Pfizer adds pain jewels to crown

Staking its claim as a leader in the pain relief market, Pfizer acquires King Pharmaceuticals for $3.6 billion

Amy Swinderman
BRISTOL, Tenn.—Strengthening its position within the rapidlygrowing pain relief market, Pfizer Inc. on Oct. 12 announced it will acquireKing Pharmaceuticals Inc., a diversified specialty pharmaceutical discovery andclinical development company, for $3.6 billion in cash.
 
 
The deal, which has been approved by the boards of bothcompanies, gives Pfizer ownership of three key businesses from King, includinga prescription pharmaceutical division focused on delivering new formulationsof pain treatments designed to discourage common methods of misuse and abuse—acomplementary fit with Pfizer's portfolios for pain relief and management, thecompany said.
 
Joining Pfizer's current treatments for pain—including theblockbuster drugs Lyrica and Celebrex—will be King's Avinza, a modified-releaseformulation of morphine sulfate; the Flector Patch, a topical treatment foracute pain; and Embeda, a recently launched opioid pain product with designfeatures intended to discourage misuse and abuse. King also brings to theacquisition two compounds in registration that have the potential to lower therisk of abuse, as well as other compounds in development.
 
 
These assets will allow Pfizer "to offer a fuller spectrumof treatments for patients across the globe who are in need of pain relief andmanagement," said company chairman and CEO Jeffrey Kindler in a press releaseannouncing the deal. According to Pfizer, U.S. physicians wrote approximately320 million pain prescriptions last year—but as concerns grow over potentialmisuse and abuse of these treatments and the associated economic impact,"King's leadership in new formulations of pain treatments designed todiscourage common methods of misuse and abuse will provide Pfizer with multiplenew drug delivery platforms, while providing potential long-term upside," thecompany said.
 
 
Speaking on background, a spokesman for King tells ddn that King's focus on abuse-deterrent drugs is theresult of the U.S. Food and Drug Administration's push for safer products,"because overall prescription abuse in this country is now on par with heroinand cocaine abuse."
 
 
Pfizer's commercial, medical and regulatory expertise andglobal scale and resources will enable it to take King's businesses "to thenext level," says Brian Markison, King's chairman and CEO. In addition toKing's pain treatment portfolio, Pfizer will acquire the Meridian auto-injectorbusiness for emergency drug delivery—which develops and manufactures the EpiPenand is a long-term, critical supplier to the U.S. Department of Defense—and ananimal health business that offers a variety of feed additive products for awide range of species.
 
 
The deal values King at $14.25 per share, a 40-percentpremium to the company's Oct. 11 closing price. Pending regulatory approval,the transaction is expected to close by late in the fourth quarter or early inthe first quarter of 2011.
 
 
In announcing the deal, Pfizer said the bolt-on acquisitionis consistent with its stated strategy to "provide significant and immediatevalue creation" by leveraging its scale and business unit structure.
 
 
In an Oct. 12 investor conference call, Pfizer focused onthe cost synergies it expects to see from the purchase. Initially, Pfizerexpects to see at least a $200 million savings in operating expenses. Amajority of savings is expected to come from corporate general andadministrative expenses and pharmaceutical and animal health marketing andpromotion. Pfizer said half of the savings will be realized within a year, withthe remaining half realized by year three.
 
 
Incorporated in 1993 and headquartered in Briston, Tenn.,King also has commercial operations in Bridgewater, N.J., R&D facilities inCary N.C. and manufacturing plants in various locations. The company reported$1.8 billion in revenues in 2009 and has about 2,600 employees.
 
 
While specific plans for King's facilities and employeeshave not been announced, Frank D'Amelio, Pfizer's chief financial officer, saidPfizer will maintain portions of King's infrastructure, where appropriate, "tomaximize asset value." Cost synergy opportunities will continue to be assessed,D'Amelio added.
 
 
Fitch Ratings said the acquisition should not impactPfizer's ratings or outlook, as "the revenues generated by an expanded productportfolio will aid in mitigating Pfizer's exposure to the industry's largestpatent expiration period." In particular, Pfizer faces a daunting patent clifffor Lipitor when the blockbuster cholesterol treatment's patent expires in2011. Effexor XR lost U.S. patent protection in July, while Viagra and Enbrelmay lose market protection in the United States over the next two years.
 
King's pain products should help offset those losses, Fitchsaid, adding that Pfizer has also demonstrated financial discipline followingits $68 billion acquisition of Wyeth in 2009 and reduced total debt by morethan $5 billion in the last year.
 
King's shares jumped 39 percent on the news and hit a new52-week high of $14.18.
 

Amy Swinderman

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