Pfizer has agreed to buy King Pharmaceuticals, a maker of prescription pain treatments, for $3.6bn in cash as the world’s largest drug company by revenues seeks to diversify its portfolio before it loses patent protection on key drugs.
Pfizer will pay $14.25 a share, a 40 per cent premium over King’s closing share price on Monday, valuing the company at about seven times earnings before interest, tax, depreciation and amortisation in 2009.
Cheaper copies of Lipitor, Pfizer’s best-selling cholesterol drug, which had sales of $11.4bn in 2009, will enter the market next year and like many pharmaceutical groups facing similar threats, Pfizer has looked to deals to offset the impact.
In 2009, it paid about $68bn for rival Wyeth and the company has carried out about 30 deals in the past five years. Even so, analysts expect its sales to fall sharply between 2010 and 2015.
With the acquisition of King, Pfizer will expand its presence in the pain relief medicine market where it has products such as Lyrica, used to treat pain from damaged nerves.
The New York-based company will also gain businesses making auto-injectors for emergency drug delivery with revenues of about $300m; supply contracts with the US military; and a small animal health unit with revenues of about $350m.
King’s drugs include Avinza, a chronic pain treatment; Flector, a pain patch; and Embeda, a pain drug designed to prevent misuse. Last year, the company had sales of $1.8bn and made pre-tax profits of about $150m.
In 2009, US doctors wrote about 320m pain care prescriptions but Pfizer said concerns about misuse are a growing issue, making King’s new drug products, including Remoxy, a slow release tamper-resistant version of oxycodone, particularly attractive.
Analysts said that drug could have sales of about $500m within five years but, in other respects, were largely underwhelmed by the deal.
“King makes sense in certain ways for Pfizer but the business is not one that likely has tremendous growth ahead of it,” Tim Anderson, an analyst at Bernstein Research said. He added that the company was still digesting the Wyeth deal.
Pfizer said it expected the deal to add about $0.02 to its earnings per share in 2011 and 2012, and $0.03 to $0.04 per share between 2013 and 2015 as it makes about $200m of cost savings and leverages its size to sell King’s pain products.
“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,” said Jeffrey Kindler, Pfizer’s chairman and chief executive.
The Financial Times