Pfizer is not paying a ransom for King

Considering King Pharmaceuticals' share price has not been anywhere close to $14.25 in the last three years, Pfizer’s takeover offer will look pretty tempting to a lot of the company’s shareholders.

The bid announced this morning values King at $3.6bn, 40% more than the pain specialist’s market value yesterday. The move makes sense given Pfizer’s significant presence in CNS, led by blockbusters Lyrica and Celebrex, but less so when considering King’s far from spotless progress over the last 18 months in getting new products to market. A move typical for a company that cannot help itself when it comes to acquisitions, perhaps, but hardly one that will lessen the Lipitor patent cliff.

Tamper resistance

Pfizer cited King’s portfolio of drugs that discourage abuse as one of the main attractions. Concerns about opioid abuse prompted many drug developers to have a go at cracking this space, including King and Purdue.

However, the FDA has proved hard to convince that the new formulations offer any real reduction in abuse potential. For example, Purdue finally won approval for its OxyContin reformulation in April this year, but the FDA refused to allow the company to make any claims that the medicine was less susceptible to abuse.

King has tried several attempts in this space, partnering with Acura Pharmaceuticals on Acurox and Pain Therapeutics on oxycodone reformulation Remoxy. Both of these fell at the first hurdle in front of the US regulator, with resubmissions scheduled for the end of this year for Remoxy and early next year for Acurox.

In fact Pain shareholders appear to be major gainers today; shares in the company gained 21% to $7.54 early today on news of the deal. Pain is due to receive 15% royalties on sales of the product and perhaps investors are hoping having Pfizer on board with smooth the product's passage.

Still, just like Purdue found, questions remain whether either Acurox or Remoxy will be able to make abuse-resistant claims, critical to determine the ultimate commercial potential of these products.

 Still, King is having another try, and expects to begin enrollment in a phase III study for Oxycodone NT, a product specifically designed to resist certain common methods of misuse and abuse. Although these agents have struggled to win label claims so far, any product that succeeds certainly has potential, something that Pfizer will have its eye on.

Some success

The company had some success with Embeda last year, an extended release formulation of morphine, but with analysts forecasting sales of $329m in 2016 this hardly represents a big product for Pfizer (King receives important approval but the pace must be kept up, August 14, 2009).

However it is highly likely that Pfizer did not buy King primarily for its pain business. The pharma giant also pointed to the company’s Meridian auto-injector business, which develops and manufactures the EpiPen and generates annual revenues of around $300m, animal health business with annual revenues of $350m.

These are “strategically aligned” with its own business units, Pfizer said, “enabling a seamless combination that will maximize King's assets with Pfizer's global organization's scale and resources”.

Stripping out costs to “maximise assets” certainly seems the most likely reason for this deal. King does not offer massive growth prospects and the potential of its biggest products are still under question.

This is not an expensive acquisition, at just over two times sales, and despite the 40% premium $14.25 is not generous, historically speaking. A curious acquisition for Pfizer, and one unlikely to move the needle.

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