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: AdvancePCS
Commission File No.: 333-109519
On March 3, 2004, Caremark Rx, Inc. and AdvancePCS made available the following materials relating to the proposed business combination:
Caremark Rx, Inc.
AdvancePCS
Investor Presentation
March 3, 2004
Forward Looking Statements
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 Caremark Rx, Inc’s and AdvancePCS’ most recent filings with the Securities and Exchange Commission. These risks, as well as risks associated with the contemplated acquisition of AdvancePCS are also more fully described in the section entitled “Risk Factors” contained in the Caremark Rx, Inc. Registration Statement on Form S-4 which was declared effective by the Securities and Exchange Commission on February 13, 2004.
This presentation includes certain non-GAAP financial measures as defined under SEC rules. We have elected, in reliance on the provision of Regulation G pertaining to the use of such measures in connection with proposed business combinations, to not provide reconciliations of these non-GAAP financial measures to the most directly comparable measure computed and presented in accordance with GAAP. Applicable slides are footnoted.
2
Agenda
• Introduction
• Merger Overview
Transaction Terms
Timetable Update
Combination Benefits
• AdvancePCS Recent Financial Performance
• Caremark Rx Recent Financial Performance
• Q&A
3
Merger Overview
Key Transaction Terms
Per share consideration: Value equivalent to 2.15 Caremark shares per AdvancePCS share
Consideration mix: 90% stock / 10% cash
Transaction structure: Tax-free reorganization, excluding cash component
Conditions to closing: · Caremark and AdvancePCS stockholder approval
· Customary closing conditions
Timing: 2004
Pro forma ownership:1 58% Caremark / 42% AdvancePCS
1 Based on estimated pro forma shares outstanding of 471.7 million
5
Merger Timing Update
• September 2, 2003 Merger Announced
• September 10, 2003 Initial HSR Filing
• October 6, 2003 S-4/Joint Proxy Filed with SEC -
• October 10, 2003 Requests for additional
Information from FTC
• February 11, 2004 Termination of HSR by FTC
• February 13, 2004 S-4 declared effective by SEC; -
Stockholders’ Meetings date
announced for March 22, 2004
6
Strategic Benefits
• Enhanced provider of health management solutions
• Highly complementary businesses
Increased customer diversity
Recognized expertise in mail service and retail programs
Broader specialty programs
Comprehensive disease management solutions
• Expertise in driving preference for mail service and generic substitution
• “Best-in-class” customer service—-
• Strong financial profile
• Significant growth opportunities
7
Complementary Customer Mix
Caremark will apply best practices from both organizations to focus on the particular needs of clients within each client segment
Caremark
Health Plans
Employer/ Government
AdvancePCS 1
Health Plans
Employer/ Government
Combined 1
Employer/ Government
Health Plans
1 Excludes AdvancePCS cash card and rebate utility scripts
Note: Based on adjusted scripts for quarter ending March 31, 2003 8 8
Enhanced Customer Value
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 December 31, 2003 and served 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
9
Broader Choice and Convenience for Customers
Headquarters Specialty Pharmacy
Business Center Mail Service Pharmacy
| Call |
|
Center |
Note: Blue symbol represents AdvancePCS facility
Red symbol represents Caremark facility
10
Premier Specialty Programs
• 25 years of experience
• Key therapies:
Hemophilia
Growth Hormone
Multiple Sclerosis
Hepatitis C
RSV
• TheraCom key therapies:
Pulmonary hypertension
Gaucher disease
Fabry disease
Hurler’s syndrome
Multiple Sclerosis
• Expanded specialty product line
• Access to large managed care client base for pull through of specialty products
11
Complementary Disease Management
• CarePatterns Programs:
Asthma * *
Pediatric Asthma
CAD * *
CHF * *
COPD
Diabetes * *
Ulcer
Hemophilia
• Accordant Health:
Seizures*
RA*
Parkinson’s*
Scleroderma*
Hemophilia*
Sickle cell anemia*
Systemic lupus*
ALS*
Dermatomyositis*
Cystic fibrosis*
Gaucher*
Multiple Sclerosis*
Polymyositis*
CIDP*
Myasthenia gravis*
Combining AdvancePCS’ focus on rare diseases with Caremark’s focus on high frequency, chronic conditions creates a comprehensive set of disease management solutions to benefit the customer
* NCQA Accreditation
12
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 company’s state of the art mail facilities
Mail Penetration Rates 1,2
46%
Caremark
10%
AdvancePCS
18%
Combined
1 Caremark and AdvancePCS company reports for the quarter ended Dec. 31, 2003.
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.
13
Overview of Expected Financial Benefits
• Expected to be accretive to Caremark Rx EPS in the near term
•$ 125 million in expected synergies in first year following closing 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
14
Transaction Summary
• Enhanced provider of health management solutions
• Highly complementary businesses
Increased customer diversity with over 600 million prescriptions in the twelve months ended December 31, 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
15
AdvancePCS
Financial Overview Quarter Ended December 31, 2003
AdvancePCS Strong Financial Performance
Three Months Ended December 31
($ Millions) 2003 2002 % Chg
Earnings $ 54.5 $ 45.0 21.1%
EPS $ 0.55 $ 0.46 19.6%
EBITDA $ 109.0 $ 95.1 14.6%
EBITDA/Adjusted Claim $ 0.78 $ 0.69 13.0%
Excluding Merger-related Charges*:
Earnings $ 58.1 $ 45.0 29.2%
EPS $ 0.58 $ 0.46 26.1%
EBITDA $ 115.0 $ 95.1 20.9%
EBITDA/Adjusted Claim $ 0.83 $ 0.69 20.3%
•ADVP incurred $6.0MM ($3.6MM, net of taxes) in merger-related charges associated with preparing for the CMX combination .
Slide contains Non-GAAP Financial Measures.
17
AdvancePCS
EBITDA & EBITDA per Claim*
($ millions)
EBITDA EBITDA per Claim*
Excludes impact of merger-related charges in Q204 and Q304. Slide contains Non-GAAP Financial Measure(s).
•EBITDA per claim based on adjusted claims: pharmacy network claims plus mail claims multiplied by 3, as mail claims on typically represent a 3-month supply
18
AdvancePCS
Cash Flow from Operations
($ millions)
$15
1998
$30
1999
$32
2000
$92
2001
$143
2002
$269
2003
$268
YTD 2004
Capital Expenditures Free Cash Flow
19
AdvancePCS
Debt and Debt/EBITDA*
($ millions)
Debt ( ($ Millions)
Debt to EBITDA
Debt Debt to EBITDA*
* EBITDA based on quarterly reported data annualized (current period multiplied by four). Excludes impact of merger-related charges in Q204 and Q304. Slide contains Non-GAAP Financial Measure(s)
20
AdvancePCS FY2004 Guidance
EPS Guidance*: $2.20—$ 2.22
EPS growth
based on guidance*: 29% - 30%
* Excludes impact of merger-related charges. *
21
Caremark Rx
Financial Overview Quarter Ended December 31, 2003
Caremark Strong Financial Performance
Three Months Ended December 31
($ Millions) 2003 2002 % Chg
Net Revenues $ 2,442.7 $ 1,851.4 31.9%
EBITDA $ 160.0 $ 118.7 34.8%
Income-Cont Ops $ 82.5 $ 59.6 38.4%
EPS – Cont Operations $ 0.31 $ 0.23 34.8%
Operating Cash Flow $ 143.6 $ 100.5 42.9%
EBITDA/Adjusted Claim $ 3.74 $ 3.45 8.4%
*2003 amounts include $3.4 million (pre-tax) expense, representing $0.01 per diluted share, for integration planning relating to the merger with ADVP and relocation of CMX corporate headquarters to Nashville, TN. 2002 amounts are presented using a 40% tax rate where applicable.Slide contains Non-GAAP Financial Measures.
23
Consistent EBITDA Growth
EBITDA & EBITDA per Claim*
($ millions)
EBITDA
EBITDA EBITDA per Claim*
Q403 includes $3.4 million impact of integration planning and relocation expenses. Slide contains Non-GAAP Financial Measure(s).
* EBITDA per claim based on adjusted claims: pharmacy network claims plus mail claims multiplied by 3, as mail claims typically represent a 3-month supply.
24
Strong Cash Flow
Cash Flow from Continuing Operations
($ millions)
$84
1998
$86
1999
$221
2000
$285
2001
$408
2002
$576
2003
Capital Expenditures Free Cash Flow
Slide contains Non-GAAP Financial Measure(s)
25
Strong Cash Flow has Reduced Leverage
Caremark Balance Sheet is Flexible
1998 1999 2000 2001 2002 2003
Net Debt Net Debt to EBITDA
Net Debt Includes Trade Receivables Sales Facility. Slide contains Non-GAAP Financial Measure(s) -
26
Caremark 2004 Guidance
Revenue Growth: 15%—20%
EPS*: $1.35—$ 1.37
Assumes Tax Rate = 40%.
* Excludes the impact of integration planning expenses and corporate headquarters relocation expenses which are anticipated to total $12 - $15 million.
27
Strategic Summary
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 plan sponsors. 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 provide have accounted for strong demand for their services. .
28
Additional Information
Caremark has filed with the SEC a registration statement on Form S-4 that was declared effective by the SEC on February 13, 2004. This registration statement includes 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 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 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 may also be obtained from Caremark Rx, 211 Commerce Street, Suite 800, Nashville, TN 37201 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 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 AdvancePCS’s 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.
29
Caremark Rx, Inc.
AdvancePCS
Investor Presentation
March 3, 2004