Pfizer Buys King Pharma for $3.6 Billion

The world's largest pharmaceutical company is about to get even larger. Pfizer (PFE) announced today it will pay $3.6 billion in cash, or $14.25 per share, for King Pharmaceuticals (KG) of Bristol, Tenn. The price represents a premium of approximately 40% to King's closing price on Oct. 11.

The maker of Viagra says the transaction, which it expects to close late this year or early 2011, will provide "immediate, incremental diversified revenues generated by King's portfolio." Pfizer expects the deal to add approximately 2 cents to adjusted annual earnings per share in 2011 and 2012, and approximately 3 cents to 4 cents from 2013 through 2015.

Pfizer will be adding King's three main businesses: pain treatments, the Meridian auto-injector for emergency drug delivery and its animal health business. But Pfizer is most excited about King's pain drug portfolio and pipeline.

A Portfolio of Pain Relievers

"We are highly impressed by King's innovative products and technology in the pain relief disease area, as well as by its success in advancing promising compounds in its pipeline," said Pfizer Chairman and CEO Jeffrey Kindler. "The combination of our respective portfolios in this area of unmet medical need is highly complementary and will allow us to offer a fuller spectrum of treatments for patients across the globe who are in need of pain relief and management."

Pfizer, which makes the Lyrica and Celebrex pain relievers says the two companies can create one of the leading portfolios for pain relief and management in the industry. King will bring Avinza, the Flector Patch and the recently launched Embeda -- the first approved opioid pain reliever designed to discourage misuse and abuse. King also has two compounds in registration that have the potential to lower the risk of abuse, as well as other compounds in development.

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As the market for pain relief increases, the New-York-based company said, concerns are growing over the widespread misuse and abuse of prescription treatments. This is where King's formulations "will provide Pfizer with multiple new drug delivery platforms, while providing potential long-term upside," the company said.

Pfizer also anticipates the transaction to save operating costs of $200 million, which it expects to fully realize by the end of 2013. The deal is not expected to change Pfizer's 2010 financial guidance.

Pfizer is facing a rather large "patent cliff." It stands to lose patent protection of top-selling cholesterol drug Lipitor and face competition with cheap generics next year. Its $68 billion acquisition of Wyeth was intended to offset some of the lost revenue, but Pfizer needs more. The King deal isn't likely to be the last.