On Tuesday, Pfizer (New York) and King Pharmaceuticals (Bristol, TN), a specialty pharmaceutical-discovery and clinical-development company, entered into a definitive merger agreement under which Pfizer will acquire King for $3.6 billion in cash, or $14.25 per share. The share price is approximately 40% higher than King’s Oct. 11, 2010 closing price and 46% above its one-month average closing price as of the same date. Both companies’ boards approved the transaction.

The transaction will give Pfizer ownership of King’s prescription pharmaceutical business, which is focused on delivering new formulations of pain treatments that are designed to discourage abuse. Pfizer also will gain King’s Meridian autoinjector business for emergency drug delivery, which develops and manufactures the EpiPen and is a long-term supplier to the US Department of Defense, and King’s animal-health business. King’s three key businesses complement Pfizer’s Primary Care, Established Products, and Animal Health business units, and Pfizer expects the merger to be “a seamless combination that will maximize King’s assets with Pfizer’s global organization’s scale and resources,” according to a company press release.

Through the transaction, Pfizer will seek to use its existing commercial capabilities and expertise as a basis to create a broad biopharmaceutical portfolio for pain relief and management, which will include currently marketed opioid and nonopioid products, as well as a pipeline of drugs in clinical development. To its current pain treatments Lyrica and Celebrex, Pfizer will add King’s Avinza, the Flector Patch, and the recently launched Embeda, an opioid pain product with design features intended to discourage abuse.

In addition, Pfizer expects the transaction to yield $200 million in initial cost savings from operating expenses. The company anticipates that the savings will be fully realized by the end of 2013.

“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. 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 CEO, in a press release.

"The revenue generated by King’s portfolio will further diversify Pfizer’s business, while at the same time contributing to steady earnings growth and shareholder value," he added.

“By bringing together King’s capabilities in new formulations of pain treatments designed to discourage common methods of misuse and abuse with Pfizer’s commercial, medical, and regulatory expertise; global strength in patient services and reimbursement; and global scale and resources, we believe Pfizer can build on our foundation and take our business to the next level,” said Brian Markison, chairman and CEO of King, in the press release.

US physicians wrote approximately 320 million prescriptions to treat pain in 2009, and the market for pain-relief and management treatments is growing. The abuse of prescription pain treatments has become widespread and receives increasing attention as a public-health problem. Pfizer expects King’s formulations of pain treatments designed to discourage abuse to provide it with new drug-delivery platforms and long-term advantages.

Pfizer will promptly begin a cash tender offer to purchase all of the outstanding shares of King common stock for $14.25 per share in cash. Subject to customary conditions, a merger will be effected after the tender offer is complete. All shares not tendered in the tender offer will be converted into the right to receive $14.25 per share in cash. Completion of the tender offer is conditioned on Pfizer’s acquisition of a majority stake in King on a fully diluted basis. The tender offer is subject to regulatory approval in the US and other jurisdictions, and the companies expect the transaction to close during the first quarter of 2011 at the latest.

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