Pfizer Extends King Tender Offer - Analyst Blog

Pfizer Inc. (PFE) recently announced that it has extended the expiration date of its tender offer for all outstanding shares of King Pharmaceuticals, Inc. (KG) by 7 days. The tender offer is now set to expire on January 28, 2011. As of January 20, 2011, about 46.6% of King Pharma's outstanding shares were validly tendered.

Acquisition Deal Announced in October 2010

Pfizer had initially announced its intention to acquire King Pharma on October 12, 2010 for $14.25 per share. The offer price represents a 40% premium to King Pharma's closing price on Oct 11, 2010.

At the time of announcing the acquisition, Pfizer had said that it expects the deal to boost its 2011 and 2012 earnings by 2 cents annually and 2013 – 2015 earnings by 3-4 cents annually. Pfizer also said that it expects to achieve cost savings in the range of at least $200 million by late 2013.

Pain Management Portfolio Main Focus

With several of King Pharma's products facing slowing prescription trends mainly due to generic competition, we believe that Pfizer's main attraction is for King Pharma's pain management portfolio.

With this acquisition, Pfizer is looking to strengthen its position in the pain management market which represents significant commercial opportunity. The addition of King Pharma's pain products will diversify Pfizer's product portfolio and bring in additional sources of revenue.

Pfizer's main pain management products include Lyrica and Celebrex. King Pharma's lead pain management products include Embeda, Flector Patch, and Avinza. While Flector Patch and Avinza are yet to gain traction in the pain management market, Embeda represents significant potential.

Embeda has been designed to discourage misuse or abuse usually associated with the use of opioids. Besides Embeda, King Pharma is working on gaining approval for another abuse-deterrent opioid, Remoxy, which is being developed in collaboration with Durect Pharma (DRRX) and Pain Therapeutics (PTIE).

King Pharma also has an agreement with Acura Pharmaceuticals (ACUR) for the licensing, development, and commercialization of immediate release (IR) pain medicines utilizing Acura's Aversion (abuse-deterrent) technology. Products being developed under this agreement include Acurox, Vycavert and Acuracet.

In addition to gaining access to King Pharma's pain management portfolio, Pfizer will also benefit from the addition of King Pharma's EpiPen business and Animal Health business which should complement Pfizer's Animal Health segment.

Neutral on Pfizer

We currently have a Neutral recommendation on Pfizer, which is supported by a Zacks #3 Rank (short-term Hold recommendation). While the Wyeth acquisition brought with it an attractive biologics platform and some complementary products and businesses, we do not believe they are enough to sustain Pfizer's long-term top-line growth.

The Lipitor patent expiration in 2011 remains a big concern. Lipitor contributed almost 23% to the top-line in 2009 with sales coming in at $11.4 billion. The entry of generic versions of the product will have a significant impact on the company's financials. The loss of patent exclusivity over the coming years will make it challenging for the company to propel top-line growth.

 
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