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Pfizer to buy King for $3.6bn

Pfizer has entered into a definitive agreement to buy King Pharmaceuticals for $3.6bn, strengthening the company's business in pain management

Pfizer has entered into a definitive agreement to buy King Pharmaceuticals for $3.6bn in cash, in a move intended largely to strengthen the company's existing business in pain relief and pain management. The transaction is expected to close in late 2010 or in the first quarter of next year.

Pfizer is paying $14.25 per share for the company, a 40 per cent premium over King's October 11 closing price. The acquisition should increase in relation to adjusted diluted earnings per share by about $0.02 annually in 2011 and 2012 and $0.03 - $0.04 annually from 2013 through 2015.

King's prescription pain medications business is focused on formulations designed to discourage misuse and abuse. The company's portfolio includes the rectal morphine product Avinza (morphine sulphate); the Flector Patch (diclofenac epolamine), which is a topical prescription product used for acute pain due to minor strains, sprains and bruises; and Embeda (morphine sulphate/ naltrexone hydrochloride), which was approved in August of this year as the first long-acting opioid that is designed to reduce drug liking and euphoria when it is tampered with by being crushed or chewed. King also has two other abuse-resistant pain drugs in registration.

Pain relief and management is "one of our identified strategic areas in unmet medical needs," Pfizer chief financial officer Frank D'Amelio said during a conference call with investors to discuss the acquisition. Pfizer's current pain portfolio includes Lyrica (pregabalin), which is used to treat neuropathic pain and fibromyalgia, and the arthritis drug Celebrex (celecoxib).

Pfizer also expects to benefit from the acquisition of Kings's Meridian auto-injector business for emergency drug delivery, which supplies the US Department of Defense, and from the company's animal health business. King's three key businesses are complementary to Pfizer's businesses and strategically aligned with Pfizer's Primary Care, Established Products and Animal Health business units, D'Amelio told investors.

Pfizer anticipates the transaction to yield initial cost savings from operating expenses of at least $200m, which are expected to be fully realised by the end of 2013.  A portion of the initial projected cost synergies are expected to cover the premium that Pfizer is paying for King, D'Amelio noted.

"We expect that these savings will be achieved from the operating expense base and will be driven by corporate general and administrative expenses and pharmaceutical and animal health marketing and promotions," he said. Fifty per cent of the costs savings should be realised in the first year after the closing of the transaction, 75 per cent in the second year, and 100 per cent in the third year, the CFO added.

"We intend to maximise King's assets by maintaining parts of its infrastructure where it makes sense and continuing to assess cost-savings opportunities associated with this transaction," D'Amelio said.

13th October 2010

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