As King Pharmaceuticals tries to move past the hit from the entry of generic competition for Altace and overall lackluster second quarter sales figures, the firm has embarked on a plan to become a powerhouse specialty therapeutic pain company, and a central piece of that plan is the acquisition of Alpharma. But Alpharma will have none of it.

Alpharma turned down the August 22nd proposal of $1.4 billion, which was the exact same deal King had previously proposed to the drug company two separate times, once in July and once in early August (¹ Also see "Bristol Makes Another Cancer Move With Partnering On Phase I MM Antibody" - Pink Sheet, 25 August, 2008., p. 18).

The latest offer came just 15 days after King's release of bleak second quarter earnings, and could be a distraction tactic to keep analysts from focusing on the weak sales figures.

Aside from Altace, King's other drugs did not perform well during the second quarter of 2008. Net sales for both Skelaxin (metaxalone) and Thrombin-JMI (thrombin) were down $1 million from Q2 2007, while net sales for Levoxyl (levothyroxine) were down $6 million from the previous year's quarter. Avinza (morphine sulfate) sales for the second quarter of 2008 were flat.

The only increase in sales was seen in the company's delivery technology, the Meridian auto-injector business, which brought in $4 million more than it did in the second quarter of 2007. King also had help from royalty revenues, derived mainly from Adenoscan (adenosine), which totaled $24 million during the second quarter, compared to $20 million in last year's second quarter.

All told, King's overall net revenue from branded pharmaceuticals totaled $317 million for the second quarter of 2008, compared to $467 million during the second quarter of 2007.

The biggest hit, as expected, came when the first generic substitute for Altace (ramipril) hit the market in December 2007. Net sales for the ACE inhibitor totaled just $44 million for the second quarter of 2008, down $119 million from the second quarter of 2007.

Skelaxin could also go generic in the next year, and without a substantial pipeline, King needs to make a significant deal. The business development section of the firm's Web site outlines its openness to many types of arrangements, from in-licensing of Phase II or III products to acquiring mature brands with growth potential to early-stage collaborations.

King's plan to get past the generic hit, which it announced last year, is to redefine its strategic focus with an emphasis on specialty-driven markets, specifically neuroscience, hospital and acute care. But an important part of putting in motion that new strategy is acquiring Alpharma, which is known for its focus on pain therapeutics (and its animal health business).

Currently, King has two pain products on the market - the extended-release morphine product Avinza and the muscle relaxant Skelaxin. But it is gearing up to make a bigger play in that market, with two more potential pain drugs: Remoxy , anabuse-deterrent, gel capsule formulation of oxycodone, and Acurox , a short-acting oxycodone formulation.

Both of Alpharma's marketed products fall into the pain category: Kadian , an extended-release morphine, and the diclofenac patch Flector .

Alpharma has several other pain medications in early to mid-stage development, including T-62, scheduled to begin Phase II later this year for treatment of neuropathic pain. In the second quarter, Alpharma started Phase III trials for a topical ketoprofen gel.

King and Alpharma each have abuse-deterrent pain products under review at FDA. King's Remoxy was submitted in June, granted priority review, and is slated for a Dec. 10 action date. Also in June, Alpharma resubmitted an NDA for a similar drug, Embeda (ALO-01), an extended-release, abuse-deterrent morphine formulation.

King plans to file Acurox by the end of 2008. The company is also slated to file its pharmacologic stress imaging agent Corvue (binodenoson) in that timeframe.

King CEO Brian Markinson said he was impressed with the potential of a combined company owning both Remoxy and Embeda, along with Acurox.

King's proposal is to acquire all outstanding shares of Alpharma for $33 per share in cash, a 49 percent premium over Alpharma's closing price on the day of the second offer, Aug. 4.

That offer is not enough to intrigue Alpharma. In a letter, Alpharma CEO Dean Mitchell told King "while Alpharma is not for sale and we are encouraged by our future prospects, we would consider seriously any bona fide proposal that reflected the fair value of our company."

Dean's assertion that Alpharma is worth more is certainly validated in the recent second quarter sales figures for that firm. While King took a $151 million hit in the second quarter of 2008, Alpharma reported a 25 percent increase in revenues, year over year. Furthermore, the company's stock price has risen since the second offer - that meant that the third offer represented only a 37 percent premium based on share price at the close of trading Aug. 21, the day before the offer was announced.

During a call on Aug. 22, Markinson projected that the acquisition of Alpharma would result in synergies of between $50 million and $70 million in the second year after the deal's closing, with a major portion of the savings derived from not having to hire additional sales staff for the anticipated launch of Remoxy.

Markinson predicted the deal, which could be done without financing, would be accretive by 2010.

Since King and Alpharma have such an overlap in the pain space, analysts inquired about the potential for trouble with the Federal Trade Commission. But Markinson maintained the pain market was big enough that the deal would avoid monopoly concerns, particularly given the need for abuse-resistance pain therapies.

Despite Alpharma's rejections, King says it believes the transaction could be completed by the end of this year. Analysts from Susquehanna said that while it is possible King will make a higher bid, they remain uncertain as to whether or not the deal will go through. In any event, they said they expect the deal will take several months to solidify.

- Lauren Smith (lauren.smith@elsevier.com)

Third Time’s Not The Charm For King’s Pursuit of Alpharma

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