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BRISTOL, Tenn.—King Pharmaceuticals, Inc. (NYSE:KG) announced today the Company's acquisition of the rights to three branded prescription pharmaceutical products from Aventis. The products include the rights in the United States, Puerto Rico, and Canada to Intal® (cromolyn sodium) and Tilade® (nedocromil sodium), inhaled anti-inflammatory agents for the management of asthma, and worldwide rights, excluding Japan, to Synercid® (dalfopristin and quinupristin), an injectable antibiotic indicated for treatment of vancomycin-resistant Enterococcal faecium (“VREF”) and treatment of complicated skin and skin structure infections. Total upfront cash consideration paid by King for the three branded pharmaceutical products equals $199.5 million. Net sales of Intal® and Tilade® in the United States, Puerto Rico, and Canada and net sales of Synercid® worldwide totaled approximately $66 million during the twelve months ending September 30, 2002.

http://www.kingpharm.com/news_details_invest.asp?id_news=192

Anybody have any idea to how much upside is available from 66 million on these drugs? It seems like a great deal and the perfect example of why cash strong pharmaceuticals have an advantage.

Even if KG foregoes the installments and pays up front, that will leave them with 700 mill in free cash.

Derek - long on KG
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Anybody have any idea to how much upside is available from 66 million on these drugs? It seems like a great deal and the perfect example of why cash strong pharmaceuticals have an advantage.



IMO, it seems a lot of money to spend for drugs with very limited niches.
The deal appears to be buying three drugs for cash totalling a bit over 3 times current annual sales. That could be a fair price or a waste of cash depending on what happens to sales of those drugs. I do not have figures on trends over the past few years. All I can tell you from my experience practicing medicine (primary care and ER) for 20 years is that I have not used any of them in over 10 years. The two asthma drugs probably get most of their use in inner city populations where asthma is a more refractory problem. I have heard that for whatever reason Europe uses more Cromolyn products that we do in US. It is a rare asthmatic in US who I hear about using these meds--they are thought of as third line therapy.
The antibiotic sounds like it has a niche in tertiary hospitals where nasty drug resitant strep is a problem. Again, this niche seems small to me and I am frankly surprised to hear sales for these drugs combined are as high as $66 million.
King has a lot going for it, but if they keep spending their money this way, I will remain an observer.

Urche (who recently sold KG after a brief holding because I was looking for some gain to offset losses)

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Urche,

Thank you for your expertise. That was exactly the kind of information I was seeking. Niche drugs make for great acquisitions if there are other possible uses that can expand sales. It doesn't sound like there would be other possibilities for these particular drugs. I doubt KG's sales force can find any additional markets if the uses for theses drugs turn out to be that limited. To be honest, I'm a little disappointed in the purchase after reading your post and doing a little more research. I've come to respect the management for their shrewd purchases but the more I look for sales growth for all three of these drugs (particularly the anti-biotic) the more I see this deal as a marginally profitable and not worth the risk.

Derek - still long on KG but not buying more for the moment
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