Filed by Caremark Rx, Inc.
Pursuant to Rule 425 under the Securities Act of 1933,
as amended, and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934, as
amended
Subject
Company: Advance PCS
Subject Company Commission File No.: 000-21447
On September 3, 2003, Caremark Rx, Inc. and AdvancePCS made the following presentation to the investment community:
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Caremark Rx, Inc.
AdvancePCS
Investor Presentation
September 3, 2003
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Certain statements contained in this presentation constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding benefits of the proposed merger and expected synergies, and anticipated future financial and operating performance and results. As such, they involve risks and uncertainties. A discussion of a number of important factors and assumptions regarding these statements and risks involved is contained in the Companys most recent filings with the Securities and Exchange Commission. These risks, as well as risks associated with the contemplated acquisition of AdvancePCS, will also be more fully described in the section entitled Risk Factors to be contained in the Companys Registration Statement on Form S-4 which will be filed with the Securities and Exchange Commission prior to the consummation of the acquisition.
This presentation includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, we have provided certain supplemental information at the Caremark Rx website at http://www.caremarkrx.com/investor under Financial and Market Information/Fundamentals (applicable slides are footnoted).
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Introduction
Transaction Overview
Industry Dynamics
Combination Benefits
Financial Overview
Q&A
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Introduction
Transaction Overview
Industry Dynamics
Combination Benefits
Financial Overview
Q&A
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Per share consideration: |
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Value equivalent to 2.15 Caremark shares per AdvancePCS share |
Consideration mix: |
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90% stock / 10% cash |
Transaction value: |
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$5.6 billion equity value; $5.8 billion enterprise value |
Transaction structure: |
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Tax-free reorganization, excluding cash component |
Conditions to closing: |
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Caremark and AdvancePCS stockholder approval Customary regulatory approvals and closing conditions |
Timing: |
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2004 |
Pro forma ownership: (1) |
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58% Caremark / 42% AdvancePCS |
(1) Based on estimated pro forma shares outstanding of 471.7 million
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Management Team
Mac Crawford, Chairman & Chief Executive Officer
A.D. Frazier, President & Chief Operating Officer
Howard McLure, EVP & Chief Financial Officer
Board Composition
Existing Caremark board will be expanded to include three directors proposed by AdvancePCS
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Introduction
Transaction Overview
Industry Dynamics
Combination Benefits
Financial Overview
Q&A
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Total U.S. drug spend is growing at a rate of 14%, and is expected to account for 13% of U.S. healthcare expenditures by 2007*
Increases in volume and price as well as a shift to higher cost drugs are driving drug spend growth
Large number of brand drugs losing patent protection in future
Specialty disease drug spend is the fastest growing share of total drug spend
Growing approximately 50% faster than the drug market as a whole
Estimated biotech spending CAGR of 21% from 2000-2005
Over 400 specialty disease products currently in pipeline
Patients representing less than 5% of the population have chronic diseases, but represent up to 50% of total medical costs**
* Source: CMS; Company estimates; equity research estimates
** AdvancePCS Specialty Benefit Mangement
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Many companies offer solutions to control the rising cost of prescription drugs
Pharmacy and Healthcare Cost Management
Independent PBMs
Health Plan PBMs
Retail Pharmacies
Claims Processors
Pharmaceutical Wholesalers
Disease Management Companies
Institutional Distributors
Specialty Pharmacies
Retail Chain Pharmacy PBMs
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PBMs are a Solution to Rising Drug Costs
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Source: GAO analysis of plan prices from three FEHBP plans and cash-paying customer prices at 36 pharmacies in California, North Dakota and the Washington, D.C. area
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Introduction
Transaction Overview
Industry Dynamics
Combination Benefits
Financial Overview
Q&A
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Enhanced provider of health management solutions |
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Highly complementary businesses |
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Increased customer diversity |
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Recognized expertise in mail service and retail programs |
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Broader specialty programs |
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Comprehensive disease management solutions |
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Expertise in driving preference for mail service and generic substitution |
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Best-in-class customer service |
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Strong financial profile |
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Significant growth opportunities |
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Caremark will apply best practices from both organizations to focus on the particular needs of clients within each client segment
Caremark |
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Combined (1) |
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AdvancePCS (1) |
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(1) Excludes AdvancePCS cash card and rebate utility scripts
Note: Based on adjusted scripts for quarter ending March 31, 2003
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Expanded size and scope expected to provide enhanced value for clients
Caremark will be in a position to offer enhanced value for clients as a large, diversified, independent PBM
Combined companies processed over 600 million prescriptions in the twelve months ended June 30, 2003 and serve approximately 70 million lives (1)
Increased ability to help clients manage drug spend through cross-selling innovative techniques and broad program offerings
Clinical programs
Specialty pharmacy services
Disease management
Continue to strengthen a best in class customer service organization
Dedicated, strong account services leaders and teams will remain intact
(1) Excludes AdvancePCS cash card and rebate utility
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Broader Choice and Convenience for Customers
[GRAPHIC]
Note: Blue symbol represents AdvancePCS facility
Red symbol represents Caremark facility
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25 years of experience |
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TheraCom key therapies: |
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Key therapies: |
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Pulmonary hypertension |
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Hemophilia |
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Gaucher disease |
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Growth Hor6one |
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Fabry disease |
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Multiple Sclerosis |
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Hurlers syndrome |
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Hepatitis C |
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Multiple Sclerosis |
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RSV |
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Expanded specialty product line
Access to large managed care client base for pull through of specialty products
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Complementary Disease Management
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CarePatterns Programs: |
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Accordant Health: |
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Asthma * |
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Seizures* |
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Pediatric Asthma |
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RA* |
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CAD * |
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Parkinsons* |
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CHF * |
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Scleroderma* |
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COPD |
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Hemophilia* |
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Diabetes * |
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Sickle cell anemia* |
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Ulcer |
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Systemic lupus* |
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Hemophilia |
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ALS* |
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Dermatomyositis* |
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Cystic fibrosis* |
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Gaucher* |
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Multiple Sclerosis* |
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Polymyositis* |
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CIDP* |
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Myasthenia gravis* |
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[GRAPHIC]
Combining AdvancePCS focus on rare diseases with Caremarks focus on high frequency, chronic conditions creates a comprehensive set of disease management solutions to benefit the customer
* NCQA Accreditation
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Enhanced Mail Order Opportunity
Transaction expected to expand opportunities for further penetration of mail order services
Increases safety, compliance and convenience
Provides savings for clients and members
Consistent technology in each companys state of the art mail facilities
Mail Penetration Rates (1),(2)
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(1) Caremark and AdvancePCS company reports
(2) Mail Penetration is defined as mail scripts processed divided by mail scripts processed plus retail scripts processed. Mail scripts are multiplied by three in this analysis to put them on an equivalent basis with retail scripts processed.
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Introduction
Transaction Overview
Industry Dynamics
Combination Benefits
Financial Overview
Q&A
19
Overview of Expected Financial Benefits
The two companies generated $23 billion in revenue and $876 million in EBITDA for the twelve months ended June 30, 2003
Expected to be accretive to Caremark Rx EPS in the near term
$125 million in expected synergies with a majority coming through purchasing efficiencies
The combined company is anticipated to have a strong balance sheet with favorable leverage levels and positive credit outlook
Note: Slide contains Non-GAAP financial measure(s). See supplemental information at www.caremarkrx.com/investor
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For the twelve months ended June 30, 2003
(In millions, except earnings per share)
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AdvancePCS |
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Net revenue |
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7,933 |
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14,680 |
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EBITDA |
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489 |
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387 |
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Pre-tax income from continuing ops |
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407 |
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300 |
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Income from continuing operations* |
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244 |
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181 |
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Average shares outstanding |
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263 |
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97 |
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EPS* |
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0.93 |
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1.87 |
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Mail Prescriptions filled |
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22 |
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Retail Prescriptions filled |
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81 |
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492 |
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* Using a 40% tax rate for Caremark Rx for all periods
Source: Caremark Rx and AdvancePCS SEC filings
Note: Slide contains Non-GAAP financial measure(s). See supplemental information at www.caremarkrx.com/investor
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(In millions, except ratios)
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AdvancePCS |
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Cash |
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526 |
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139 |
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Debt |
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697 |
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388 |
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LTM EBITDA |
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489 |
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387 |
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LTM Interest expense, net |
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45 |
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37 |
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Debt / EBITDA |
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1.4 |
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Net debt / EBITDA |
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0.4 |
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EBITDA / Interest expense, net |
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10.9 |
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10.5 |
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Source: Caremark Rx and AdvancePCS SEC filings
Note: Slide contains Non-GAAP financial measure(s). See supplemental information at www.caremarkrx.com/investor
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Enhanced provider of health management solutions
Highly complementary businesses
Increased customer diversity with over 600 million prescriptions in the twelve months ended June 30, 2003
Expanded distribution strengths
Broader specialty pharmaceutical and disease management programs
Expanded mail order platform
Strong financial profile and expected to be accretive to earnings in the near term
Significant growth opportunities
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Caremark, AdvancePCS and other PBMs play a vital role in the U.S. healthcare system by providing innovative pharmaceutical care programs that enhance the quality of life and health for consumers, while reducing cost. PBMs drive down pharmaceutical costs by employing sophisticated clinical programs, obtaining volume discounts and promoting the use of less expensive generic drugs, thereby passing the savings onto customers. By offering both retail and mail order services, plan participants also enjoy greater convenience and flexibility in meeting their pharmacy needs. The value, benefit, convenience and cost savings that PBMs accomplish have accounted for strong demand for their services.
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Caremark intends to file with the S.E.C. a registration statement on Form S-4 that will include a joint proxy statement/prospectus and other relevant documents in connection with the proposed transaction. Investors and security holders of Caremark Rx and AdvancePCS are urged to read the joint proxy statement/prospectus and other relevant materials when they become available because they contain important information about Caremark Rx, AdvancePCS and the proposed transaction. Investors and security holders may obtain a free copy of these materials (when they are available) and other documents filed with the S.E.C. at the S.E.C.s website at www.sec.gov. A free copy of the joint proxy statement/prospectus when it becomes available may also be obtained from Caremark Rx, 3000 Galleria Tower, Suite 1000, Birmingham, AL 35244 or AdvancePCS, 750 West John Carpenter Freeway, Suite 1200, Irving, TX 75039.
Caremark Rx, AdvancePCS and their respective executive officers and directors may be deemed to be participants in the solicitation of proxies from their respective stockholders with respect to the proposed transaction. Information about the directors and executive officers of Caremark Rx and their ownership of Caremark Rx shares is set forth in the proxy statement for Caremark Rxs 2003 annual meeting of stockholders. Information about the directors and executive officers of AdvancePCS and their ownership of AdvancePCS stock is set forth in the AdvancePCSs fiscal 2003 10K-A Amendment No. 2. Investors may obtain additional information regarding the interests of such participants by reading the joint proxy statement/prospectus when it becomes available.
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The Caremark
Difference
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On September 3, 2003, Caremark Rx, Inc. placed the following information concerning the proposed transaction with AdvancePCS on its website:
Caremark Rx, Inc.
Supplemental Presentation of Information Required by Regulation G
Investor Presentation Concerning the Planned Acquisition of AdvancePCS
September 3,
2003
The following information is provided pursuant to Securities and Exchange Commission Regulation G in conjunction with our presentation of certain non-GAAP financial measures, as defined therein, in our September 3, 2003, presentation to investors made in conjunction with our announcement of our intent to acquire AdvancePCS. This presentation was broadcast live over the Internet, and instructions for accessing a replay of this presentation are available at http://www.caremarkrx.com/investor.
Slide: Overview of Expected Financial Benefits
This slide presents a total for the combined EBITDA of Caremark Rx, Inc. (we, our, us or Caremark) and AdvancePCS for the twelve months ended June 30, 2003. EBITDA is a non-GAAP financial measure, and reconciliations of EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP for each company are as follows.
Caremark Rx, Inc.
We believe that EBITDA is a supplemental measurement tool used by analysts and investors to help evaluate a company's overall operating performance, its ability to incur and service debt and its capacity for making capital expenditures. We use EBITDA, in addition to operating income and cash flows from operating activities, to assess our performance and believe that it is important for investors to be able to evaluate our company using the same measures used by our management. EBITDA can be reconciled to net cash provided by continuing operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows (in thousands):
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Twelve Months Ended June 30, 2003 |
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Operating income (EBIT) | $ | 452,063 | ||
Depreciation and amortization | 36,559 | |||
EBITDA | 488,622 | |||
Cash interest payments, net of interest income | (42,945 | ) | ||
Cash tax payments, net of refunds | (12,844 | ) | ||
Other non-cash expenses | 1,604 | |||
Other changes in operating assets and liabilities, net of acquisitions and disposals of businesses | 54,450 | |||
Net cash provided by continuing operations | $ | 488,887 | ||
EBITDA does not represent funds available for our discretionary use and is not intended to represent or to be used as a substitute for net income or cash flow from operations data as measured under GAAP. The items excluded from EBITDA are significant components of our statement of income and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA and the associated year-to-year trends should not be considered in isolation. Our calculation of EBITDA may not be consistent with calculations of EBITDA used by other companies.
AdvancePCS1
EBITDA is a supplemental measure used to evaluate a company's ability to incur and service indebtedness and capacity for making capital expenditures. EBITDA does not represent funds
available for discretionary use and should not be considered as an alternative to net income or cash flow from operating activities measured under GAAP or as a measure of liquidity. In addition, AdvancePCS's calculation of EBITDA may not be consistent with calculations of EBITDA used by other companies. AdvancePCS believes that net cash provided by operating activities is the most directly comparable financial measure calculated and presented in accordance with GAAP.
However, AdvancePCS has reconciled EBITDA to net income as well as net cash provided by operating activities in the following table (in thousands):
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Twelve Months Ended June 30, 2003 |
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Net income | $ | 181,429 | |||
Add: | |||||
Interest expense, net | 37,125 | ||||
Income taxes | 118,453 | ||||
Depreciation and amortization | 49,950 | ||||
EBITDA | $ | 386,957 | |||
Current income taxes | (118,453 | ) | |||
Interest expense, net | (37,125 | ) | |||
Undistributed loss from JV | (5,575 | ) | |||
Other adjustments to reconcile net income to net cash provided by operating activities | 94,781 | ||||
Net cash provided by operating activities | $ | 320,585 | |||
Slide: Key Financials
This slide presents the non-GAAP measurement "EBITDA." See "Slide: Overview of Expected Financial Benefits" above for a reconciliation of EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP for each company.
Additionally, this slide presents Caremark's "Income from continuing operations" and "EPS" (income from continuing operations per common sharediluted) with a provision for income taxes computed using a 40% tax rate, although the actual amount reported by Caremark for this period was a net benefit from income taxes of $418 million. In the fourth quarter of 2002, we reduced the valuation allowance on our net deferred income tax asset to reflect a change in management's assessment of the amount expected to be utilized to offset future amounts of taxable income. This change resulted in our recording the provision for income taxes at a rate approximating 40% beginning in 2003, as opposed to the approximately 7.5% rate used from 1999 through the third quarter of 2002. This change has no impact on the actual taxes we expect to pay. We have included a non-GAAP calculation of income from continuing operations and EPS for the twelve months ended June 30, 2003, as if we had reduced this valuation allowance prior to the third quarter of 2002 to enable investors to more easily compare income from continuing operations and
EPS for this period to amounts reported by AdvancePCS. GAAP income from continuing operations and EPS can be reconciled to the non-GAAP measures as follows (in thousands):
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Twelve Months Ended June 30, 2003 |
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Income from continuing operations before provision for (benefit from) income taxes | 407,143 | | 407,143 | |||||
Provision for (benefit from) income taxes | (418,210 | ) | 581,067 | (1) | 162,857 | |||
Income from continuing operations | 825,353 | (581,067 | ) | 244,286 | ||||
Average number of shares outstanding diluted | 262,781 | | 262,781 | |||||
EPS | $ | 3.14 | $ | 0.93 | ||||
Additionally, since AdvancePCS did not report a discontinued operation during the period, AdvancePCS's total for "Pre-tax income from continuing ops" equals their GAAP income before provision for income taxes. Similarly, AdvancePCS's total for "Income from continuing operations" equals their GAAP net income, and "EPS" equals their GAAP diluted net income per share.
This slide presents the non-GAAP measurement "EBITDA." See "Slide: Overview of Expected Financial Benefits" above for a reconciliation of EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP for each of these companies.
Net debt is a non-GAAP financial measure and equals total indebtedness minus cash and cash equivalents. We use net debt as the numerator in our "net debt to EBITDA" ratio, which is the primary coverage ratio reviewed by management, in order to reflect the availability of the cash and cash equivalents on our balance sheet for use in debt service. Net debt for each company can be calculated as follows (in millions, except ratios):
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Long-term debt (including current portion) | $ | 696.9 | $ | 387.9 | |||
Less: cash and cash equivalents | (525.8 | ) | (138.8 | ) | |||
Net debt | $ | 171.1 | $ | 249.1 | |||
EBITDA | $ | 488.6 | $ | 387.0 | |||
Net debt to EBITDA | 0.4x | 0.6x | |||||
Additional Information and Where to Find It:
Caremark Rx intends to file with the Securities and Exchange Commission a registration statement on Form S-4 that will include a joint proxy statement/prospectus and other relevant documents in connection with the proposed transaction. Investors and security holders of Caremark Rx and AdvancePCS are urged to read the joint proxy statement/prospectus and other relevant materials when they become available because they will contain important information about Caremark Rx, AdvancePCS and the proposed transaction. Investors and security holders may obtain a free copy of these materials (when they are available) and other documents filed with the SEC at the SEC's website at www.sec.gov. A free copy of the joint proxy statement/prospectus when it becomes available may also be obtained from Caremark Rx, 3000 Galleria Tower, Suite 1000, Birmingham, AL 35244 or AdvancePCS, 750 W. John W. Carpenter Freeway, Suite 1200, Irving, TX 75039.
Caremark Rx, AdvancePCS and their respective executive officers and directors may be deemed to be participants in the solicitation of proxies from their respective stockholders with respect to the proposed transaction. Information about the directors and executive officers of Caremark Rx and their ownership of Caremark Rx shares is set forth in the proxy statement for Caremark Rx's 2003 annual meeting of stockholders. Information about the directors and executive officers of AdvancePCS and their ownership of AdvancePCS stock is set forth in the proxy statement for AdvancePCS' annual meeting of stockholders. Investors may obtain additional information regarding the interests of such participants by reading the joint proxy statement/prospectus when it becomes available.