425 1 a8620.htm 8620

Filed by MIM Corporation pursuant to Rule 425
Under the Securities Act of 1933
And deemed filed pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: MIM Corporation
Commission File Number: 000-28740

This filing relates to a planned merger between MIM Corporation (“MIM”) and Chronimed Inc. (“Chronimed”), pursuant to the terms of an Agreement and Plan of Merger, dated as of August 9, 2004 (the “Merger Agreement”), by and among MIM, Corvette Acquisition Corp. (a wholly owned subsidiary of MIM) and Chronimed. The Merger Agreement is on file with the U.S. Securities and Exchange Commission as an exhibit to the Current Report on Form 8-K, filed by MIM on August 9, 2004 and is incorporated by reference into this filing.

 

 

MIM CORPORATION

August 9, 2004
3:30 p.m. CDT

   
   
Moderator Ladies and gentlemen, thank you for standing by. Welcome to the MIM
   
  Corporation and Chronimed Incorporated merger conference call. At this
   
  time, all participants are in a listen-only mode. Later, we will conduct a
   
  question and answer session, and instructions will be given at that time.
   
  As a reminder, this conference is being recorded.
   
   
  I would now like to turn the conference over to your host, Ms. Rachel
   
  Levine, Investor Relations Representative. Please go ahead, Ms. Levine.
   
   
R. Levine Good afternoon. Thank you for joining us to discuss the MIM Chronimed
   
  merger. If you do not have a copy of the press release that went out this
   
  morning, please call the Anne McBride Company at 212-983-1702,
   
  extension 207. Alternatively, you may obtain the copy of the release at
   
  the company's corporate Web sites at www.mimcorporation.com and
   
  www.chronimed.com.
   
   
  A replay of today's call may be accessed by dialing in on the numbers
   
   

   
  provided in the press release or by accessing the Web cast on each
   
  company's Web site. As a reminder, MIM will host its 2Q '04 Earnings
   
  conference call later this afternoon at 6:00 p.m. eastern time, and
   
  Chronimed will host its fourth quarter and fiscal 2004 earnings conference
   
  call on Tuesday, August 10th, at 11:00 a.m. eastern time.
   
   
  Before we begin, I will remind you that, during this call, you will hear
   
  some statements that may be considered forward-looking statements.
   
  These forward-looking statements may include statements relating to
   
  financial projection or other statements relating to the company's plans,
   
  objectives, expectations or intentions. These matters involve risks and
   
  uncertainties, and actual results may differ materially from those projected
   
  or implied in the forward-looking statements. Factors that could cause
   
  actual results to materially differ from the forward-looking statements in
   
  this call are set forth in both companies' most recent annual reports on
   
  form 10-K.
   
   
  During today's call, Richard Friedman, Chairman and Chief Executive
   
  Officer of MIM, and Henry Blissenbach, Chairman and Chief Executive
   
  Officer of Chronimed, will share their thoughts on the merger and discuss
   
  synergies between MIM and Chronimed. Jim Lusk, Chief Financial
   
  Officer of MIM, will then review the details of the transaction and
   

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  anticipated benefits and hand it back to Mr. Friedman for closing
   
  comments. We will then open the line to questions. Rich?
   
   
R. Friedman Thank you, Rachel. Good afternoon, everyone. Let me start by saying we
   
  are extremely pleased and excited to be taking MIM and Chronimed, two
   
  strong specialty pharmacy providers, and turning them into one of the
   
  largest specialty pharmacy businesses in the country. The combined
   
  company would be named BioScrip and will have broad disease coverage,
   
  best in class therapy management, expansive national retail and mail
   
  distribution capabilities and a solid PBM platform.
   
   
  We will continue to service managed care organizations and third-party
   
  payors in addition to Medicaid and Medicare populations through state
   
  programs. We intend to combine our individual strengths in payor
   
  contracting, physician sales, manufacturer services, clinical management
   
  and fulfillment. We are creating an excellent balance of community-based
   
  care with centralized, nationwide capabilities and access to individuals
   
  with chronic conditions through expanded local distribution, giving us a
   
  more competitive advantage in this rapidly consolidating industry. This
   
  merger would also create an organization with enhanced growth
   
  opportunities, a diversified customer base, and strong cash flow.
   

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  Before I turn the call over to Hank to discuss the strategic merger between
   
  the two companies, let me conclude with some key summary points about
   
  the competitive advantages of this transaction to shareholders and
   
  customers. First, upon conclusion, the merger would be immediately
   
  accretive to earnings and cash flow. Second, the enhanced platform of
   
  our businesses will best serve customer needs in the changing healthcare
   
  environment. Third, our stronger capital base leverages opportunities,
   
  both in the PBM and specialty sectors. Finally, we do not anticipate any
   
  hurdles to a successful conclusion. Hank?
   
   
H. Blissenbach Thanks, Rich. This is a great opportunity for us. We're taking two mid-
   
  sized companies, each doing many of the same things, and creating one
   
  large player. Critical mass is one of the key value drivers for specialty
   
  pharmacy. Competition in the market is forcing specialty pharmacy
   
  companies to create maximum operating leverage and distribution. This
   
  combination would allow us to obtain that leverage. We would capitalize
   
  on the best products, services and assets that each company has to offer
   
  and, at the same time, we would be eliminating duplicated and
   
  overlapping functions.
   
   
  There are three key capabilities that this greater critical mass would allow.
   
  One is better purchasing terms from our wholesalers. Second, improved
   

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  ability to leverage manufacturer relationships. Third, improving our
   
  ability to compete for contracts with larger payor organizations.
   
   
  In addition to this, this merger adds two key products to Chronimed's
   
  current portfolio, specifically IVIG and a full range of oncology products.
   
  As you know, Chronimed already is the number one distributor of HIV
   
  and post-organ transplant medications in the United States, and the
   
  combined company would now have a sales force whose numbers and
   
  scope of coverage would provide a sales impact beyond that currently
   
  experienced by either company.
   
   
  One last point: Although this is a specialty pharmacy deal, the sleeper here
   
  could be the PBM opportunity. I know that business; I happen to love it,
   
  and we will build on the existing PBM platform.
   
   
  I'm going to turn the call over to Jim to review the specifics of the
   
  transaction and anticipated benefits.
   
   
J. Lusk Thank you, Hank. Based on financial results reported by each company
   
  for the 12-month periods ended June 30th and July 2, 2004 respectively,
   
  the two companies generated combined revenues of $1.1 billion and pre-
   

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  tax income of $20.9 million. For the record, all of our modeling is based
   
  on the expectation of the loss of the Aetna contract at Chronimed.
   
   
  After the merger, Richard Friedman, Chairman and Chief Executive
   
  Officer of MIM, would serve as Chairman of BioScrip and Henry
   
  Blissenbach, Chairman and Chief Executive Officer of Chronimed, would
   
  serve as Chief Executive Officer of BioScrip. The BioScrip board of
   
  directors would consist of nine directors, four of whom would be
   
  designated by each of the two companies, including Rich and Hank; one
   
  additional director would be named by MIM, subject to the reasonable
   
  approval of Chronimed. BioScrip’s headquarters would be in Elmsford,
   
  New York and its shares would continue to trade on the Nasdaq National
   
  Market; however, it under the ticker symbol BIOS, upon completion of
   
  the merger.
   
   
  If approved, each Chronimed shareholder would receive 1.025 shares of
   
  MIM for each Chronimed share held. MIM expects to issue
   
  approximately 13.5 million shares to Chronimed shareholders in the
   
  merger. Immediately following the merger, Chronimed shareholders will
   
  own approximately 38% of the new company, and MIM shareholders
   
  would own approximately 63%. The transaction is structured as a tax-free
   
  reorganization for both companies and their respective shareholders.
   

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  The closing of the merger is subject to the approval of both company
   
  shareowners and regulators and is expected to occur in December 2004.
   
  As Rich stated, we do not expect any hurdles at all. The total combined
   
  SG&A will be approximately $100 million. After transaction and
   
  consolidation related costs, the merger is expected to yield cost-saving
   
  synergies of approximately $10 million annually. These savings will
   
  result from more efficient operations, including the streamlining of
   
  distribution, support functions and sales related activities, as well as the
   
  elimination of duplicate corporate and administrative positions, programs
   
  and facilities.
   
   
  With anticipated near-term cost reductions and operating efficiencies, the
   
  transaction would be accretive to BioScrip's earnings in 2005. We expect
   
  they will take about a year to achieve the annual rate of synergies and that
   
  2006 will be the first full-year of total efficiency. The cost-savings benefit
   
  from synergies will only grow as time passes. Preliminarily, we are
   
  anticipating revenue of approximately $1.2 billion and EBITDA of $35
   
  million in calendar 2005 before restructuring charges. Both companies
   
  currently have un-leveraged balance sheets, permitting financial
   
  flexibility. We'll provide more definitive guidance in the future as the
   
  merger progresses.
   

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  I will now turn the call back over to Rich for some final comments.
   
   
R. Friedman Thanks, Jim. Just one item to point out: It's not 101%; it's 37%
   
  Chronimed and 63% for MIM.
   
   
  MIM and Chronimed are a natural strategic fit. The combination of our
   
  businesses is compelling in today's healthcare landscape and many of you
   
  have heard me talk about the need to provide a local presence,
   
  community-based, for physicians, patients and managed care
   
  organizations, as well as regional and national strength for larger HMOs
   
  and managed care contracts. We see the fragmented specialty pharmacy
   
  market continuing to consolidate and we believe that the most successful
   
  participants will have both specialty pharmacy and what Hank loves,
   
  PBM.
   
   
  Customers are seeking larger-scale coverage of more markets from both a
   
  geographic and service perspective. Not only are we delivering expanded
   
  national coverage, but a wider range of disease therapies, more
   
  comprehensive physician and patient service and enhanced clinical
   
  strength. In addition, we are in an emerging era of greater governmental
   
  oversight of the healthcare sector, including specialty pharmacy
   

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  distributors. Increasing focus on services and escalating costs, while
   
  managing chronically ill, will be the natural evolution from current
   
  legislative trends seeking to manage general pharmacy needs.
   
   
  The increased size and scope of our merged infrastructure will make
   
  BioScrip a logical partner in addressing this need. In fact, the
   
  consolidated company is already better positioned to meet the expanded
   
  Medicare card program, which starts in January 2006. At the end of the
   
  day, BioScrip will be better positioned to compete in the constantly
   
  changing healthcare environment by leveraging economies of scale and
   
  increased capabilities to capitalize on market trends. This transaction has
   
  created a platform for a long-term enhanced value for all of our
   
  shareholders.
   
   
  With that, we will open the line to your questions. Pat?
   
   
Moderator Yes, sir. Your first question is from Brooks O’Neil of Dougherty &
   
  Company. Please go ahead.
   
   
B. O’Neil Good afternoon. I have a couple of questions. Can you hear me okay?
   
   
R. Friedman Hear you great, Brooks.
   

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B. O’Neil Okay. Congratulations on the merger. I'm curious what number you're
   
  thinking about when you say the merger is accretive to earnings. Are you
   
  thinking about—well, I won't put any words in your mouth. How can you
   
  help us with that?
   
   
R. Friedman Sure. First, what we have looked at, we've modeled extensively,
   
  especially without the Aetna situation, with Hank and the Chronimed
   
  folk’s announcement two weeks ago. So what we were looking at is what
   
  is happening with both businesses today and the accretion as to where we
   
  are today with the businesses, including the synergies that are anticipated
   
  in 2005, net of carried expenses and one-time costs, and then also looking
   
  forward to 2006.
   
   
  You have to understand that, in 2005, what we are doing, we set up two
   
  teams, which are transition teams that are going to be responsible for
   
  identifying all the opportunities among the two organizations. When we
   
  look at that, and we go ahead and plan, we're going to be consolidating
   
  into those operational areas that this team sees fit to go do. So 2005 is
   
  going to be a period where we're going to recognize synergies, but there
   
  are going to be costs associated with that recognition.
   

10


   
  In 2006, as Jim pointed out, it's going to be a full year of fully recognized
   
  synergies, without any carrier cost going along with that. So when we talk
   
  about what the synergies look like in the accretion, we're only looking at,
   
  right now, the cost synergies. We have not taken into account any
   
  potential cross-selling revenue opportunities, which we all believe are
   
  going to be significant. We've not taken into account the purchasing
   
  power that this company, combined, will be able to generate, therefore
   
  lowering our cost of goods sold through the combination of additional
   
  leverage. So looking at accretion, we're looking at not only for just now,
   
  but over the next few years. So when we look at 2005, we see accretion
   
  not as high as we will see in 2006 and beyond.
   
   
B. O’Neil Okay. So you’re not talking about accretion relative to what the Street
   
  might be looking for for MIM as a standalone company or Chronimed as a
   
  standalone company? Because when I put $1.2 billion into a model with
   
  $35 million of EBITDA and 36.5 million shares outstanding, I have a hard
   
  time getting anywhere near the earnings number I was carrying for MIM
   
  as standalone company.
   
   
R. Friedman Well, one of the things that you obviously have to take into account is
   
  those significant costs related to severance, the period cost and the one-
   
  time restructuring charges. Once you pull those out, the numbers are more
   

11


   
  significant than that net number that we putout there, but I have to say
   
  this; as we get further along in this process, we will be coming back with
   
  additional updates on the numbers. But again, this is the preliminary time;
   
  we have a lot of work to do over the next few months. When we look at
   
  the cash flows from these entities, we know, especially in 2006, it is
   
  significant. Two thousand and five is going to be a year recognizing the
   
  synergies but there are lot of associated cost with that. Again, this is a
   
  very conservative view based upon where the companies are today.
   
   
B. O’Neil Just a couple more and then I'll turn it over to somebody else. I was just
   
  curious, since Hank is going to be the CEO of the company, I certainly
   
  recognize your role as Chairman, but I was curious why you selected
   
  Elmsford for the corporate headquarters in light of the fact that it sounds
   
  like he might be organizing a team to run the company going forward.
   
   
R. Friedman Well, it's a great question and it's a question that Hank and I have talked
   
  about quite a bit. When you look at the geographic coverage of our
   
  businesses, which you have to look at, there are $250 million or so coming
   
  out of the New York Tri-State area. There is a significant amount coming
   
  out of the Columbus Midwest area, and then we have the entire retail
   
  operation, which is another $250 million to—actually, $300 million or so.
   
  I guess, on a combined basis, that's probably closer to $400 million, if you
   

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  broke it up into really three buckets; $400 million is more retail; $400
   
  million is specialty mail; and $400 million is a combination of PBM and
   
  mail.
   
   
  The decision on the headquarters, and Hank and the team, there will be
   
  people at different areas running their respective areas. So it was felt that
   
  Elmsford, right now, is where a significant portion of the business is; it's
   
  where some of the key people are, you know, as far as Hank's team, and it
   
  was felt that, at least right now, it's just a location, maybe a better location.
   
   
H. Blissenbach I think Brooks, I would agree with what Rich said. I mean, we spent a
   
  long time kind of talking about the headquarters, not quite sure exactly
   
  what the importance of where it’s located is, like the fact that New York is
   
  kind of the hub of where a lot of the activity is, not just the business, but
   
  also sort of with the investment community and just decided to do that.
   
   
B. O’Neil Okay. Just one other question: I guess it's for you, Rich. I have heard,
   
  sort of through the grapevine, that you guys had put together a book and
   
  had been marketing your company for sale. Just curious, if that is true,
   
  sort of what was your thinking and how did this transaction end up rising
   
  to the top from your perspective, as you think about creating shareholder
   
  value?
   

13


   
R. Friedman We're not going to comment on any rumors, first of all. But, you know,
   
  from time to time we have looked and we have explored opportunities.
   
  One thing that I think we realized and I think Hank realized is that you
   
  have to be larger in this business. You can't be a small company and you
   
  have to be able to leverage what is there.
   
   
  We looked around at various alternatives that were out there to us.
   
  Clearly, not just myself and the management team here, but our board of
   
  directors, felt that long term, for the benefit of all our shareholders, this
   
  made the most sense. I think it provides a tremendous opportunity in this
   
  landscape.
   
   
  We have always been a tremendous believer of the local presence; that's
   
  why we went out and bought Natural Living in January of this year. It has
   
  proved to be an incredible acquisition for us. That's the type of
   
  acquisitions that, as a company, we'd be looking to do. Hank's company
   
  was built on that, with the expanded therapies there. So when we looked
   
  overall, exploring what opportunities were available to us, this clearly
   
  became the one that we were the most interested in.
   
   
H. Blissenbach Brooks, just a follow-up: You and I, I know, have had conversations over
   

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  the years along two lines. One is how important leverage is to this
   
  business and how our ability to compete in an environment where
   
  continuing reimbursement pressure is going to require you to get your
   
  products out the door at lower operating expenses is really key. And then,
   
  secondly, you know how I also believe how important the PBM business
   
  is going to be in this whole situation of what, right now, is kind of a
   
  fragmented way in the specialty pharmacy and mail service and the entire
   
  pharmacy distribution system. So I think this is consistent with the vision
   
  that we have had at Chronimed, and we're really happy that finally we can
   
  make it come true.
   
   
B. O’Neil That's great. Thank you very much.
   
   
Moderator Your next question is from the line of Anne Barlow of Southwest
   
  Securities. Please go ahead.
   
   
A. Barlow Good afternoon. I've got several questions. First, any additions expected
   
  to the management team, and could you kind of go over who is going to be
   
  in the position? I know, Rich, you’re in the Chair, and Hank, you’re the
   
  CEO, but what about a chief operating officer, and I assume Jim is the
   
  Chief Financial Officer, but can you give us some details there, and again,
   
  any additions expected?
   

15


   
  Secondly, you now really have three distinct divisions; you've got retail
   
  stores; you've got the PBM; and now you've got specialty distribution.
   
  Any plans to continue running it all as one company or any kind of future
   
  spinoffs of, perhaps, some divisions?
   
   
  Lastly, my last question is the synergies of $10 million seem really small
   
  for a billion dollar-plus company, and I just wondered kind of where
   
  you're being conservative and where there might be some room for larger
   
  synergies over the next 12 months?
   
   
H. Blissenbach Anne, I’ll cover the first question with regard to the management team.
   
  We have not really notified individuals as to their position on the
   
  management team going forward, and so we want to do that—we'll do that
   
  here shortly.
   
   
  Second, with regard to spinoffs, Rich, I'm looking at you. I’ll let you take
   
  that.
   
   
R. Friedman It's just one other thing, what Hank said. What we're doing, Anne, in
   
  terms of the management, we are really picking the best people from both
   
  organizations to go ahead and run this company. There are some terrific
   

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  people on both sides, and I think Hank's going to surround himself with
   
  quality people that are going to grow this business. And I'm very
   
  confident, based upon the people that I've met at Chronimed and the
   
  people that I know at MIM, that they are going to do an incredible job of
   
  growing this business.
   
   
  In terms of the three businesses, you said three; I'm kind of looking at it as
   
  two. When I look at the retail part of it and specialty distribution, what
   
  our plans are – there are actually three priorities that we have right now
   
  that we're looking for, and they really kind of play out with each other.
   
  The first one being - is obviously to realize the synergies - I'll get to that
   
  in a few seconds. The other one is going to be the product and the therapy
   
  expansion, and obviously, to put in one tremendous IT platform to give us
   
  the information we need for all this business.
   
   
  But when we look at the product and therapy expansion, Hank has put
   
  stores in real strategic locations and, as he mentioned earlier, two key
   
  areas are the oncology and the IVIG areas. So this is strictly—this really
   
  is a natural fit, because we have found that the local presence, the local
   
  distribution network, especially when you’re dealing with high-touch,
   
  high-fill products, like IVIG and oncology, that it's natural to take them
   
  out to those locations, in those communities, and build the relationships
   

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  with the physician community and the community itself with the
   
  chronically ill.
   
   
  So you may have some product going out on national basis; you may have
   
  some product going out on a regional basis; and you may have some
   
  product going on a local basis, but all in all, they’re still one. It's strictly
   
  the method of getting the product to the patient, and you're going to have
   
  clients in all areas. You're going to have managed care clients; you're
   
  going to have employee groups; you're going to have the chronically ill;
   
  you're going to have physicians; you're going to have clinics; you're going
   
  to have hospitals. So, to me, this is one business with various means of
   
  distribution.
   
   
  PBM, clearly, is a little bit different but, then again, we still have PBM
   
  offerings to various clients. Hopefully, we'll be able to leverage that a lot
   
  better than we have in the past, plus we also have our mail component,
   
  and a mail component, which is more traditional. So I think we just have
   
  better offering to a consistent base of customers.
   
   
  Going to your third one on synergies being small, I agree with you. When
   
  you look at the combined SG&A of the companies, we're talking about a
   
  hundred-plus million dollars, and we're talking about, conservatively, $10
   

18


   
  million of synergies that have been identified. These synergies have been
   
  identified pretty quick, and it's a pretty easy list to come up with.
   
   
  As, again, this transition team goes ahead and starts looking harder within
   
  each organization and really starts drilling down, I think both of us are
   
  hopeful that we'll be able to find more, but again, we’re trying to be
   
  conservative with our outlook today. We've selected $10 million and,
   
  from what we’ve seen, it's pretty easy to go get there. It doesn't take into
   
  account a lot of the other positive synergies on the buy side, on lowering
   
  cost of goods sold through the reduction in unit costs. It doesn't include
   
  any of the synergistic part of additional sales of the product therapies. So
   
  we're pretty bullish on where we are. Yes, I agree with you that the $10
   
  million is pretty low, and I'm hopeful that we’ll do a lot better.
   
   
A. Barlow Okay. And just back to the management team side, I know both Hank and
   
  Rich; you both have been actively involved in running your companies.
   
  Since we've been following you, Rich, what's going to be your daily
   
  involvement?  Are you going to be more advisory or are you still going to
   
  be as hands-on as you have been in the past and you guys will work more
   
  as a team?
   
   
R. Friedman You know, look, Hank is going to have the responsibility to run this
   

19


   
  company. That is his job. My job is going to be, hopefully, a lot more
   
  strategic. We will be looking at opportunities to grow this business. I will
   
  be an adviser to Hank. We will be doing a lot of things together, but he is
   
  the CEO of this company, and I'm going to be there in a strategic role.
   
   
  There are a lot of opportunities. There are tremendous consolidation
   
  opportunities, and I'm sure that Hank is going to call on me, and Hank and
   
  I are going to be working together as a team. But, clearly, he is the CEO
   
  of this company.
   
   
A. Barlow Hank, are you going to be in Minneapolis or are you going to be moving
   
  to New York?
   
   
H. Blissenbach No. As tempting as it is, I'll be in Minneapolis, at least for the time being.
   
  That's hard for you to believe. Well, no. You're not in New York, Anne.
   
  You know what’s it like.
   
   
A. Barlow All right. Thanks a lot.
   
   
H. Blissenbach All right.
   
   
Moderator Your next question is from the line of Steven Abernathy of Abernathy
   

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  Group. Please go ahead.
   
   
S. Abernathy Good evening, gentlemen. Hank, first question is how did you, you and
   
  Greg, come up with a valuation of roughly $85 million or less; you
   
  thought your company was worth only $85 million. That's sort of—I've
   
  been following you people now for a couple of years, and that's very
   
  discouraging. The Street obviously agrees with that. So the first question
   
  is how did you come up with the valuation or a comfort level that you
   
  think would be strategic for you to sell to a company for $85 million?
   
  Secondly, how do you justify what the Street is saying?
   
   
H. Blissenbach We're not selling the company, and I'm not sure where 85 came from,
   
  Steve.
   
   
S. Abernathy Okay. I was just looking at shares out the time, the current stock price.
   
   
R. Friedman Well, yes. I mean, Steve, this is Rich. If you look at...
   
   
S. Abernathy That was for Hank. That was just for Hank.
   
   
R. Friedman Well, I'm going to answer with Hank. We're a team here. I will tell you
   
  that, when you go ahead and look at this deal, and with Greg and with
   

21


   
  Hank and with our people and all of our financial advisors, the stock has
   
  been over seven for a good period of time. The deal was based upon the
   
  contributions from both entities, and he is not selling this company and the
   
  Chronimed board is not selling this company. What we're doing is
   
  merging two companies to create something a lot bigger. So, like Hank, I
   
  don't know where you’re coming up with the $85 million. It's not
   
  something that we've ever looked at, and that's the answer.
   
   
H. Blissenbach Steve, let me go back and just—because you and I have chatted a fair
   
  amount over the past few years, as well. The strategic value of this
   
  merger is really what this combination is about. We felt that in the
   
  exchange ratio of 1.025 to one, that was a very fair ratio. The share price
   
  will be decided on the day of the close, which is several months off, but,
   
  quite honestly, Steve, this whole deal is really based on future execution
   
  and on synergies. Given kind of the current situation that Chronimed was
   
  in, having Aetna have [sic] made their decisions as to what they were
   
  going to do, looking at the position we were in and having to respond to,
   
  again, a reimbursement environment, which is continuing to push back,
   
  we needed to grow, we needed to bigger, we needed to get bigger faster,
   
  and that's essentially what happened.
   
   
S. Abernathy Well, the comments from the Street are that they are all disappointed and
   

22


   
  that you had a good game plan going, and that's why the Aetna didn't
   
  really do too much to your stock, and that you had good plans in place to
   
  expand, and to grow by acquisition, and to grow internally with some of
   
  the plans you put in place. I think I can speak for lots of shareholders out
   
  there that I and they are extremely disappointed.
   
   
H. Blissenbach Okay. Thanks, Steve.
   
   
S. Abernathy Okay.
   
   
Moderator Your next question or comment is from the line of Glenn Garmont with
   
  First Albany Capital. Please go ahead.
   
   
G. Garmont Thanks. Good afternoon. Two questions: number one, we know what's
   
  happening with the Aetna contract, but are there any other legacy
   
  Chronimed payer contracts that may be at risk here because of the
   
  transaction, the perceived change in control? And then, secondarily, Jim,
   
  I know it's early, but looks like Chronimed’s effective tax rate is a bit
   
  lower. Can you give us some sense as to what the combined companies’
   
  effective tax rate may shake out? Thanks.
   
   
H. Blissenbach I can answer from the contract perspective. There's no other contract in
   

23


   
  our portfolio that is as large as the Aetna contract is. We have some state
   
  Medicaid contracts, but none of those are anywhere near the size of the
   
  Aetna contract.
   
   
J. Lusk Well, on the tax rate, Chronimed runs more like 38, we run more like 40.
   
  They operate a lot - they have a lot more volume in a lot more states than
   
  we have. Glenn, it will be some place in between. We got to do some tax
   
  planning as we get together, but I think at an overall health, our overall tax
   
  rate should bring it down a little.
   
   
G. Garmont Great. Thanks.
   
   
Moderator Your next question or comment is from the line of Mike Maguire of
   
  Leerink Swann. Please go ahead.
   
   
M. Maguire Thank you. First question, just on the combined specialty offering: could
   
  you speak to the key disease states that you'll be representing? Obviously,
   
  I know HIV and the organ transplant franchise, but just on a combined
   
  basis, how much of that total number will be related to oncology and
   
  IVIG? Will it be a significant piece of the overall revenues?
   
   
R. Friedman Yes. We could tell you today that the IVIG business - and Hank really
   

24


   
  doesn't do any IVIG business - today is about $15 million, and our
   
  oncology business is probably around $50 million to $60 million range.
   
  The IVIG business is one area for MIM that we've always been excited
   
  about. It has been run out of our Livingston, New Jersey facility ... We've
   
  just recently expanded to the Philadelphia marketplace. What Chronimed
   
  does, it gives us an incredible platform to move the IVIG therapy into
   
  these various facilities in the same way with oncology. So we're looking
   
  forward, and I know Hank and his team is looking forward, to being able
   
  to take these two additional product offerings out.
   
   
M. Maguire Okay. Thank you. With regards to acquisitions - and this is a question for
   
  Hank - given the - in light of the recent Aetna news and decision,
   
  obviously a piece of your strategy was to go out organically and through
   
  acquisition. Obviously, you can look at this as an acquisition, obviously -
   
  but wanted to see, is there anything else out there that you had potentially
   
  in the pipeline in your strategic plan. Will this change things? I mean, did
   
  you have some maybe potential additional products or properties that you
   
  were looking at as an acquirer that this merger, in the interim at least,
   
  could change such strategy substantially?
   
   
H. Blissenbach We did say that we were going to be able to make up the difference in the
   
  Aetna loss by a combination of lower operating expenses, organic growth
   

25


   
  and acquisitions, and yes, we did have, I mean much smaller, though. I
   
  mean nothing to the extent that anything of the size of this combination
   
  would be, but smaller acquisitions to try and make that up.
   
   
  We were targeting areas that we are strong in, particularly on the HIV
   
  side, on the transplant side, and in a couple of the specialty areas. So there
   
  were acquisitions out there that we have looked at, but they're much
   
  smaller.
   
   
M. Maguire Okay. And then, last question, just on the PBM business at MIM: Could
   
  you just characterize where your key customers are in that business, just in
   
  terms of market segment?
   
   
R. Friedman Yes. For MIM, we've been looking at the small to medium-sized-type
   
  companies for a while - small and medium-sized managed care
   
  organizations, small employee groups, third-party administrators – and,
   
  quite frankly, a few years ago, we had to pick and choose where to put the
   
  resources and we put a lot of resources behind the specialty area, and that's
   
  why we're really thrilled with Hank and his background in the PBM
   
  business.
   
   
  We have a tremendous operating system; we have great legacy systems;
   

26


   
  and having Hank and some of his people actually come out of the PBM
   
  business, we think, will be a real benefit to us.
   
   
M. Maguire Have you seen anything recently change in terms of the competition level
   
  within your PBM franchise? Has it gotten more competitive recently?
   
   
R. Friedman It's an extremely competitive business, but recently, we have not seen
   
  additional pricing pressures, but they're always there and I'm sure they
   
  will be, but it is a growing segment. We continue to grow our PBM
   
  segment.
   
   
M. Maguire Great. Thank you.
   
   
Moderator Your next question or comment is from the line of Brooks O’Neil of
   
  Dougherty & Company. Please go ahead.
   
   
B. O’Neil Yes. Thanks a lot. You commented that you thought the combination
   
  might create enhanced growth opportunities. I'm sure you don't want to
   
  comment on what rate of growth you think you could see for the top line,
   
  but can you give us some sense? You think this is a 20% grower going
   
  forward on the top line?
   

27


   
R. Friedman If you go ahead and look at what the companies—each company has had
   
  to deal with a number of issues - one being Aetna, one being TennCare,
   
  one being Synagis – so, over the past years, I think both companies have
   
  experienced a number of items that have hurt the companies, but when
   
  you go ahead and you look at, for example, the retail operation of
   
  Chronimed, it has been running north of 25% growth per year. When you
   
  go ahead and look at the specialty business of MIM and you pull out
   
  Synagis, for example, the growth rate, I think, is over 31% per year.
   
  When you go ahead and you look at the PBM business and you take out
   
  TennCare, it's probably around 19% per year.
   
   
  So, when you go ahead and you say, "Okay.” If the bad stuff is behind
   
  you or if Aetna’s behind you and TennCare is behind you and Synagis is
   
  behind you, and assuming that you're able to take what you have today
   
  and then grow it, yes. It would not be far off to say that you're able to
   
  continue to grow at those rates.
   
   
  All the businesses continue to grow. The therapies that Hank will offer to
   
  the additional stores, I think, are enhanced opportunities. So I think
   
  there's tremendous upside.
   
   
H. Blissenbach Brooks, I think, just following on that, one of the enhancements that I
   

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  mentioned earlier, that we get from this merger, is a larger sales force that
   
  will really be able to effectively sell our products in the marketplace. I
   
  agree with Rich. I don't see any problems with being able to grow that
   
  revenue base.
   
   
B. O’Neil Great. Do you think—Rich was alluding to some of the local power that
   
  you have, and obviously you've got stores in 25 or 30 markets. Is there an
   
  opportunity to open distribution beyond the retail network from those
   
  stores going forward?
   
   
H. Blissenbach Yes. We're doing that now, to some extent. I think I'll say, just off the top
   
  on my head, at least a half dozen of our stores are actually doing some, I’ll
   
  call it localized mailing out of their stores, but this is exactly—this is the
   
  opportunity this brings us. It's exactly that. I mean, you've heard me say
   
  before, medicine is practiced locally, and the more local you can bring that
   
  distribution, the better off you are. Our stores are located very
   
  strategically in order to provide that local distribution. Now, with the
   
  addition of IVIG, with oncology, this positions us really well to expand
   
  that area of distribution out of our local stores.
   
   
B. O’Neil A couple more, just real quickly: Rich, I noticed, obviously, there was
   
  some gross margin pressure in the most recent quarter, and I know you're
   

29


   
  going to talk about this more in your own call in a few minutes, but was
   
  there any margin pressure in IVIG or on oncology specifically that’s
   
  worth talking about?
   
   
R. Friedman Yes. There was some pressure on IVIG, and I think most people are
   
  aware of that. Not that long ago the margins were in the mid-40s and now
   
  the margins are in the mid-30s. It continues to be a terrific product, but
   
  yes, there's absolutely pressure on IVIG.
   
   
  The oncology market that we've really removed ourselves from the
   
  wholesale oncology business, the retail oncology business continues to do
   
  well, and that continues to grow. So, yes, I think what we've experienced
   
  has been margin pressure. I will tell you that our units are up
   
  significantly, and many of this was anticipated. We'll get more into that
   
  when we do our earnings call.
   
   
B. O’Neil Okay. Just two other quick questions: One, I don't think the press release
   
  mentioned any kind of a breakup fee. Is there any type of structure like
   
  that?
   
   
R. Friedman Yes. There's a $4 million breakup fee on either end.
   

30


   
B. O’Neil Okay. And then lastly, given the issues that the Attorney General of the
   
  State of New York has caused in the PBM market recently, are there any
   
  type of legal or regulatory issues that we need to be aware of?
   
   
R. Friedman Not that we're aware of.
   
   
B. O’Neil At least yet, right?
   
   
R. Friedman And hopefully never.
   
   
B. O’Neil Exactly. Okay. Thanks a lot.
   
   
R. Friedman You're quite welcome.
   
   
Moderator Your next question or comment is from the line of Arnold Ursaner of CJS
   
  Securities. Please go ahead.
   
   
A. Ursaner Hi. Brooks asked most of the 12 questions I might have asked. Can you
   
  tell us who your financial advisors were in the transaction?
   
   
R. Friedman Arnie, welcome back. We had Lehman Brothers representing MIM and
   
  Banc of America representing Chronimed.
   

31


   
A. Ursaner Okay. You gave us a pro forma number for '05, and I guess I have a
   
  couple of questions related to that. I assume that’s down from pro forma
   
  '04? Is that correct?
   
   
R. Friedman No.
   
   
A. Ursaner Can you give us a pro forma '04 then? While you're working on that -
   
   
R. Friedman No. Let me say this about '04 – ‘04, we're not changing any guidance at
   
  all and Hank just completed his numbers, but '04, our guidance out there
   
  was $0.42, I believe it was, so the guidance that we're giving for 2005, as I
   
  said earlier, is pretty close to where our businesses are, and, Arnie, as you
   
  know, we have not gone out with 2005 at all.
   
   
A. Ursaner Right.
   
   
R. Friedman As we said with Brooks earlier, what we're trying to do is take a look at
   
  where the existing businesses are today, do the analysis there, because a
   
  lot of times is going to be spent putting these things together and then
   
  moving the company forward with the sales teams and everything else.
   
  We anticipate beating these numbers. We believe these numbers are
   

32


   
  conservative but it is not down from—when you look at the combination,
   
  yes, it is down a little bit because of the Aetna situation and because we
   
  have costs associated, again, with severance and other payments. But,
   
  overall, it is not down from, at least, where we are right now.
   
   
A. Ursaner In the guidance you gave for '05, the $35 million, what is the IT spend
   
  you've built in to that?
   
   
R. Friedman Jim?
   
   
J. Lusk Expenses, Arnie, or capital? What are you asking?
   
   
A. Ursaner I was asking about consolidating IT systems and some other things?
   
   
J. Lusk The transition team is still working through what kind of capital we're
   
  going to spend, but we're assuming that the overall expense spend is
   
  consistent with the synergy reductions.
   
   
A. Ursaner Okay. The $1.2 billion in revenue, what’s the breakdown between PBM
   
  and specialty?
   
   
R. Friedman What we look at is probably about four, four, four. You've got PBM of
   

33


   
  four; you got retail of four and you got specialty mail of four.
   
   
A. Ursaner The margins on each of those three businesses, in your view?
   
   
R. Friedman The margins are probably going to be somewhat consistent where they are
   
  now. Probably the retail, Hank, in the neighborhood of ...
   
   
J. Lusk Retails runs probably 11% to 11.5 %.
   
   
R. Friedman Right.
   
   
H. Blissenbach Jim has got it.
   
   
R. Friedman Yes.
   
   
H. Blissenbach Yes. That’s about right. Yes.
   
   
A. Ursaner My final question: I know it will come out in a lot of detail when you have
   
  to put out your shareholder request for the merger, but can you briefly
   
  describe how the two companies began to talk and when did it occur?
   
  When did you first start formally talking? Hello?
   

34


   
R. Friedman We're actually waiting because you had background there.
   
   
A. Ursaner Sorry. I'm in an airport.
   
   
R. Friedman I understand. Hank and I have known each other, as we've said, for a long
   
  time. We started talking. We met in New York. We actually run into
   
  each other, I think it was … in a Euro conference a year ago and we were
   
  talking a little bit then. We've continued to talk on and off for a period of
   
  time and then, probably, I don’t know, a month or so ago, two months ago,
   
  that Hank and I started seriously talking about what visions were of both
   
  companies. We both realized that you had to be a lot larger to compete,
   
  both on a national level and a local level.
   
   
  Quite frankly, they had quite a bit of what we wanted. We had, I think,
   
  what Hank wanted. So we just became a natural fit. We needed and
   
  wanted local distribution. If we were going to go do a rollout strategy to
   
  find 27 different locations, it would have taken us a few years to go do. If
   
  Hank wanted to add additional therapies and get into the PBM business
   
  and some of the other passions that he has would have taken him a while
   
  to do and this just became a natural way to get there a lot faster.
   
   
A. Ursaner I think it goes to the question you were asked at the beginning of the call.
   

35


   
  If it was natural, it probably would have been something that would have
   
  occurred a year or two ago. It sounds like both of you had events that
   
  have, perhaps, been a catalyst to bring this merger together?
   
   
R. Friedman Yes. I think we’ve both said - at least I have said - that this business is
   
  going to move at warp speed, and it has clearly done so. It's the PBM
   
  industry specialty. What's happened in PBM industry in 20 years has
   
  taken three year for the specialty industry. So you had to be there.
   
   
H. Blissenbach If I could just sort of comment, I think … was not a particular event but
   
  rather what seems to be an acceleration of reimbursement decreases, in
   
  our case, particularly on the part of the government. We have a fair
   
  amount of Medicare expense and we publicly stated, even though the
   
  Drug Modernization Act, for most people, doesn't go into effect until
   
  2006, it triggered, for us, January 1 of 2004. So just, once again, coming
   
  back to the fact that unless you're big enough to be able to operate at
   
  relatively low margins - operating margins—
   
   
Moderator I'm sorry, gentlemen. You have time for one more question. Your next
   
  question is from the line of Bill Petschl of Van Clemens & Co. Please go
   
  ahead. Mr. Pechel, your line is open.
   

36


   
B. Petschl Hello. I'm sorry. I had the speakerphone on. Can you hear me now?
   
   
R. Friedman Yes.
   
   
B. Petschl I've been looking at the numbers from both of these companies all day
   
  long and, obviously, the quarterly reports came out for both of you today.
   
  They’re very, very similar, except that the Chronimed Corporation seems
   
  to be growing dramatically and MIM does not. Chronimed also has much
   
  stronger balance sheet. So my question to you is how am I going to tell
   
  my customers that this is an equitable deal when MIM comes away with
   
  63% of the ending operation and Chromimed comes out with 37%?
   
   
R. Friedman Okay. First of all, I'll go first and then Hank could go. One, I do not
   
  agree with your analysis. When you go ahead, first of all, the Aetna
   
  situation, I don't know how you factored that into but, as they've reported,
   
  it's almost 20% of their business. So you have to look at that and probably
   
  adjust your model going forward.
   
   
  Number two, when you take out TennCare, which was our Aetna, which
   
  happened a year ago, and you go ahead and adjust for some of the
   
  situations, MIM specialty is up 31%; MIM PBM is up 19%. So I guess to
   
  make the comment that MIM looks like it's down, I guess, yes, in reality,
   

37


   
  when you put those in, it's down, but MIM has been growing its business.
   
  TennCare, this is actually the last quarter that we have to go and make
   
  those comparisons. So I would just disagree with your analysis.
   
   
B. Petschl Well, in reality is a sentence you used and that's what I—that's where I
   
  live.
   
   
R. Friedman I don't know how you do reality with Aetna.
   
   
J. Lusk Hey, Bill. This is Jim Lusk. One of the things, in our financial results, we
   
  have tables that basically walk you through what Rich said, so that's a key
   
  issue. Because, like Rich said, PBM and MIM are growing substantially,
   
  when you take last year's TennCare out, and specialty is also growing very
   
  quickly, too.
   
   
  In terms of our balance sheet, we have a very strong balance sheet. We
   
  had $10 million on the balance sheet because of the acquisition we did in
   
  January.
   
   
H. Blissenbach Just a follow-up: I mean we've looked at this pretty close, us and our
   
  board, and believe there was a very equitable deal for the Chronimed
   
  shareholders - a very good deal for Chronimed shareholders. They go
   

38


   
  back the exchange ratio of 1.025 shares in the exchange and the quality on
   
  the board of directors. Our balance sheet is strong. We have had a good
   
  quarter. Our business has been good, but the holes that the MIM products
   
  bring to us now fill make it even a stronger combination with the two
   
  companies. So I would have to say, from the Chronimed shareholders’
   
  perspective, this is a good deal.
   
   
B. Petschl I understand what you're saying. Going forward, you believe that this is
   
  great for both sides, and I can only trust you on that, and I have for many
   
  years, so I will. My question just comes back to the equitable or the
   
  fairness of a deal that puts one apple at a value of 70% larger than another
   
  apple. I see two apples; these companies look very similar certainly in
   
  today's quarter.
   
   
J. Lusk I think the other thing to think about, Bill, is the relative EBITDA and
   
  reported numbers of the companies as the relative shares. MIM does have
   
  twice the amount of shares out also. So you got to think about that one
   
  when you're doing your balancing.
   
   
B. Petschl Yes. Twice as many—a dollar divided by twice the number is half as
   
  much.
   

39


   
J. Lusk I think the EBITDA is also another strong indication, too, of share if you
   
  look at those.
   
   
B. Petschl Thank you very much.
   
   
H. Blissenbach Thanks, Bill.
   
   
R. Friedman Okay. I think that's it …
   
   
Moderator Yes, sir. It is. Please continue.
   
   
R. Friedman Pat?
   
   
Moderator Yes. Would you like me to give the replay information at this time,
   
  gentlemen?
   
   
R. Friedman Please, thank you and I'd like to thank everybody for joining in today. As
   
  we proceed along with the activities, we will absolutely get back to
   
  everyone. Thank you so much for joining in.
   
   
Moderator Ladies and gentlemen, this conference will be available for replay from
   
  8:00 p.m. eastern time tonight until midnight on August 16th. You may
   

40


   
  reach this call by dialing 1-800-475-6701 using the access code of
   
  741904.
   
   
  That does conclude your conference for this evening. Thank you very
   
  much for using AT&T Executive. You may now disconnect.
   

 

 

 

 

 

 

 

 

 

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