Filed by Cardinal Health, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Syncor International Inc.
Commission File No. 000-08640
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CARDINAL HEALTH IR
MODERATOR: STEVE FISCHBACH
JUNE 14, 2002
1:00 PM ET
Operator: Good afternoon my name is (Brenda) and I will be your
conference facilitator today. At this time I would like to
welcome everyone to the to the Cardinal and Syncor conference
call.
All lines have been placed on mute to prevent any background
noise. After the speakers' remarks there will be a question and
answer period. If you would like to ask a question during this
time simply press star then the 1 on your telephone keypad.
If you would like to withdraw your question press the pound
key. Thank you. Mr. Steve Fischbach you may begin your
conference.
Steve
Fischbach: Thank you. Good afternoon and thanks for joining us
today. For the next few minutes we'll discuss today's
announcement that Cardinal Health will acquire Syncor
International Corporation.
If any of you do not have a copy of the related press release you
may access it over the Internet at Cardinal Health investor
center at www.cardinal.com or you can request a fax copy of the
release by dialing 614-757-7211.
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On our call today we have Bob Walter, Chairman and Chief
Executive Officer of Cardinal Health and Robert Funari, President
and Chief Executive Officer of Syncor International.
During the Q&A session we ask that you limit yourself to one
question so that we can include as many questioners as possible
within the time period allotted. If you have any additional
questions please reenter the queue.
Before we begin I would like to remind everyone that some of the
information discussed on today's call may include forward looking
statements which are subject to risks and uncertainties which
could cause actual results to differ materially from those
projected or implied.
The most significant of those uncertainties are described in
Cardinal Health's and Syncor's SEC filings. Neither Cardinal nor
Syncor undertakes an obligation to update or revise any forward
looking statements.
In addition you are referred to the disclosure at the end of the
press release about where you can get more information regarding
Cardinal and Syncor and the proposed transaction.
Recording and or rebroadcast of this call is expressly
prohibited. At this time I would like to introduce Bob Walter to
begin today's discussion.
Bob Walter: Good afternoon. Cardinal Health is very excited about the
acquisition of Syncor International, a leading provider of
nuclear pharmacy services. This combination will create
substantial value for shareholders of both companies as well as
the health care provider and supplier customers.
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First I'd like to review the terms of the transaction. Syncor
will become a wholly owned subsidiary of Cardinal Health to a
stock-for-stock transaction. The value of this deal is
approximately $1.1 billion.
The terms of our definitive agreement call for Syncor
shareholders to receive .52 Cardinal Health common shares for
each outstanding share of Syncor common stock.
For the holders of Syncor common stock the transaction is
intended to be cash free. Cardinal Health will assume Syncor's
net debt which is - Syncor's net debt which totals $202 million
as of March 31.
The acquisition is expected to be completed by the end of 2002
subject to regulatory compliance, approval by Syncor shareholders
and other customary conditions.
Cardinal Health expects the transaction to be accretive to our
earnings within the first year.
While Syncor's primary business focus is on nuclear pharmacy it
also operates a profitable imaging business and some other
smaller ventures. I will not discuss these on this call as
Cardinal and Syncor fully intend to exit these businesses in the
most profitable and expeditious way.
This overall transaction has been structured in a way that
contemplates the sale of those operations and is priced based
upon the expected sales proceeds.
For those of you who aren't familiar with nuclear pharmacy let me
briefly explain this exciting business. Nuclear medicines also
known as
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radiopharmaceuticals are radioactive compounds that are ingested
by or injected into patients and concentrate in specific human
organs or tissues.
These medicines allow physicians to investigate the function of
various organs and treat illness without the risk or expense of
surgery by passing the patient through a nuclear imaging machine
and observing the reaction of the pharmaceutical.
Given the short life of these compounds, they must be mixed and
dispensed on an as needed, real time basis specific to the
patient and specific to the doctor.
The pharmaceuticals business - the radiopharmaceuticals business
is growing at approximately a rate similar to our overall
pharmacy business.
Syncor has been a leader in this business since it pioneered the
concept of centralized nuclear pharmacy services in 1974 and has
grown at a pace faster than the overall market. It operates a
network of 140 nuclear pharmacies - I'm sorry a 130 nuclear
pharmacies throughout the country.
Syncor has an entrepreneurial culture similar to ours. Its sales
were $775 million last year, a 23% increase over prior year.
As you know, Cardinal already has a presence in the nuclear
pharmacy business through its acquisition of Central Pharmacy
Services, a network of 40 operations in complimentary markets.
We have often spoke of the high growth and high returns produced
by our Central Pharmacy Service business. Incidentally, their
three year growth rate has been in excess of 30%.
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We view Syncor and Central Pharmacy Services as having both
unique and complimentary capabilities and we intend to preserve
the best of both.
In addition to the core nuclear pharmacy services I also view
these specialized pharmacies as a very promising distribution
channel for complex pharmaceutical compounds that need special
handling or need to be very close to the customer and the
patient.
A distribution business that I believe will grow tremendously as
larger molecules and very patient specific products begin to the
hit the market over the next several years.
Cardinal Health's expansion in the nuclear pharmacy services
through the Syncor acquisition makes tremendous strategic sense
on multiple levels.
Cardinal Health has long been committed to building both scale
and breadth of product and service offerings for both the
healthcare provider and the manufacturer. The addition of
Syncor's nuclear pharmacy services advances that strategy.
The largest customer base for nuclear pharmacy is Acute Care
Hospital, a group that Cardinal knows extremely well through our
relationships on the pharmaceutical distribution, the
Medical-Surgical and Pyxis sides of our business.
The Syncor acquisition also continues our follow investment
philosophy that we have been executing for years. In 1995 or
since 1995 I've been describing our role as a distributor of
services both to the provider downstream and to the manufacturer
upstream.
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In this instance, provider downstream is the hospital or the
clinic and upstream in this instance is the maker of the
radiopharmaceutical products to be compounded. Both need our
services.
Syncor and Central Pharmacy Services provides a network of 170
locally operated pharmacies with the unique ability to compound
and dispense these products.
This capability requires high quality and difficult regulatory
compliance in a timeframe that is extremely tight. This two to
four hour timeframe cannot be met by distributors outside the
local markets.
These pharmacies are operated by a troop of nuclear pharmacists
that are in extremely short supply and require extensive
technical training. It is the collection of these unique
capabilities across a broad geographic markets, again size and
scale that we are acquiring and combining with our own
capability.
This capability combined with other capabilities of the broader
Cardinal as we service both the manufacturer and the downstream
provider. It's these capabilities that will allow us to define
new services for both the provider and the manufacturer.
Let me shift now to a description of the nuclear pharmacy
business as focusing on the perspective of the manufacturer. We
will be offering a better selection to meet the complicated needs
of bringing product and complimentary services to the hospital
and the cardiology and oncology clinics.
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Today both operations market, compound and dispense a variety of
manufactured products. Syncor obviously adds to the growth models
that we've articulated to the market over the past several
months.
I would remind everyone that this week at our recent investors'
conference I stated that Cardinal was on track for at least a 20%
earnings growth in this quarter as well as for fiscal '03.
I also talked about Cardinal's legacy which is setting aggressive
goals and standards and performing to our commitments. I also
talked about our credibility in the market. And if you make
promises you make sure you don't surprise the market and you meet
those promises.
We have lived up to our commitments for over 20 years and no
matter what we commit to the market now or in the future we will
deliver on those commitments.
Despite all the noise and misinterpretations about what I said at
the conference I am very confident in our revenue and earnings
outlook of 20% earnings growth. Our annual earnings per share
growth of 20% is built upon consistent organic, internally
generated growth.
With that said, acquisitions such as Syncor are an important part
of our long term business plan. They allow us to add even further
to our organic growth and expand the growth potential of both
companies by offering more to our respective customers.
When the Syncor acquisition is complete the strategic synergies
to be realized across the various Cardinal businesses are
substantial. Increased visibility and access to our respective
clients will only benefit our combined efforts.
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For example, our pharmaceutical services and technology segment
can work with Syncor's nuclear pharmacy customers to develop,
package, manufacture and market new radiopharmaceutical products.
Our pharmaceutical distribution provider service segment will
be able to realize operational efficiencies and gain new
customers by leveraging the distribution of
radiopharmaceuticals.
Our hospital pharmacy outsourcing business formerly known as
(OHN) will also benefit from the expanded nuclear pharmacy
product offerings that Syncor represents.
These are just a few of the great cross selling opportunities we
will be fully exploiting going forward.
The entrepreneurial culture and management strengths of Syncor
are highly complimentary with Cardinal. Both of our companies are
dedicated in providing superior service and value to our
customers. Innovation, hard work and constant improvements are in
both our corporate DNA.
I'm happy to announce that the senior leadership team at Syncor
will be an important part of Cardinal's management after the
acquisition. To date both companies have completed extensive due
diligence and we are confident that the integration of our two
companies will proceed smoothly and quickly.
We expect the transaction to be accretive to Cardinal Health's
financial bottom line within the first year before considering
any synergies. Again this announcement is a big win for Cardinal
and for Syncor's associates, customers, both the provider and the
manufacturer.
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At this time I'd like to turn the call over to Bob Funari who
will give you his perspective.
Bob Funari: Thank you Bob and let me begin by saying that we're
delighted to be joining the Cardinal family of businesses and
look forward to many exciting developments as we work together in
some very interesting opportunity areas.
I want to expand a little bit on some of the points that Bob
mentioned in his comments. First on the radiopharmacy market
itself and what has driven radiopharmaceutical growth over the
course of the last 10 years.
That growth has principally been a function of the use of nuclear
medicine in diagnosing heart disease. And that growth trend has
been very strong indeed. But looking ahead we see not only
continued strength in cardiology but we see growing use of
nuclear medicine in the diagnosis and treatment of cancer.
Specific examples would include PET and the first of the
(radioimmuna) therapeutics Zevalin. Bob touched on the unique
strengths of the distribution model at Syncor and I just want to
highlight a few of those points.
Responsiveness and speed is certainly one of those points. The
ability to get a dose from the time we get the order to the time
that it's ready to be administered to the patient within a 30-90
minute window.
Scope of coverage, the ability to reach 90% of the nuclear
medicine procedures that are performed in this country every
year. Precision and accuracy in dispensing. Last year we had
seven defects per a million doses dispensed out of our
pharmacies. Delivery to point of procedure or point of care, very
important in dealing with these critical drugs.
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And finally as Bob mentioned, the ability to tailor the product
to meet the individual needs of each patient.
To sum it up, it's essentially a model that delivers the right
drug to the right patient at the right location, right now.
So how does Cardinal enhance this position that we built over the
last 28 years? I think both Bob and I see nuclear medicine or
radiopharmaceuticals as an important part of the broader, complex
pharmaceutical market.
We believe that the experience and skills that we've demonstrated
in nuclear pharmacy combined with the relationships, resources
and competencies that have been a part of Cardinal will allow us
to bring to the submerging market the ability to provide
customers with unique and comprehensive services that can take
product all the way from molecule to the point of care.
Bob also touched on the medical imaging and overseas businesses
and I want to expand a little bit on that scene.
Recently within Syncor we've been conducting a comprehensive
review of our strategy in our business operations in an effort to
make sure that we're making the very best use of our company's
resources.
We concluded that the long term objective of profitable growth
could be best achieved by focusing our efforts and our resources
on the two emerging growth opportunities within our pharmacy
services business, specifically complex pharmaceuticals and
nuclear oncology.
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The merger with Cardinal Health will allow Syncor to accelerate
the pace with which we can pursue these opportunities.
We're currently in discussions with a number of potential buyers
who've expressed interest in acquiring the medical imaging
business. And we will be exiting several non-strategic and
unprofitable international businesses and markets in the near
future.
Finally I want to close with a few comments about people. Both
companies are recognized leaders in their respective fields
because both companies have values that attract people who have a
desire to win.
There is a significant competition for talent today and we'll be
focusing our efforts on retaining talent as we begin the process
of integrating Syncor into Cardinal.
Both companies also believe in continuously raising the bar with
respect to performance and we will be looking for ways to put the
best practices in place across both companies. Bob.
Bob Walter: Okay can we open it up to any questions from the audience.
Operator: At this time I would like to remind everyone in order to ask a
question please press star then the 1 on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from (David Lyzinger).
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(David
Lyzinger): Thanks very much. First of all actually I wanted to
congratulate you on the transaction. I think it's a perfect
fit for both companies. So congrats. My question is for Bob
Walter.
Bob if you could tell us what you've assumed for the
renegotiation of the Cardiolite distribution fee that's paid to
Syncor since that's upcoming here and that has not yet been
finalized.
Could you tell us whether in your due diligence and in your
financial assessment you have assumed that Cardiolite maintains
the existing profit margin or whether it goes down or whether it
goes up?
Bob Walter: Dave thanks. I think I'd like to not answer it quite that
simply. Let me kind of broaden the discussion of Cardiolite.
First of all, we have had discussions with Bristol Myers and of
course obviously Syncor has had discussions with Bristol Myers.
We're very aware of the long standing and successful relationship
for both parties over probably eight or nine years. Bristol Myers
and Syncor around Cardiolite. We're obviously aware of that and
we're aware of the importance of Cardiolite in the past to
Syncor.
And I would also - I'm just giving you a lot of background here.
Obviously Cardinal as the company has an extensive relationship
with Bristol Myers as a distributor in the packaging area, the
area around Magellan. And with use of Pyxis in their oncology
area.
So we have in depth relationships and I'm pleased to say they are
very strong and good relationships.
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Now, the reason I want to go through all that is not to just
focus on a negotiation over the individual price model but to say
that that is a broad relationship.
And for example, whenever I talk about an acquisition with
someone I try to talk about what is the full total value offering
so it's a win/win opportunity in the negotiation.
In this instance we will have conversations with Bristol Myers
about the value of not only the Syncor but the Syncor combined
with the CPSI network in capabilities.
It's one of the reasons that I wanted to talk about what it is
we're acquiring. What it is we're acquiring is a unique
capability to compound, to dispense size, scale, A collection of
talented and trained technically trained pharmacists, quality,
regulatory compliance. All of those things adding on to that the
broad capability of Cardinal.
And so the discussions that we would intend to have with Bristol
Myers would be of a different nature that would be additive to
what Syncor has talked in the past. And that would be to talk
about the broader Cardinal relationship and how does that fit
into that.
From our perspective, you know, we've pointed out that Cardinal -
that our management and Syncor's management has additionally had
conversation - has talked with both the other two manufacturers
in this field about our capabilities.
And at this point, you know, there are no commitments on a go
forward basis about how we will broaden the offerings to any one
of those three.
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But the confidence that Cardinal has is in the value of what
we're acquiring, the importance of that network in the local
markets and how valuable that is not only to the provider but to
one or all three of these manufacturers.
So I think it's way premature to talk about exactly how we'll
price any one of these services because I believe that we'll have
a combination of services that will serve us well.
And so, you know, as we don't know exactly on drug distribution
side. We talked about generics for example, exactly how the
pricing or margins will develop two and three years out on
generics. We're confident about what we bring to market for the
generic manufacturers to know that the profitability model will
be strong for us.
So, you know, I know (David) that was a long winded answer, it
was a question that clearly I expected should be on the table
here and I've tried to answer it broadly because it - right now
there will be broad discussions and I think the important thing
are the combination of these companies and probably it's why you
said it is the right combination.
Is that we bring, you know, we're all around each other's space
and we bring real unique things to the market for both the
provider ad the manufacturer.
So I think that's the best way I can express it. I'm very
confident about the business model, I mean the economic model the
ability to deliver long into the future the kind of returns out
of this investment.
(David
Lyzinger): That's very helpful thanks for the explanation.
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Bob Walter: Okay thanks (David). Next question.
Operator: Your next question comes from (Larry Marsh).
(Larry Marsh): Thanks and I just echo what (David) said. Congratulations on
what should be a great combination. I guess Bob just to
clarify maybe what you're communicating in terms of the
renegotiation.
Are you saying we really shouldn't hold combined organization to
kind of a year end goal of renegotiating that I know you Bob
Funari talked about having to want to do. Or should we think of
that as, you know, it may not be completed by year end. Or should
we not think of that in the timetable.
Bob Walter: Well I'll answer it from my perspective and, you know, I
guess that exact question Bob and I didn't rehearse but I'll give
a (unintelligible).
I think that Syncor by itself has a lot to offer in broadening
services and understand the nature of the discussions that have
been going on with Bristol Myers and their franchise.
I understand that we are in the front end of being able to talk
about the broader relationship that Cardinal has to offer. I'm
frankly not in any big hurry because I don't mean to sound
egotistical about this. I frankly believe we have so much to
offer it is in our best interest to take our time to craft the
offering for as I said one or all three of the manufacturing
partners.
And this is - and so we need to find our way through this, how to
do it. So I'm not fearful of not reaching some agreement quickly.
On the other hand, you all know how Cardinal moves. We're
certainly in a position to reach conclusions quickly.
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Bob Funari and I understand well how we can link businesses
together. You know, think what - we understand well our
respective capabilities. Secondly, we understand well how we can
link businesses together to create even more value.
Frankly I think that all three of the manufacturers of the
product would be interested in hearing about that. I'm not here
to kind of tee up a competitive situation but we currently -
these two organizations are currently offering services to all
three of the manufacturers meaning (Niko Med) Bristol Myers and
(Meloncrat).
And so we will have discussions with all three of them and
hopefully come out with an outcome that, you know, very confident
will be positive to Cardinal.
And certainly because I'm comfortable about the quality of the
service, the combined service we can offer I'm sure it will be
well desired and welcomed by these manufacturers.
And, you know, but right now to get into what is our strategy and
how we mix and match and all the rest of that stuff it doesn't
make any sense. But from a time standpoint I'm under no pressure
to reach a conclusion by this calendar year end.
Bob do want to add anything to that?
Bob Funari: Bob I think you've covered most of the points that I
would have brought forward. Maybe just as a point of
reinforcement (Larry) I think that clearly the combined
capabilities of these two organizations opens potential
opportunities that I would never have been able to talk about
with (Don) or the other folks at BMS.
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So I think Bob's quite correct that we almost have to step back
and kind of rethink how we come at these discussions because they
can be a lot deeper and more profound.
Bob Walter: (Larry) I think, you know, this is not a new concept for
Cardinal, the concept of bundling services together. I don't mean
for - to, you know, for a pricing reason just how do you improve
the value of one service by adding it to another service and, you
know, the concept of cross selling.
It's not unique, we've talked for a long time about how we do
that on the provider side particularly at the hospital level. And
we've reported to the market, you know, where we're making gains,
combined gains.
We also are talking about it much more often about - at the
provider I'm sorry at the pharmaceutical technology area towards
the manufacturer. I've talked and I said in my talk here that
I've viewed ourselves and as I've been talking since '95 that yes
we are a middleman.
And as the middleman we provide services to the provider whether
it's hospital, retail, clinics downstream or to the manufacturer
upstream and those services are needed by both.
And you have to have a cohesive business strategy but, you know,
we broaden our service offerings both downstream and upstream. I
view this as a broadening of service offerings. In one
transaction a broadening of service offerings both downstream and
upstream.
So to try and talk through, you know, how do we service any one
manufacturer different than the other. I think that would be
inappropriate and
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disrespectful of our relationships with our existing
relationships with those two manufacturers.
And frankly it's up to our creativity to figure out how to add
additional value. But, you know, said as strongly as I can I'm
very comfortable about the unique capability that Syncor has and
Syncor and CPS combined bring. And then bring that all together
with what Cardinal has. I'm very comfortable about what is the
value we can deliver.
And so timing wise we can move quickly but I don't believe
we're in a hurry. There's no pressure to move quickly. Can
we take another question?
Operator: Your next question comes from (Robert Willoughby).
(Robert
Willoughby): (Sean Harrington) in for (Robert Willoughby) thank you. I guess
this question is for Bob Walter. Could you compare and contrast
the profitability of the Syncor operations and your internal
capability and what you think the combined entity might look
like?
Bob Walter: Well Bob the combined operations we - let's see where I
can start. First of all, I'm going to focus just on nuclear
pharmacy operations because as I've said we don't intend to be in
the other businesses though Syncor has other businesses that are
profitable and we do - but I'll lead. So we're just compare
apples to apples nuclear pharmacy operations.
(Robert Willoughby): Exactly.
Bob Walter: Their models of delivery service are slightly different.
The returns on sales frankly, the returns on sales at CPSI that
had been reported earlier are slightly higher than the return on
sales at Syncor.
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We're still studying why is that and, you know, then we got the
other issues whether unique services at Syncor provides and we
want to make sure we understand, you know, what are those costs
and what are the applications of those services into some of our
existing pharmacies.
So I'd say, you know, we start with saying there is some
difference to profitability, it is not dramatic difference in
profitability at the pharmacy level.
The next thing is, is what's the profitability in the combination
and we believe that there are a number of synergies that will -
operational synergies now we're not talking about revenue
generation of synergy. I'm talking about operational synergies.
As I've said before this would - transaction would be accretive
to us without consideration for any of these synergies but we
have a long list that was developed by both Cardinal corporate
people, CPSI and Syncor people.
And reached agreement, okay when are - where are the
opportunities here and we think there's a big opportunity for
both parties to get more productive and improve our return on
sales.
With regard to capital, our use of capital the - you know I know
that this is an area that Bob you pay a lot of attention to. As
we break the businesses at Syncor apart the capital usage in the
nuclear business is significantly - has significantly a higher
turnover than capital use in their other businesses.
So they already generate a very high return on capital. Could we
get better? Sure. The return on capital at CPSI is also very
high. The combined return on
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capital as they stand today in these two businesses would be the
highest return on capital of anything that Cardinal has.
So now can we improve on that? Yes probably in some areas as we
continue to work hard on the accounts receivable area. But
because frankly inventory turns over so fast, it sits there for
about a minute but so, you know, hopefully that gives you some
idea of what the opportunities are without getting too much into
the numbers.
(Robert
Willoughby): Very helpful thank you and especially for the return comments.
Bob Walter: Other questions?
Operator: Your next question comes from (Len Yappi).
(Len Yappi): Okay the old HIPA recently has come out and commented that
diagnostic imaging procedures are the fastest growing service
expense they're seeing just about PET. And I was wondering...
Bob Walter: (Len) it's hard to hear you right now. You have to speak up a
little bit.
(Len Yappi): Okay I was - can you hear me now?
Bob Walter: Yes sir.
(Len Yappi): Okay the old HIPA, the center for Medicare, Medicaid has
recently come out and stated that diagnostic imaging procedures
are amongst the fastest growing services that they're seeing
bills for especially PET which is growing at a very rapid rate.
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I was wondering if you're seeing that reflected especially in
Syncor's business if you could comment and specifically on PET,
if that's the case what do you think is driving it?
Bob Walter: Okay I'm going to ask Bob Funari if he would handle that
and, you know, we are in both sides CPSI and Syncor are in PET
and in the same similar areas but Bob's got a much better handle
on the weekly and daily and monthly dynamics of the industry.
So Bob what's your view on that?
Bob Funari: Yeah (Len) let me kind of give you kind of summary here.
We see some very exciting dynamics in PET today. Fifty three
percent of the cancers that are diagnosed every year now have
some form of favorable reimbursement or approval for use in PET.
As we look at our own trends in terms of dose volumes going out
of our pharmacies to support PET imaging procedures we see
numbers that are up in the 25%-35% range in terms of month over
month kind of growth rates.
So it's clearly a very steep curve that we're riding at this
point in time. There is a lot of fixed cost leverage in this
business if you're in the isotope production end of the process.
Typically a cyclotron has a breakeven point today somewhere
between 16-18 doses per day and a capacity that's somewhere
between 75%-80%.
So there's a substantial amount of fixed expense leverage in this
business as you begin to move over the breakeven point on a
cyclotron and generate those on incremental doses.
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But clearly its' the applications and diagnosis of cancer today
that are driving PET and the utilization of FDG. I would expect
to see additional proprietary PET (unintelligible) coming to the
marketplace in the years ahead and an expansion of the use of
this tool to begin covering other diseases as well.
(Len Yappi): Great thank you very much.
Bob Funari: Your welcome.
Bob Walter: Next question please.
Operator: Your next question comes from (Chris McFadden).
(Chris
McFadden): Thank you, good afternoon and let me add my congratulations to a
very smart deal. Could you talk a little Bob in terms of the
combination, you know, sensitive to the (Zygris) Syncor
relationship and what that's meant in terms of opening up some
new potential paths for growth for the nuclear pharmacy business
in light of the recent investment in TTS.
Can you talk about where you see longer term points of
connection between those two businesses? Thanks.
Bob Walter: Okay thanks (Chris). We actually - you kind of preempted some
things that I was thinking about saying to close up a little
bit. The lines are blurring between manufacturer and
distributor to provider to patient.
They're blurring as manufacturers or providers are trying to
achieve efficiency. They're blurring where unique services have
to be developed by somebody and there's not unique capability at
some level.
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They're blurring because products are changing, there's more
specialized products that has to be handled in unique ways. And
this whole demand for specialized pharmaceuticals and the needs
of biotech and how you handle that - we've been talking about how
important that is.
We know in our stomachs that that's going to develop and so we're
looking - this is a broader discussion, we're looking for ways to
have more importance in this category.
I view Syncor as a step and what I've said is - as I've said to
our people internally that I view Syncor as a very important
step, to accommodate Syncor with our CPSI and broadening that
capability is a very important step, something that will be very
profitable to us.
But that Syncor - that this move by itself while it will be
profitable and good is a lead into a lot of other capabilities
and that's the homerun for us.
Now I want to make a point that when I talk about these lines
blurring we will not compete with our customers. Our customer is
a manufacturer upstream and the provider downstream. We view
ourselves as service providers to them to improve what they do.
We've talked about the - some of these trends and as (Chris)
brings up, you know, our whole - some of the recent initiatives
in our PTS, pharmaceutical technology area is focused on that,
you know, the ability to, you know, the capacity for
(lyothalization) or sterile capabilities.
And - because we recognizing that there's going to be strong
growth and we're experiencing it. You know sold out capacity in
some of our facilities and strong demand.
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So while I can't give you each piece of the puzzle, you know, for
one I don't want everybody to know what else we might do next.
But while I can't give you each piece of the puzzle my intuition
about where we need to move and how to keep filling this puzzle
up tells me that this is an important growth area for Cardinal in
the future.
So that's kind of how we see this broadly. Bob Funari is, you
know, I know you have a similar vantage point or view point.
Anything you want to say about that?
Bob Funari: I again I think anything that I said or would say Bob
would certainly be complimentary to your thinking here. I believe
I think as you do that the era that we're entering into is going
to be characterized by much more difficult, challenging and
complicated products.
And that we're going to need new skills and new capabilities to
be able to get those products to the providers and to point of
care. I would agree I think that pharmacy and the pharmacy
capabilities that Syncor has built over the last 28 years are
going to play a very important role in finding solutions for
getting those products to where they need to get to.
But it's not the only piece in the puzzle and like yourself we've
recognized that it is a continuum going all the way from the
molecule out to the patient. And that there are many pieces in
that continuum that need to be well articulated and work well
with each other in order to really have a successful solution.
Page 25
Bob Walter: Our issue really internally right now in this area is
setting priorities for initiatives not trying to find
initiatives. And so could we have a - next question please.
Operator: Your next question comes from (Andrew Speller).
(Andrew
Speller): Hi guys I want to lend my congratulations as well on
the deal. I'm a little bit more concerned here Bob with market
share issues. Do you think given where we're at here with Central
Pharmacy and Syncor being the leader, any issues there in terms
of marketshare? And who are the regulatory bodies that have to be
cleared here?
Bob Walter: Well good morning. There are a lot of regulatory bodies
mainly the SEC and certainly the FTC.
(Andrew
Speller): Are there any nuclear regulatory bodies that have to sign
off per say? Nuclear regulatory commissions?
Bob Walter: Well we're, you know, we comply with all those, you know,
meaning CPSI does and Syncor does. So I, you know, we, you know,
that's not the issue. I guess mostly what I think when you're
talking about market share you're talking about FTC issues.
And first of all, we - these transactions must clear those
regulatory approvals and - including the expiration of any
(unintelligible) waiting periods. We think this deal is very
complimentary in terms of both product offerings and geographies.
Page 26
We're in the nuclear pharmacy business to a much lesser degree.
The acquisition puts in many areas we're not already in and it
enhances our ability to service the GPOs, the members and their
customers.
And our conversations with them would tell us that our customers
would view this positively. Meaning yes, I'm talking downstream
towards the provider and upstream towards manufacturer that our
preliminary conversations with them would tell us this is a
better offering to them.
And so not to get into anything too technical about - around FTC
discussion but, you know, we are confident we'll be able to
provide a better service and that's something that makes the
customer happy not something it makes them want to fight.
In terms of overlaps there's more than sufficient actual and
potential competition in every area. And in any event the
companies have complimentary product lines.
So this transaction shouldn't raise concern but we obviously
don't want to talk it through over the airwaves. We really want
to be able to put forth our points and develop understandings
with the FTC and we certainly will respect their opinions. So
that's where we are on it. Any other questions?
(Andrew
Speller): Just a quick follow up if I could. You guys have relationships
through CPSI with (Meloncrat) and (Niko Med) with neither of you
distributing that product. Syncor has the Cardiolite product. Are
there any relationships that need to be ironed out there prior to
this deal closing to get it done?
Page 27
Bob Walter: I'm not going to get into - (Andy) I'm not going to get
into details of the relationship and who all has which
relationships because the relationships are a little more
complicated than that.
What I would say to you is that each one of - that our management
has talked as recent as this morning with each one of these
manufacturers. I personally intend to be involved in it. And the
reason I want to be involved in it is that I'm in the best spot
to present all of Cardinal's offerings and create a value
offering.
And so out of respect to the existing relationships with each one
of these manufacturers they today this is news to them and they
are not fully up to speed on what all of our offerings are.
So it's up to us to spend time with each one of them and have
them understand what we can offer and make sure we understand
what their objectives are.
Again I go back to - I've been in the distribution business my
whole life. I have a good intuitive sense about the strength of
the distribution and when your commodity and when you have
something to offer beyond just a commodity offering.
And I would say this - I keep using the word unique capabilities.
What that means is that you can offer something to someone else
is not able to offer in the same way. And so we intend to put
that offering forth.
I tell you my intuition about this. And as I said I've been in
lots of distribution businesses and talked - and have studied a
lot of them. We have an incredibly unique offering to
manufacturers and to the providers and it will be well received.
Page 28
And so, you know, just allow us the time to work out what those
relationships are. This is not intended to be- we're going to
take more of the value than we deliver. This is intended to be -
we can deliver (unintelligible) combination more value to the
manufacturer.
So, you know, let us develop that and I don't really want to get
too much in depth. We know where we're going and how we're going,
you know, what our objectives are.
But just let us develop that and trust that we understand the
strengths of what we bring and the value of what it can bring to
the manufacturers. Next question.
Operator: Your final question comes from (Eric Coldwell).
(Eric
Coldwell): Thank you very much. Can you hear me?
Bob Walter: Yes sir.
(Eric
Coldwell): Great thank you very much. I'm curious Bob you
mentioned synergies earlier in the conversation and you've not
really detailed the synergies but expect they'll be accretive I
believe I heard you say before synergies.
I'm curious if you'll have any centers that can be consolidate as
the merger comes together. And if so, how many? Can you kind of
give a sense of type of markets. And then conversely how many
centers will you need to add to the geography to sort of round
out the market?
Page 29
Bob Walter: Okay the question is around have we studied combining the
facilities? And yes we have studied that but we haven't reached
conclusions to where there's opportunities to combine them or
where there's opportunities to expand.
Frankly, virtually every one of the 170 facilities is
experiencing pretty strong growth. So it's not like we're sitting
around, you know, and we have no growth in facilities with tons
of excess capacity and you're just trying to consolidate.
So, you know, that's something that we'll develop. We've
speculated on where there's way to increase our productivity and
keep in mind though this isn't just consolidating facilities. I
mean we have - one of the really valuable assets here is a well
trained, technically trained nuclear pharmacy team.
And you take - and whether they're in one facility or two
facilities they still have to compound and process and service
the customer with advice and the compounding process.
And so it isn't like you just put two facilities together and get
rid of some nuclear pharmacist. That is a very valuable commodity
that we work awfully hard to keep and so, you know, whether
they're in one facility or two that's probably not the biggest -
it's not a big issue.
But, you know, there are opportunities to get synergies out of
systems, of how we buy product and things like that. So we're
outlining those, you know, we pretty quickly identified that they
could be substantial or that they will be substantial and right
now we're not prepared to say exactly how much that is.
(Eric
Coldwell): (Unintelligible) lot of clarification as well. Did I
understand you're going to be exiting all international
operations or that some may remain post-merger?
Page 30
Bob Walter: What we said is that our focus on this transaction is
nuclear pharmacy. I think I also used words like that we intend
to exit on a profitable basis - and expeditiously meaning quickly
but all of these non-nuclear pharmacy businesses.
On the other hand there are some that are complimentary and that
are profitable and makes sense to keep. We're under no cash
pressure to sell quickly so therefore we should and I would also
point out that most of the assets are in the imaging centers and
they're profitable and stable.
So we're not worried that we have to exit quickly, take a short
profit. So we're not worried about that. We have studied it in
depth, as Bob also outlined they have been studying it in depth.
So we know we will be exiting them. There's probably some
facilities that are not imaging centers. Some businesses that we
may keep but I would say relative to overall transaction it is
very, very minor. It's really not even worth the discussion about
it. So that gives you some sense of it.
Let me wrap the call up by saying that this transaction is one
we've contemplated for a long while. We've watched what Syncor
has done and we've admired what they've done. We also could
admire it from the vantage point of CPSI and had the chance to
admire frankly what we've been able to accomplish in our team at
CPSI.
And so we know what we're getting involved in and know about the
growth of the market that we're entering and the strength of
these two companies. We also know about what this might become.
Page 31
And I would remind everybody that in 1994 Cardinal was a drug
distribution business only and as we started thinking about what
else we might become I would guess nobody on the phone today
including myself could have dreamt of what we've become today.
This is a new path, it's additive to what we do. It's certainly
in an area that we're familiar with and it's an important step
that will strengthen our presence in the healthcare market and so
thanks to everybody for participating and we'll sign off.
Operator: This concludes today's Cardinal and Syncor conference call.
You may now disconnect.
END
--------------------------
Except for historical information, all other information in this news release
consists of forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected, anticipated or implied. The most significant of
these uncertainties are described in Cardinal Health's Form 10-K, Form 8-K and
Form 10-Q reports and exhibits to those reports, and include (but are not
limited to) the costs, difficulties, and uncertainties related to the
integration of acquired businesses, the loss of one or more key customer or
supplier relationships, changes in the distribution outsourcing patterns for
health-care products and/or services, the costs and other effects of
governmental regulation and legal and administrative proceedings, and general
economic conditions. Cardinal undertakes no obligation to update or revise any
forward-looking statements.
Information regarding the identity of the persons who may, under SEC rules, be
deemed to be participants in the solicitation of stockholders of Syncor
International Corporation ("Syncor") in connection with the proposed merger, and
their interests in the solicitation, is set forth in a Schedule 14A filed by
Syncor on June 14, 2002 with the SEC. Cardinal Health, Inc. ("Cardinal") intends
to file a registration statement on Form S-4 in connection with the transaction,
and Syncor intends to mail a proxy statement/prospectus to its stockholders in
connection with the transaction. INVESTORS AND SECURITY HOLDERS OF SYNCOR ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE BECAUSE
IT WILL CONTAIN IMPORTANT INFORMATION ABOUT CARDINAL, SYNCOR AND THE
TRANSACTION. Investors and security holders may obtain a free copy of the proxy
statement/prospectus (when it is available) at the SEC's web sit at www.sec.gov.
A free copy of the proxy statement/prospectus may also be obtained from Cardinal
or Syncor. Syncor and its executive officers and directors may be deemed to be
participants in the solicitation of proxies from the stockholders of Syncor in
favor of the transaction. Information regarding the interests of Syncor's
officers and directors in the transaction will be included in the joint proxy
statement/prospectus. In addition to the registration statement on Form S-4 to
be filed by Cardinal in connection with the transaction, and the proxy
statement/prospectus to be mailed to the stockholders of Syncor in connection
with the transaction, each of Cardinal and Syncor file annual, quarterly and
special reports, proxy and information statements, and other information with
the SEC. Investors may read and copy any of these reports, statements and other
information at the SEC's public reference room located at 450 5th Street, N.W.,
Washington, D.C., 20549. Investors should call the SEC at 1-800-SEC-0330 for
further information. The reports, statements and other information filed by
Cardinal and Syncor with the SEC are also available for free at the SEC's web
site at www.sec.gov. A free copy of these reports, statements and other
information may also be obtained from Cardinal or Syncor. INVESTORS SHOULD READ
THE PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN IT BECOMES AVAILABLE BEFORE MAKING
ANY VOTING OR INVESTMENT DECISION.
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