Pfizer Acquires Pain Drug Maker King for $3.6 Billion

Pfizer Inc.’s $3.6 billion purchase of King Pharmaceuticals Inc. adds abuse-resistant narcotics to help the drugmaker expand its share of the $22 billion market for painkillers.

Pfizer, the world’s largest drugmaker, will pay $14.25 a share in cash, a 40 percent premium over King’s closing price yesterday, for the morphine pill Embeda and two other tamper- resistant painkillers turned away once by U.S. regulators. The companies announced the deal today and expect it to close by the first quarter of 2011.

Pfizer is looking for new products before its top-selling cholesterol pill Lipitor, with $11.4 billion in 2009 sales, loses revenue to generic competition next year. The New York- based drugmaker sold more than $5 billion in painkillers in 2009 led by Celebrex for arthritis and Lyrica for nerve pain.

“Pfizer is looking to expand into pain to buffer the fall from the Lipitor precipice,” said Corey Davis, an analyst at Jefferies & Co. in New York, in an e-mail today. “I wouldn’t have predicted this deal, but I can see where it makes sense given the predicament Pfizer is in.”

The acquisition would be Pfizer’s biggest since its $68 billion purchase of Wyeth last year. The company has done 30 deals in the past five years with an average size of $4.13 billion. The average premium paid for pharmaceutical acquisitions over the past 12 months was 24 percent, according to data compiled by Bloomberg.

King Shares Rise

Pfizer shares rose 10 cents to $17.48, while King surged $3.99, or 39 percent, to $14.14 at 4 p.m. in New York Stock Exchange composite trading. Before today, King’s shares had declined 17 percent since Jan. 1 as the Bristol, Tennessee-based company faced competition from generic copies of the muscle relaxant Skelaxin, its top-seller last year.

King has been focused on making new painkillers since its top-selling blood-pressure pill Altace went generic in 2007. The company acquired Alpharma Inc. the following year for about $1.3 billion to gain rights to Embeda, which was approved by the U.S. Food and Drug Administration in August 2009.

Tamper-Resistant

King is also developing Remoxy, a long-acting oxycodone capsule with tamper-resistant features, with Pain Therapeutics Inc., of San Mateo, California. The drug is designed to be a safer alternative to OxyContin, made by Stamford, Connecticut- based Purdue Pharma LP. King has said it plans to re-file Remoxy to the FDA before the end of the year. The drug was delayed in December 2008 when the agency asked for more data.

“Pfizer felt that they wanted to get in before Remoxy was re-filed,” a catalyst that may spark King shares “to move up pretty aggressively,” said Ian Sanderson, an analyst at Cowen & Co. in Boston, in a telephone interview today. “They are taking advantage of price, although from a discounted cash flow perspective, they’re paying fair value, maybe a little bit below.”

The agreement includes a $110 million breakup fee King would pay Pfizer if the deal is terminated under certain circumstances.

Pain Therapeutics rose $1.16, or 19 percent, to $7.41 in Nasdaq Stock Market composite trading as investors felt Pfizer would be able to better promote Remoxy with doctors if it’s approved. Remoxy may bring in peak annual sales of $500 million and Embeda may have peak sales of $350 million, Sanderson said.

The global market for narcotic and non-narcotic pain treatments was $22.4 billion in 2009, according to health research firm IMS Health Inc. King is also developing a short- acting oxycodone pill called Acurox with Palatine, Illinois- based Acura Pharmaceuticals Inc. The drug failed to win an FDA panel’s backing in April and plans to re-file it next year may be tabled if Pfizer isn’t convinced the drug has value in a market dominated by lower-cost generics, Sanderson said.

King Product Revenue

King, with $1.78 billion in revenue last year, also makes the non-narcotic Flector pain patch, Thrombin-JMI to control bleeding during surgery and Levoxyl for thyroid disorders. It also has an animal health business with $359 million in sales last year that Pfizer said will complement its own animal division.

Pfizer said it plans to eliminate $200 million in costs from King within three years, an estimate that most analysts said was conservative.

“We view King as a solid asset at a somewhat elevated price for Pfizer,” said Joel Levington, managing director with Brookfield Investment Management Inc., said in an email. “The transaction should modestly help Pfizer’s growth profile in 2012 through 2013, and we do not see the deal having an impact on the company’s strong creditworthiness.”

‘Bolt-On’ Acquisitions

Pfizer plans to continue looking for “bolt on” acquisitions in emerging markets, generic drugs and in targeted disease areas, Chief Financial Officer Frank D’Amelio said on a conference call with analysts. The company had $1.88 billion in cash as of June.

“We will continue to be opportunistic regarding additional business development opportunities going forward,” D’Amelio said.

Pfizer’s financial adviser was J.P. Morgan Securities LLC and its legal adviser was Cadwalader, Wickersham & Taft LLP. Credit Suisse was King’s financial adviser and Covington & Burling LLP was its legal adviser.

To contact the reporter responsible for this story: Shannon Pettypiece at spettypiece@bloomberg.net; Catherine Larkin at clarkin4@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

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