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Tennessee-based drugmaker King Pharmaceuticals (KG) has agreed to be acquired by pharmaceuticals giant Pfizer (PFE – Free Analyst Report). Under the terms of the deal, which were approved by the boards of both companies, Pfizer would pay $14.25 per King share, or roughly $3.6 billion, in cash. The offer price represents a premium of about 40% to King shares’ preannouncement closing price. Assuming regulatory clearance is received and other customary closing conditions are met, the deal should close by yearend or early in 2011.

Although King has been struggling to revive its top and bottom lines in recent years, due to some of its key products facing generic competition, its recent focus on pain-management therapeutics – an area with vast growth potential – promises to be a boon. King's portfolio of pain-relief drugs, hospital care products, and animal feed additives should help to expand and diversify Pfizer's businesses of primary care, established products, and animal health. Notably, King's line of pain drugs, which includes Avinza, Flector Patch, and Embeda (a recently launched abuse-resistant opioid treatment), would serve as a nice complement to Pfizer's pain-therapy offerings, Lyrica and Celebrex.

King would also bring with it a pipeline of drugs under development, providing Pfizer with sizable long-term growth opportunities. To this end, King has two abuse-deterrent painkillers, Remoxy and Acurox, in the later stages of development, and plans to file for FDA approval of both treatments in the coming months.

The transaction is not expected to affect Pfizer's results in 2010, but management has said it should be accretive to share earnings by $0.02 in 2011 and by $0.03-$0.04 in the three years that follow.

The pending merger between King and Pfizer is the latest in a round of consolidations occurring within the drug industry. That trend is accelerating as pharmaceutical companies face the imminent loss of patent protection and seeking to acquire smaller players that have drugs with longer market exclusivity periods.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.