Cash is King to the Tune of $3.6 Billion in Pfizer Offer

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--Drug giant Pfizer Incorporated (NYSE:PFE) (New York, New York) went on a shopping expedition in search of replacements for its aging branded drug portfolio and left a $3.6 billion cash offer on the table to buy King Pharmaceuticals Incorporated (NYSE:KG) (Bristol, Tennessee). It is just the latest round of acquisitions in the Pharmaceutical Industry as companies scramble to replace the profits lost on the patent-loss chopping block.

Pfizer's latest headache is spurred by the November 2011 patent death of the anti-cholesterol drug Lipitor. The size of this headache is underscored by the fact that Lipitor accounts for nearly $12 billion in sales, or about one quarter of its total revenues. When a drug goes off patent, the company that originally held the patent stands to lose roughly 80% in sales. Ouch.

Click on the image at right for a list of the top-five Pharmaceutical Industry mergers in the past two years.

The offer to buy King comes nearly a year after Pfizer's $68 billion purchase of Wyeth. When Pfizer closed on the Wyeth deal, the company announced that it would continue making other acquisitions. The drug majors realize it is impossible to replenish their pipelines to the degree needed in their own labs, and none have been helped along by the slew of recent late-stage drug failures. The acquisition of other drug companies, large and small, and their product portfolios has become a major tool of growth in the industry.

Pfizer's offer of $3.6 billion in cash translates to $14.25 per share, a stunning 40% over King's stock price on Monday, October 11. The company obviously believes it to be a sound investment. Bringing King into the Pfizer family will bolster Pfizer's current painkiller (analgesics) portfolio, which includes bestsellers Lyrica and Celebrex. The market for pain relief and management is huge and growing. The number of prescribed drugs in the United States in 2009 was the compounded Hydrocodone/APAP, which is used for the relief of moderate to severe pain. The drug has had 128 million dispensed prescriptions.

In addition to taking over King's Avinza and the Flector Patch, Pfizer is keen on King's newest drug, Embeda, which is the first approved opioid pain product with design features intended to discourage misuse and abuse. Beyond the approved analgesics, King has two additional products, Remoxy and Acurox, currently in the registration process, both of which have the potential to lower the risk of abuse, as well as others in various stages of development. The deal will bring Pfizer other King products such as an animal health product line and drug injectors, including the popular EpiPen, a pre-filled auto-injector designed to quickly treat severe allergic reactions.

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