We'll add resources to drive Maxipime-Registered
Trademark-'s usage in long-term care facilities because of its particular
utility in treating nursing home acquired pneumonia and finally, we'll explore
and implement contract sales support to augment our
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primary care group during the peak seasons in selected parts of the country for
Ceclor-Registered Trademark- CD and Nasarel-Registered Trademark-. We believe
that all of these investments will pay back with accelerated revenues over the
next couple of years.
BUSINESS DEVELOPMENT
- Over the past year, our business development team has put forth equal
attention in pursuing marketed products and pipeline candidates. Under our
refocused strategy, we will narrow the focus and expand our executive team
within business development. Their focus for the foreseeable future will be
exclusively on marketed products. The existing staff has previous
experience with Lilly, Aventis, Roche and Glaxo. They are responsible to
date for the acquisitions of Myambutol-Registered Trademark-,
Nasarel-Registered Trademark-, Maxipime-Registered Trademark-and
Azactam-Registered Trademark-and for the Allergan alliance. We have proven
that we're adept at acquiring and marketing products and we will expand
that effort and focus on acquiring marketed products to further increase
our growth possibilities above and beyond the low-to-mid 20% range that we
believe we can deliver over the next few years from our existing brands.
Obviously, I'm very optimistic about our future prospects and I look
forward to helping drive the operating results consistent with those that
Mike will share with you now. Mike.
REVISED GUIDANCE
MIKE:
Thanks Bob.
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I will first update you on the progress of the proposed acquisition of Spiros
Development Corporation II. The acquisition of Spiros Development Corporation II
by Dura will bring with it the rights to specific compounds for use in all
existing Spiros-Registered Trademark- systems, including both the motorized
system and new Spiros-Registered Trademark- S2 technology. We anticipate being
in position to complete the acquisition of Spiros Development Corporation II by
late August or early September, with the exact date now solely dependent on the
completion of the SEC review of our S-4 registration statement and Spiros
Development Corporation II stockholder approval. We have already received
Hart-Scott-Rodino clearance. The closing of the Spiros Development Corporation
II acquisition is expected to result in a significant write-off for acquired
in-process technology and the expenditure of over $60.0 million in net cash
along with the issuance of warrants for approximately 2 million Dura shares with
an estimated value of approximately $16.0 million. The completion of the
acquisition in late August or early September will bring Dura's cash position,
post acquisition, to approximately $230 million.
I will now discuss the financial impact of our refocused strategy which will
significantly step-up our 2001 earnings target and enhance our already strong
cash flow from pharmaceutical sales. We believe our new direction will also
position Dura going forward to generate annual earnings growth from our existing
business, excluding acquisitions, in the low-to-mid 20% range. The specific
impact from the major components of our refocused strategy are as follows:
1) Transitioning to partner funded programs from internally funded development
programs will dramatically reduce our R&D spending
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targets. Our commitment is to manage internal R&D spending, exclusive of
partner-funded spending, to a targeted $16-20 million annual range for the
years 2001 and 2002. This annual target includes approximately $4 million
in existing annual support for our currently marketed products. This is a
significant reduction from the targeted mid $40 million estimate for 2001
that would have been necessary to continue development of the two steroid
product candidates. We expect this funding level will bring development of
the Spiros-Registered Trademark- S2 core system to the point of being able
to commence clinical programs with partners in the 2002 timeframe while
also delivering on our targeted low-to-mid 20% earnings growth on our
existing business in 2002 and beyond.
2) The significant reduction in internal R&D funding positions us to increase
our investments in our sales and marketing assets. We expect these
investments to expedite the growth of our promoted products, strengthen our
ability to achieve strong earnings growth in the long-term and enhance our
ability to achieve strong incremental growth from acquired products. Bob
mentioned earlier that we are finalizing plans now to expand our hospital
selling presence, to invest in scientific support for marketed products,
especially Maxipime-Registered Trademark-, and to explore contract sales
supplements to our primary care sales force during peak seasons. These
investments are expected to increase our quarterly SG&A spending by
approximately $2.0 million moving forward. This increases our targeted SG&A
spend on our current portfolio of growing products to the low-to-mid $190
million range for 2001.
3) The net impact of these strategic decisions on earnings is to increase our
2001 earnings target for our existing business from the current First Call
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consensus of $0.37 per share to a range of $0.70 to $0.75 per share. The
new earnings target for 2001 represents a greater than 50% increase over a
pro forma year 2000 target of $0.45 to $0.50 per share which excludes all
Spiros Development Corporation II contract revenue and adjusts internal R&D
spending to the targeted range included in the 2001 earnings target. Our
2002 earnings target for our existing business is $0.87 to $0.92 per share,
an increase in the low-to-mid 20% range over 2001 and an increase over the
current First Call consensus of $0.76 per share. The 2001 and 2002 core
business earnings targets are also reflective of a nominal tax rate taking
into account our current tax structure and tax deductions associated with
the acquisition of SDCII. We expect our effective tax rate to gradually
step up beginning in 2003. I also want to emphasize that our 2001 and 2002
earnings targets are based on our existing sales & marketing assets and our
commitment to manage internal R&D spending to targeted levels. We are more
sharply focused on continuing our success of acquiring currently marketed
products with the prime objective for such acquisitions to further grow
earnings from our core business beyond our baseline targeted rate.
Our quarterly earnings targets for the third and fourth quarters of 2000 and
full year 2000, excluding any impact associated with the restructuring charges
associated with reorganization of our R&D operations estimated at $13 to $16
million and the write-off of acquired in-process research and development
resulting from the SDCII acquisition, are as follows:
- The impact of our refocused strategy on our earnings target for the third
quarter of 2000 is minimal as we restructure our organization and begin
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making additional investments in our sales and marketing assets. For the
third quarter of 2000, we expect EPS of $0.08 to $0.10 per share unchanged
from our previously communicated target; this estimate includes the
reversal of the income tax provisions recorded in the first and second
quarter of 2000 equal to approximately $9.0 million or $0.19 per share.
Based on closing the proposed acquisition of Spiros Development Corporation
II in late August or early September, we expect our effective tax rate for
the year 2000 to be nominal.
- For the fourth quarter of 2000, we expect net income of $0.16 to $0.18 per
share up from our previously communicated target of $0.10 to $0.12 per
share. This increase reflects the impact of reduced internal R&D spending
under our refocused strategy.
- Reflecting the above guidance and actual first and second quarter results,
our adjusted earnings target for the year 2000 is EPS of $0.72 to $0.76 per
share.
Now, I'll turn the presentation back to Cam to close.
CAM:
Thanks, Mike.
We've taken a while this morning to describe where we are headed and I
appreciate your patience in hearing this through. I hope that you now have
better clarity as to our business and growth strategy moving forward. As we move
through 2000 and beyond, our overriding objectives will be focused execution of
our strategy and achievement of our stated goals. We are
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focused on:
1. Continuing the growth of our six patented, promoted products and
acquiring 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 will aggressively
seek partnering relationships to expedite the full market potential of
this technology platform; and
4. Enhancing stockholder value to improve our ability in the long-term to
pursue a range of strategic alternatives in building our pipeline.
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 SPIROS DEVLOPMENT CORPORATION II, INC.
ARE URGED TO READ THE PROXY STATEMENT-PROSPECTUS WHICH WILL BE INCLUDED IN THE
REGISTRATION STATEMENT ON FORM S-4 TO BE FILED BY DURA PHARMACEUTICALS, INC. IN
CONNECTION WITH THE PROPOSED MERGER BECAUSE IT WILL CONTAIN IMPORTANT
INFORMATION. AFTER SUCH DOCUMENT IS FILED, IT WILL BE AVAILABLE FREE OF CHARGE
ON THE SEC WEBSITE AT WWW.SEC.GOV AND FROM DURA PHARMACEUTICALS, INC. AND SPIROS
DEVELOPMENT CORPORATION II, INC. THROUGH THE CONTACT LISTED BELOW. COPIES OF
PAGE 22 OF 23
<PAGE>
THIS DOCUMENT MAY ALSO BE OBTAINED AT THE CONTACT LISTED BELOW.
CONTACT:
DURA PHARMACEUTCALS, INC.
7475 LUSK BOULEVARD
SAN DIEGO, CALIFORNIA 92121
ATTENTION: CORPORATE SECRETARY
(800) 859-8585
PAGE 23 OF 23
