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King Pharmaceuticals (KG) |
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WIKI ANALYSIS
King Pharmaceuticals (NYSE:KG]]) has historically generated revenue from the sale of pharmaceutical products developed by other companies. Smaller pharmaceutical companies with promising, high-potential drugs often make money by partnering with companies that have large, well established sales teams. They then collect royalties as a percentage of total products sales. King's smaller sales force limited the company to the acquisition of mature products with with declining sales. While these products were already FDA approved and therefore less risky than products that were still in development, their upside was also limited. A growing sales force combined with greater developmental capabilities have made it possible for King to acquire rights to newer products with greater long-term revenue potential. The company now focuses on the development of its own pharmaceuticals as well as the development of early-stage products discovered by other companies.[1]
Traditionally, most of King’s revenue came from the sale of three main products: an enzyme inhibitor Altace, muscle relaxant Skelaxin, and Thrombin-JMI. However, the patents for Altace and Skelaxin expired in 2008, leading its revenues from these products to be severely hurt due to generic competition.
Company Overview
Business Financials
In 2009, King's total revenues increased when compared to 2008. For 2009, it posted total revenues of $1.8 billion, an increase from its 2008 revenues of $1.6 billion. King's net income, however, changed dramatically. Between 2008 and 2009, Kings net income improved from a $333 million loss in 2008 to a $92 million profit in 2009.
Business Segments
King Pharmaceuticals has four major business segments.
Branded Pharmaceuticals (62.7% of 2009 total revenues)[2]
This segment manufactures and markets therapeutic products. King’s five top-selling products are produced in the branded pharmaceutical segments. This includes Altace, a therapeutic treatment for hypertension and used for patients over the age of 55 to reduce the risk of stroke, heart attack, and death from cardiovascular causes; Levoxyl, a therapeutic for thyroid hormone replacement; Skelaxin, therapeutic muscle relaxant used for pain relief in patients with acute musculoskeletal conditions; Sonata, an insomnia treatment; and Thrombin-JMI, a topical solution used to help stop minor bleeding, or hemostasis. In 2009, this segment had $1.1 billion in total revenues.[2]
Meridian Auto Injector (14.2% of 2009 total revenues)[2]
The Meridian Auto Injectors segment sells auto-injectors, pen-like devices that are pre-filled with a precise dosage that can be automatically injected into the patient. In 2009, this segment posted total revenues of $242 million.[2]
Animal Health (20.2% of 2009 total revenues)[2]
King's animal health business is a global leader in the development, registration, manufacture and marketing of MFAs and water soluble therapeutics, primarily for poultry and cattle. They offer antibiotic products, anticoccidial products, and antibacterial products. In 2009, this segment posted total revenues of $359 million in revenues.[2]
Royalties and Other (2.9% of 2009 total revenues)
This segment generates revenue from the third-party sale of two drugs, Adenoscan and Adenocard. In 2009, this segment had total sales of $51.8 million.[2]
Trends and Forces
Shift from mature products to pharmaceuticals with higher risk/reward increases exposure to development risk
For the first 10 years of its existence, King Pharmaceuticals acquired and sold mature products that were typically later in their life cycle; when King purchased the products and began marketing them as their own, it found sales to be steadily declining. King was limited to more mature assets due to a weak sales team - companies with younger, more promising drugs looked towards firms that would be able to generate the maximum amount of revenue (and thus a maximum amount of royalties for the developer). Since its inception, the company's sales team has grown large enough to allow it to attract "younger" products. As a result, King has shifted its strategy toward acquiring the rights to products still in development.
Patent expirations increase exposure to drug development risk
While King currently manufactures many FDA-approved products, several of the company’s best-selling drugs (including Altace and Skelaxin) will likely face generic competition by the end of 2009, and some firms expect the sales of these drugs to decline by as much as 75%. As such, King Pharmaceuticals has shifted its capabilities to internally develop new products. Its future financial success is contingent upon the clinical success of its current pipeline, including four products in Phase III trials and two products in late Phase II trials.[3] Several products in this category are an abuse-resistant pain killer called Remoxy, a cardiac stress imaging agent called binodenoson, and an epilepsy treatment called Vanquix. While these products may be relatively late in development, King itself notes in its filings that drug candidates run the risk of failure in any stage of the process, and even thoroughly tested product candidates can fail to receive FDA approval.
Surge capability provision of government contract may cause strain on production capabilities
Products in King’s Meridian Medical Technology segment are sold primarily to the U.S. government’s Department of Defense (DoD) as a military supply. While King currently believes that these contracts will be renewed upon expiration, all DoD contracts may be unexpectedly terminated at the government’s convenience. The specific contract signed by King also has a “surge capability provision,” which mandates that King must increase their sales to the government in the event of mobilization or rapid military deployment. If this occurs, the company will be forced to use their production capabilities for this purpose and may be forced to decrease the manufacture of higher-profit products.
Competition
As an acquirer of developed (or developing) products, King Pharmaceuticals competes with many other pharmaceutical firms, including large industry leaders such as GlaxoSmithKline (GSK) and Merck (MRK).
As a specialty pharmaceutical company, King primarily faces competition that is developing or producing similar products, on a product-for-product basis. In other words, the capability to develop drugs will not necessarily lead to future financial success unless those drugs are cheaper or more effective than similar drugs on the market. In King’s case, their products also face – or will face – a significant amount of competition from generic drugs as their patents expire. As such, an overall financial look at other specialty pharmaceutical companies is not complete, and it is most useful to first consider King’s competition for each of their major products.
Cardiovascular/Metabolic Therapeutics
Altace - Altace is a cardiac hypertension treatment. Altace faces what King refers to as a “very competitive and highly genericized market.” More specifically, both Cobalt Pharmaceuticals and Lupin have filed certifications with the FDA challenging King’s patents and requesting the right to market their own generic versions. If the generic versions are approved, Altace will face equally effective and significantly cheaper competition.
Levoxyl - Levoxyl, King’s therapeutic for thyroid hormone replacement, faces strong competition in several other products also made with the levothyroxine sodium compound. These products include Abbot's Synthroid, Alara Pharmaceutical’s Levo-T, and Institute Biochimique’s Tirosint, among others.[4]
Neuroscience
Skelaxin - As a therapeutic muscle relaxant, Skelaxin also faces a highly genericized market. More specifically, Novartis' Eon Labs, CorePharma, and Mutual Pharmaceutical Co have all filed with the FDA seeking the rights to market and sell a generic version of the drug.
Sonata - As an insomnia treatment, Sonata faces competition from drugs such as Sanofi-Aventis’ Ambien and Sepracor’s Lunesta that also work to treat the same problem. Sonata faces future competition from generic versions as well, as Teva Pharmaceutical Industries (TEVA) has already filed with the FDA to seek approval for sale of the generic version of the medication.
- ↑ King Pharmaceuticals - About Us
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 KG 10-K 2009 Item 1 Pg. 2
- ↑ 2006 10-K, Research and Development, page 40
- ↑ | Table of Approved Levothyroxine Sodium Oral Formulations, CDER
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