King Pharmaceuticals Reports Second-Quarter 2007 Financial Results

King Pharmaceuticals, Inc. (NYSE: KG) announced today that total revenues increased 9% to a record high $543 million during the second quarter ended June 30, 2007, compared to $500 million in the second quarter of 2006. Reported net income equaled $65 million and diluted income per share equaled $0.26 during the second quarter of 2007, compared to net earnings of $111 million and diluted earnings per share of $0.46 in the second quarter of the prior year. Excluding special items, net earnings equaled $117 million and diluted earnings per share equaled $0.48 during the second quarter ended June 30, 2007, compared to net earnings of $112 million and diluted earnings per share of $0.46 in the second quarter of 2006. Brian A. Markison, Chairman, President and Chief Executive Officer of King, stated, "During the second quarter of 2007, we continued to deliver solid financial results and advance several promising product opportunities in our development pipeline. Importantly, we, together with our partner Pain Therapeutics, Inc. (NASDAQ: PTIE), recently announced the completion of patient enrollment in the pivotal Phase III clinical trial for REMOXY™ (long acting oral oxycodone), our lead investigational product for moderate to severe pain. REMOXY™’s sustained release formulation has the potential to reduce the improper and often intentional accelerated release of oxycodone through crushing, heating, or dissolution in alcohol that is reported with respect to other long acting opioids.” Mr. Markison continued, "We also recently announced positive results from our Phase III clinical trial evaluating our ALTACE® (ramipril) diuretic combination product, and expect to file a New Drug Application for this product in the second half of this year. Another important R&D accomplishment is the recent initiation of our Phase II clinical trial program evaluating the safety and efficacy of T-62, a potential major advance in the treatment of neuropathic pain.” Mr. Markison concluded, "In addition to the significant advancements we are making with our new product pipeline, we are also continuing to evaluate many business development opportunities and remain committed to executing our strategy to provide long-term growth for our shareholders.” As of June 30, 2007, the Company’s cash and cash equivalents and investments in debt securities totaled approximately $923 million. King generated strong cash flow from operations of $145 million during the second quarter of 2007. Net revenue from branded pharmaceuticals totaled $467 million for the second quarter of 2007, an 11% increase from $419 million during the second quarter of 2006. ALTACE® net sales totaled $163 million during the second quarter of 2007, compared to $154 million during the second quarter of 2006. Net sales of SKELAXIN® (metaxalone) totaled $108 million during the second quarter of 2007, an increase of 11% compared to $97 million during the same period of the prior year. THROMBIN-JMI® (thrombin, topical, bovine, USP) net sales totaled $65 million during the second quarter of 2007, compared to $62 million during the second quarter of 2006. Net sales of AVINZA® (morphine sulfate extended release) totaled $35 million during the second quarter of 2007. The Company acquired AVINZA® in February 2007. Net sales of SONATA® (zaleplon) totaled $17 million during the second quarter of 2007, compared to $24 million during the second quarter of the prior year. LEVOXYL® (levothyroxine sodium tablets, USP) net sales decreased to $26 million during the second quarter ended June 30, 2007 from $29 million during the second quarter of 2006. King’s Meridian Medical Technologies business contributed revenue totaling $51 million during the second quarter of 2007, compared to $54 million during the same period of the prior year. Royalty revenues, derived primarily from ADENOSCAN® (adenosine), totaled $20 million during the second quarter ended June 30, 2007. For the second quarter ended June 30, 2007, net revenue from contract manufacturing equaled $3 million. Webcast Information King will conduct a webcast today which may include discussion of the Company’s marketed products, pipeline, strategy for growth, financial results and expectations, and other matters relating to its business. Interested persons may listen to the webcast on Tuesday, August 7, 2007, at 11:00 a.m., E.D.T., by clicking the following link to register and then joining the live event with the same URL: http://www.kingpharm.com/web_casts.asp If you are unable to participate during the live event, the webcast will be archived on King’s web site at the same link for not less than 14 days after the webcast. About Special Items Under Generally Accepted Accounting Principles ("GAAP”), reported "net earnings” and "diluted earnings per share” include special items. In addition to the reported results determined in accordance with GAAP, King provides its net earnings and diluted earnings per share results for the second quarters and six months ended June 30, 2007 and 2006, excluding special items. These non-GAAP financial measures exclude special items which are those particular material income or expense items that King considers to be unrelated to the Company’s ongoing, underlying business, non-recurring, or not generally predictable. Such items include, but are not limited to, merger and restructuring expenses; non-capitalized expenses associated with acquisitions, such as in-process research and development charges and one-time inventory valuation adjustment charges; charges resulting from the early extinguishment of debt; asset impairment charges; expenses of drug recalls; and gains and losses resulting from the divestiture of assets. King believes the identification of special items enhances the analysis of the Company’s ongoing, underlying business and the analysis of the Company’s financial results when comparing those results to that of a previous or subsequent like period. However, it should be noted that the determination of whether to classify an item as a special item involves judgments by King’s management. A reconciliation of non-GAAP financial measures referenced herein and King’s reported financial results determined in accordance with GAAP is provided below. About King Pharmaceuticals King, headquartered in Bristol, Tennessee, is a vertically integrated branded pharmaceutical company. King, an S&P 500 Index company, seeks to capitalize on opportunities in the pharmaceutical industry through the development, including through in-licensing arrangements and acquisitions, of novel branded prescription pharmaceutical products in attractive markets and the strategic acquisition of branded products that can benefit from focused promotion and marketing and product life-cycle management. Forward-looking Statements This release contains forward-looking statements which reflect management’s current views of future events and operations, including, but not limited to, statements pertaining to the Company’s plan to file a New Drug Application this year with respect to the ALTACE® combination product; statements pertaining to the Company’s plan to continue evaluating business development opportunities and commitment to executing its long-term growth strategy; and statements pertaining to the Company’s planned webcast to discuss its second-quarter 2007 results. These forward-looking statements involve certain significant risks and uncertainties, and actual results may differ materially from the forward-looking statements. Some important factors which may cause actual results to differ materially from the forward-looking statements include dependence on King’s ability to file the New Drug Application as planned; dependence on King’s ability to continue to acquire branded products, including products in development; dependence on King’s ability to continue to successfully execute the Company’s strategy and to continue to capitalize on strategic opportunities in the future for sustained long-term growth; dependence on King’s ability to successfully integrate its acquisitions; dependence on the Company’s ability to continue to advance the development of its pipeline products as planned; dependence on the high cost and uncertainty of research, clinical trials, and other development activities involving pharmaceutical products in which King has an interest; dependence on the unpredictability of the duration and results of the U.S. Food and Drug Administration’s ("FDA”) review of Investigational New Drug applications ("IND”), New Drug Applications ("NDA”), and Abbreviated New Drug Applications ("ANDA”) and/or the review of other regulatory agencies worldwide that relate to those projects; dependence on the availability and cost of raw materials; dependence on no material interruptions in supply by contract manufacturers of King’s products; dependence on the potential effect on sales of the Company’s existing branded pharmaceutical products as a result of the potential development and approval of a generic substitute for any such product or other new competitive products; dependence on the potential effect of future acquisitions and other transactions pursuant to the Company’s growth strategy; dependence on King’s compliance with FDA and other government regulations that relate to the Company’s business; dependence on King’s ability to conduct its webcast as currently planned on August 7, 2007; dependence on changes in general economic and business conditions; changes in current pricing levels; changes in federal and state laws and regulations; changes in competition; unexpected changes in technologies and technological advances; and manufacturing capacity constraints. Other important factors that may cause actual results to differ materially from the forward-looking statements are discussed in the "Risk Factors” section and other sections of King’s Form 10-K for the year ended December 31, 2006 and Form 10-Q for the quarter ended March 31, 2007, which are on file with the U.S. Securities and Exchange Commission. King does not undertake to publicly update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized.     KING PHARMACEUTICALS, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share data)     June 30, December 31, 2007 2006 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 54,705 $ 113,777 Investments in debt securities 867,998 890,185 Accounts receivable, net 261,057 263,939 Inventories 185,382 202,577 Deferred income tax assets 63,021 81,991 Income tax receivable 2,188 - Prepaid expenses and other current assets 62,469 106,595 Current assets held for sale   15,602   14,409   Total current assets   1,512,422   1,673,473   Property, plant and equipment, net 241,937 244,382 Intangible assets, net 1,002,703 790,313 Goodwill 129,046 121,152 Deferred income tax assets 305,902 271,554 Marketable securities 11,237 11,578 Other assets 102,269 93,347 Assets held for sale   72,829   123,732   Total assets $ 3,378,345 $ 3,329,531     LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 70,188 $ 77,158 Accrued expenses 350,925 510,137 Income taxes payable   -   30,501   Total current liabilities   421,113   617,796     Long-term debt 400,000 400,000 Other liabilities   68,221   23,129   Total liabilities   889,334   1,040,925     Commitments and contingencies Shareholders’ equity: Common shares no par value, 600,000,000 shares authorized, 244,164,006 and 243,151,223 shares issued and outstanding, respectively 1,265,649 1,244,986 Retained earnings 1,223,077 1,043,902 Accumulated other comprehensive income   285   (282 ) Total shareholders’ equity   2,489,011   2,288,606   Total liabilities and shareholders’ equity $ 3,378,345 $ 3,329,531         KING PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(Unaudited)     Three Months Ended Six Months Ended June 30, June 30, 2007   2006 2007   2006 REVENUES: Total revenues $ 542,726   $ 499,645   $ 1,058,756   $ 983,880   OPERATING COSTS AND EXPENSES: Cost of revenues , exclusive of depreciation, amortization and impairments shown below 121,685 107,048 233,139 199,452 Contract termination   3,845     -     3,845     -   Total cost of revenues   125,530     107,048     236,984     199,452   Selling, general and administrative, exclusive of co-promotion fees 127,316 105,640 248,526 207,715 Special legal and professional fees (1,632 ) 1,486 (488 ) 4,465 Co-promotion fees   47,524     47,032     93,482     112,321   Total selling, general, and administrative expense   173,208     154,158     341,520     324,501   Depreciation and amortization 38,912 38,547 73,090 72,912 Accelerated depreciation 1,500 - 3,000 - Research and development 37,355 34,630 69,626 64,512 Research and development-In-process upon acquisition 3,100 - 3,100 85,000 Asset impairments 74,810 279 74,810 279 Restructuring charges   -     (8 )   460     (8 ) Total operating costs and expenses   454,415     334,654     802,590     746,648     OPERATING INCOME 88,311 164,991 256,166 237,232 OTHER INCOME (EXPENSE): Interest expense (1,853 ) (3,047 ) (3,878 ) (6,031 ) Interest income 8,517 8,393 17,783 14,353 (Loss) gain on early extinguishment of debt - (313 ) - 709 Other, net   278     (204 )   (265 )   (714 ) Total other income   6,942     4,829     13,640     8,317   INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 95,253 169,820 269,806 245,549 Income tax expense   30,394     59,017     88,893     83,911   INCOME FROM CONTINUING OPERATIONS   64,859     110,803     180,913     161,638   DISCONTINUED OPERATIONS (Loss)/income from discontinued operations (115 ) 157 (335 ) (90 ) Income tax (benefit) expense   (41 )   57     (120 )   (32 ) Total (loss) income from discontinued operations   (74 )   100     (215 )   (58 ) NET INCOME $ 64,785   $ 110,903   $ 180,698   $ 161,580     Basic net income per common share $ 0.27   $ 0.46   $ 0.74   $ 0.67     Diluted net income per common share $ 0.26   $ 0.46   $ 0.74   $ 0.67     Shares used in basic net income per share 242,746 242,209 242,568 242,116 Shares used in diluted net income per share 244,550 242,755 244,110 242,668       KING PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF OPERATIONSEXCLUDING SPECIAL ITEMS - NON GAAP(in thousands, except per share data)(Unaudited)     Three Months Ended Six Months Ended June 30, June 30, 2007   2006 2007   2006 REVENUES: Total revenues $ 542,726   $ 499,645   $ 1,058,756   $ 983,880   OPERATING COSTS AND EXPENSES: Cost of revenues , exclusive of depreciation and amortization   121,685     107,048     233,139     199,452   Selling, general and administrative, exclusive of co-promotion fees 127,316 105,640 248,526 207,715 Co-promotion fees   47,524     47,032     93,482     112,321   Total selling, general, and administrative expense   174,840     152,672     342,008     320,036   Depreciation and amortization 38,912 38,547 73,090 72,912 Research and development   37,355     34,630     69,626     64,512   Total operating costs and expenses   372,792     332,897     717,863     656,912     OPERATING INCOME 169,934 166,748 340,893 326,968 OTHER INCOME (EXPENSE): Interest expense (1,853 ) (3,047 ) (3,878 ) (6,031 ) Interest income 8,517 8,393 17,783 14,353 Other, net   278     (204 )   (265 )   (714 ) Total other income   6,942     5,142     13,640     7,608   INCOME BEFORE INCOME TAXES 176,876 171,890 354,533 334,576 Income tax expense   59,390     59,803     119,049     116,260   NET INCOME $ 117,486   $ 112,087   $ 235,484   $ 218,316       Basic net income per common share $ 0.48   $ 0.46   $ 0.97   $ 0.90     Diluted net income per common share $ 0.48   $ 0.46   $ 0.96   $ 0.90     Shares used in basic net income per share 242,746 242,209 242,568 242,116 Shares used in diluted net income per share 244,550 242,755 244,110 242,668       KING PHARMACEUTICALS, INC.RECONCILIATION OF NON-GAAP MEASURES(in thousands, except per share data)     The following tables reconcile Non-GAAP measures to amounts reported under GAAP:     Three Months EndedJune 30, 2007 Six Months Ended June 30, 2007 (Unaudited) EPS EPS   Net income, excluding special items $ 117,486 $ 235,484 Diluted income per common share, excluding special items $ 0.48 $ 0.96 SPECIAL ITEMS: Contract termination (cost of revenues) (3,845 ) (0.02 ) (3,845 ) (0.02 ) Special legal and professional fees (selling, general, and administrative) 1,632 0.01 488 0.00 Accelerated depreciation (other operating costs and expenses) (1,500 ) (0.01 ) (3,000 ) (0.01 ) Research and development -in-process upon acquisition (other operating costs and expenses) (3,100 ) (0.01 ) (3,100 ) (0.01 ) Asset impairments (other operating costs and expenses) (74,810 ) (0.31 ) (74,810 ) (0.31 ) Restructuring charges (other operating costs and expenses) - - (460 ) (0.00 ) Loss from discontinued operations   (115 )   (0.00 )   (335 )   (0.00 ) Total special items before income taxes (81,738 ) (0.34 ) (85,062 ) (0.35 ) Income tax benefit from special items   29,037   0.12   30,276   0.13 Net income $ 64,785     $ 180,698     Diluted income per common share, as reported under GAAP $ 0.26   $ 0.74         Three Months Ended June 30, 2006 Six Months Ended June 30, 2006 (Unaudited) EPS EPS   Net income, excluding special items $ 112,087 $ 218,316 Diluted income per common share, excluding special items $ 0.46 $ 0.90 SPECIAL ITEMS: Special legal and professional fees (selling, general, and administrative) (1,486 ) 0.00 (4,465 ) (0.02 ) Research and developmnet-in-process upon acquisition (other operating costs and expenses) - - (85,000 ) (0.35 ) Intangible asset impairment (other operating costs and expenses) (279 ) (0.00 ) (279 ) (0.00 ) Restructuring charges (other operating costs and expenses) 8 0.00 8 0.00 (Loss) gain on early extinguishment of debt (other income (expense)) (313 ) (0.00 ) 709 0.00 Income (loss) from discontinued operations   157     0.00     (90 )   (0.00 ) Total special items before income taxes (1,913 ) 0.00 (89,117 ) (0.37 ) Income tax benefit from special items   729   0.00   32,381   0.14 Net income $ 110,903     $ 161,580     Diluted income per common share, as reported under GAAP $ 0.46   $ 0.67     KING PHARMACEUTICALS, INC. SUMMARY RECONCILIATION OF SPECIAL ITEMS FOR THE SECOND QUARTERS ENDED JUNE 30, 2007 AND 2006   King recorded special items during the second quarter ended June 30, 2007, resulting in a net charge of $82 million, or $53 million net of tax, primarily due to (i) an impairment charge totaling $46 million related to the Company’s classification of its Rochester, Michigan sterile manufacturing facility and certain legacy branded products as held for sale and (ii) an impairment charge totaling $29 million related to Intal® and Tilade® as a result of the Company’s decision to no longer pursue the development of a new formulation of Intal® utilizing hyrdroflouroalkane (HFA) as a propellant. During the second quarter ended June 30, 2006, King recorded special items resulting in a net charge of $2 million, or $1 million net of tax, primarily due to legal fees related to private plaintiff securities litigation.   KING PHARMACEUTICALS, INC. SUMMARY RECONCILIATION OF SPECIAL ITEMS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006     King recorded special items during the six months ended June 30, 2007, resulting in a net charge of $85 million, or $55 million net of tax, primarily due to (i) an impairment charge totaling $46 million related to the Company’s classification of its Rochester, Michigan sterile manufacturing facility and certain legacy branded products as held for sale and (ii) an impairment charge totaling $29 million related to Intal® and Tilade® as a result of the Company’s decision to no longer pursue the development of a new formulation of Intal® utilizing HFA as a propellant. King recorded special items during the six months ended June 30, 2006, resulting in a net charge of $89 million, or $57 million net of tax, primarily due to an $85 million charge related to acquired in-process research and development associated with King’s entry into a strategic collaboration with Arrow and certain of its affiliates to commercialize novel formulations of Altace®.     EXECUTIVE OFFICES KING PHARMACEUTICALS, INC. 501 FIFTH STREET, BRISTOL, TENNESSEE 37620