King Pharma - Well Armored?

(RTTNews) - Hit by a triple whammy of generic competition, regulatory setback and sales erosion due to a decline in prescription trends, 2008 was a tough year for specialty drug company King Pharmaceuticals Inc. (KG | Quote | Chart | News | PowerRating). Though it is not going to be a smooth sailing this year either, the company has positioned itself afresh for challenges, diversifying its portfolio with its $1.6 billion acquisition of Alpharma Inc., which was completed late last year.

King Pharma went public in June 1998 pricing its IPO at $14 a share. Shares of King Pharma have recovered nearly 68% from their March low of $5.86 and currently trade around $9. A potential near-term catalyst is the FDA decision on the company's pain drug Acurox, which is expected by June 30.

Acurox is an abuse-resistant painkiller jointly developed by King Pharma and Acura Pharmaceuticals Inc. (ACUR | Quote | Chart | News | PowerRating). The drug was licensed by Acura to King in October 2007. The companies submitted a New Drug Application for Acurox in January of 2009, including a request for priority review. If approved, Acurox will be the first approved immediate release opioid analgesic designed to deter the most common methods of opioid misuse and abuse.

Prescription opioid analgesics are said to be the most frequently abused drugs in the U.S and much of this misuse involves the extended-release opioid analgesics. Opioids or prescription painkillers, which are legitimately prescribed for treatment of acute pain are crushed and then dissolved in liquid or snorted or injected for the purpose of attaining the "high" or pain-free euphoria by abusers. Another common route of pain drug abuse is by swallowing excessive quantities of tablets. Statistics reveal that about 5.2 million Americans used prescription pain relievers for non-medical use in 2007.

According to King, Acurox tablets are a unique composition of short-acting oxycodone HCl, niacin and functional inactive ingredients intended to relieve moderate to severe pain while discouraging common methods of abuse. When the recommended dose of Acurox is exceeded, the drug is associated with niacin-induced unpleasant, yet reversible, dysphoric (distress) effects.

King and Acura are jointly developing three other immediate-release opioid analgesics utilizing Acura's Aversion technology, which is designed to resist or deter common methods of prescription drug misuse and abuse.

In addition to Acurox, King is waiting on the FDA decision on three other drug candidates -- Embeda, Remoxy and CorVue.

Embeda, a painkiller came under King's fold following its acquisition of Alpharma. According to King, Embeda capsules contain extended-release morphine pellets, each with a core of naltrexone that prevents addicts from getting "high" if the capsules are chewed or crushed.

The New Drug Application for Embeda was filed with the FDA in June 2008. Last November, an FDA panel, which reviewed how effective the drug was at discouraging abuse, concluded that Embeda is less susceptible to abuse and misuse but it is only an incremental improvement over other opioid analgesic products.

The company is still in discussions with the FDA regarding a *Risk Evaluation and Mitigation Strategy (REMS | Quote | Chart | News | PowerRating) for Embeda. Goldman Sachs analyst Shibani Malhotra expects Embeda to be approved by the second-half of this year. (*REMS is a strategy to manage a known or potential serious risk associated with a drug or biological product. It can include a Medication Guide, Patient Package Insert, a communication plan, elements to assure safe use, and an implementation system).

Remoxy is another pain drug that is awaiting word from the FDA. Remoxy is being developed by Pain Therapeutics Inc. (PTIE | Quote | Chart | News | PowerRating) under license from Durect Corp. (DRRX | Quote | Chart | News | PowerRating), and Pain Therapeutics has, in turn, sublicensed the commercialization rights to the drug candidate to King.

Remoxy is a long acting oral formulation of oxycodone intended to treat moderate to severe pain. According to King, Remoxy is designed to resist common methods of prescription drug misuse and abuse. The New Drug Application for Remoxy was submitted in June 2008. An FDA panel, which reviewed Remoxy last November, had a mixed view about the drug - with some members concluding that Remoxy is less susceptible to abuse than other pain killers and some members ruling that the drug may be not so tamper resistant.

However, the FDA issued a complete response letter for Remoxy last December and requested additional non-clinical data to support the drug's approval. Analysts expect Remoxy to be approved in 2010.

CorVue, a pharmacological stress imaging agent for the heart is yet other product under FDA review. King submitted the New Drug Application for CorVue last December. The company is seeking FDA approval for the drug as an adjunct to non-invasive myocardial perfusion imaging tests to detect perfusion abnormalities in patients with known or suspected coronary artery disease. The Cardiovascular and Renal Drugs Advisory Committee of the FDA is expected to review CorVue on July 28 and the FDA is set to take a final decision on the drug on October 18.

With King's formerly best-selling branded pharmaceuticals coming under pressure from increased competition and loss of patent protection, the company certainly needs new drugs to replace lost sales.

Altace, a drug used to treat high blood pressure and congestive heart failure was King's top-selling drug until it lost patent protection in December 2007. King, which generated $646 million in sales of Altace during the twelve months ended December 31, 2007, reported Altace sales of a mere $166 million during the twelve months ended December 31, 2008.

Avinza, a painkiller that logged $135 million in sales in 2008 is facing patent challenge from Actavis Inc., even though a formulation patent relating to Avinza is scheduled to expire only on November 25, 2017, according to the *Orange Book. Actavis, which is seeking permission to market a generic version of the drug, has challenged the validity of the patent. In the first-quarter of 2009, Avinza sales totaled $39 million, up from $32 million in the year-ago period. (*Pharmaceutical-related patents are listed on Orange Book).

In January 2008, King settled a patent suit against generic pharmaceuticals company CorePharma LLC in a deal that will keep generic version of muscle relaxant Skelaxin off the U.S. market until December 2012. The first patent on the drug doesn't expire until December 3, 2021, according to the Orange Book. However, on January 21, 2009, a U.S. court invalidated two patents relating to Skelaxin. King plans to appeal against the Court order. Several generic drug manufacturers have challenged the validity of the patents covering Skelaxin, and it remains to be seen whether King will enter into settlement agreements with them to delay the generic entry. Net sales of Skelaxin were $446,243 in 2008 and $100,599 in the first quarter of 2009.

King has two drugs each under phase II and phase III development. Vanquix intended for treatment of acute, repetitive seizures associated with epilepsy and Ketoprofen in gel formulation, a nonsteroidal anti-inflammatory drug are under phase III testing. Eladur, a transdermal patch for relief of persistent pain associated with post-herpetic neuralgia and T-62, a treatment for neuropathic pain are under phase II studies.

As a reminder, King was close to being bought out by Mylan Inc. (MYL | Quote | Chart | News | PowerRating) in 2004 in a stock-swap deal that valued King at about $4 billion or $16.70 per share. However, the deal was called off in early 2005 as the two companies couldn't agree on a revised acquisition price, following a slump in their stock prices ever since the deal was tabled.

Alpharma, which King acquired for $37 a share or $1.6 billion in late 2008, has helped King to expand its presence in the market for pain drugs and more specifically given a leading position in the abuse-deterrent opioid market, according to Natixis Bleichroeder analyst Corey Davis.

In addition, Alpharma's Animal Health division, a medicated feed additives business, provides an additional reliable source of diversified cash flow for King. The transaction is expected to be accretive to King's diluted earnings per share, excluding any special items, in the second full year on closure of the deal, i.e. in 2010. King anticipates achieving synergies of $50 million to $70 million over the same time period.

As mentioned, 2008 was a challenging year for King. The company incurred a loss and reported a 27% drop in revenue last year. Net loss in 2008 was $333 million or $1.37 per share, compared to net income of $182.9 million or $0.75 per share in 2007. The net loss of 2008 included a special charge to the tune of $590 million related to the acquisition of Alpharma. Excluding special items, King earned $304 million or $1.24 per share, down from $476 million or $1.95 per share in 2007. Revenue declined to $1.56 billion in 2008 from $2.14 billion in 2007 primarily due to market entry of generic substitutes for Altace.

During the first quarter ended March 31, 2009, King reported a net loss of $11 million or $0.04 per share, compared to net earnings of $86 million or $0.35 per share in the comparable quarter a year before. Excluding items, adjusted net earnings equaled $64 million or $0.26 per share during the first quarter of 2009, down from $124 million or $0.51 per share in the first quarter of 2008. Quarterly revenue declined to $429 million from $432 million in the year-ago period.

For the second quarter ending June 2009, Wall Street analysts have earnings estimate pegged at $0.25 per share and revenue estimate at $439.9 million. While the estimated second-quarter earnings represent nearly 17% decline from the year-ago quarter, the estimated second-quarter revenue reflects 10.8% growth.

According to statistics, the opioids market is expected to grow from $9.6 billion in 2008 to $11.9 billion in 2018 across the seven major markets. With four pain drugs awaiting FDA decision and two drugs in late-stage studies, a lot hinges on the drugs' approval and the outcome of the trials for King.

The regulatory agency is stepping up efforts to curb abuse and misuse of prescription painkillers and it remains to be seen how quickly King's anti-abuse opioid drug candidates are able to pass the FDA muster, given the uncertainty in regulatory environment. According to some analysts, King is also a potential acquisition target. With many important events coming up, it is worth keeping an eye on King Pharma. Stay tuned...

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