No pain, no gain

King finally lands Alpharma for $1.6 billion in a deal to strengthen its pain therapeutic portfolio

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BRISTOL, Tenn.—Nearly four months after making its initial unsolicited bid to buy specialty pharmaceutical company Alpharma Inc., King Pharmaceuticals finally closed the deal late last month with the signing of a definitive merger agreement that sets the price at $37 per share of Alpharma stock, or more than $1.6 billion. The price represents a premium of roughly 10.4 percent over the closing price of Alpharma stock the day before the deal was announced and 69 percent over the Alpharma share price when King first offered $33 per share in early August.

"After careful evaluation, our board determined that a combination with King is in the best interest of our shareholders and provides them immediate access to this value," said Dean Mitchell, Alpharma's president and CEO, in a statement announcing the deal. "We look forward to working with King's team to integrate our companies."

The jewel at the center of the deal is Alpharma's Embeda, a morphine-based pain killer that includes an agent which blocks the euphoric affects of the drug and hence prevents abuse. Earlier this fall, the drug was accepted and granted priority review status by the FDA and in mid-November an advisory panel to the FDA met to discuss Embeda as a viable abuse-resistant pain medication.

Dr. Bob A. Rappaport, head of the advisory panel told that "It is essential as part of an overall abuse-reduction program that we provide appropriate risk mitigation strategies, including the development of abuse-resistant formulations."

For its part, King is also looking for fast approval of its abuse-resistant formulation of oxycodone, Remoxy, which would compete with Purdue Pharma's OxyContin. These two drugs together, along with Alpharma's and King's other pain medication already on the market promise to make the combined company the leading pharmaceutical company specializing in pain medications.

The merger agreement brings to a close what had begun as a somewhat contentious tender offer made by King to acquire Alpharma for $33 per share in early August. In September, King upped that offer to $37 per share, which was met with a call by Alpharma management  to reject the offer.

In a letter to shareholders dated Sept. 12, Alpharma's Mitchell urged shareholders not to tender their shares under the unsolicited offer. The letter outlined eight different reasons the Alpharma board made this recommendation, among them the company's belief that the $37 per share offer undervalued Alpharma; the belief that, as a result of the King offer, other potential suitors for the company would emerge willing to pay more –including an unnamed suitor that showed initial interest; and that the timing of the offer was "opportunistic" based on the anticipated approval of Embeda.

Since its recommendation to shareholders, market conditions have continued to deteriorate and, apparently, no other companies lined up to bid more than King. So with no other suitors on the horizon, Alpharma executives chose to take the bird in hand and with it King's $37 per share offer.

"We are excited about the combination of King and Alpharma, which will create a leading specialty pharmaceutical company with greater scale and capabilities," said Brian A. Markison, chairman, president and CEO of King, in a prepared statement announcing the deal. "In addition, the transaction will create a stronger platform to deliver innovation to our customers. King and Alpharma are highly complementary and we look forward to even greater success as a combined company." DDN

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