Photo of pills.
Pfizer has bought out yet another company. CC by e-magic/Flickr

King Pharmaceuticals will cost Pfizer more than $ 3.5 billion, making it the second largest purchase ever by the world’s largest drug company. When a patent expires, a drug company can lose a lot of money. Many of these mergers are intended to fight this effect.

Get King Pharmaceuticals for a big premium

Pfizer announced it would pay 40 percent more than King’s current stock price to purchase King Pharmaceuticals. King’s price jumped to match the offer in trading on Monday. Pfizer saw the value that King Pharmaceuticals has. King manufactures pain medication mostly. The entire portfolio of King Pharmaceuticals drugs will be rolled into Pfizer’s manufacturing and marketing divisions.

Expanding the Pfizer portfolio

The medication that King Pharmaceuticals makes is pain medication for the most part. Drugs like OxyContin may be replaced by the “abuse-resistant” pain medication that King is working on right now. King Pharmaceuticals also develops and sells veterinary drugs and the EpiPen. Also, a contract is already set between the Department of Defense and King Pharmaceuticals where pre-filled syringes of anti-nerve agent medication are made. These contracts will be merged at the same time Pfizer and King merge their operations.

Trying to stay away from patent problems with Pfizer and King

Mergers and buyouts have happened before. This isn’t the first. Pfizer has become the largest drugmaker in the world with all the buyouts happening. Pfzier, as well as King Pharmaceuticals, faces a serious income problem in what the industry refers to as the “patent cliff.” Patents protect drugs that come to market at first. Generic versions of the drugs can’t be manufactured until the patent expires. Once Lipitor hits the patents cliff, Pfizer’s best selling drug will get a 60 percent drop in the millions of dollars that come in with sales. The change in drug portfolio and change of ownership for King Pharmaceuticals could very well make up for the income loss.

Citations

Associated Press: http://google.com/hostednews/ap/article/ALeqM5hbaoWbl-qz6f2UkSXhOhVLnVHFrwD9IQB2C01?docId=D9IQB2C01

NY Times: http://dealbook.blogs.nytimes.com/2010/10/12/pfizer-to-buy-king-pharmaceuticals-for-3-6-billion/

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