Acquired by Pfizer in 2010, King Pharmaceuticals was a pharmaceutical company developing pain medicines and hospital products for use in humans, and medicated feed additives and water-soluble therapeutics for use in poultry, cattle, and swine.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
In December 1998, we acquired from HMR for $362.5 million the United States rights to Altace, an ACE inhibitor, HMR's worldwide rights to Silvadene, a burn cream, and HMR's worldwide rights to AVC, a vaginal anti-infective cream.
In August 1999, we acquired the antibiotic Lorabid(R) from Eli Lilly and Company for $91.7 million including acquisition costs plus sales performance milestones that could bring the total value of the transaction to $158.0 million.
On February 25, 2000, we acquired Medco Research, Inc. in an all stock transaction accounted for as a pooling of interests valued at approximately $366.0 million. We exchanged approximately 14.4 million shares of King common stock for all of the outstanding shares of Medco. Each share of Medco was exchanged for 1.3514 shares of King common stock. In addition, outstanding Medco stock options were converted at the same exchange ratio to purchase approximately 1.4 million shares of King common stock. Medco is now one of our wholly owned subsidiaries and, effective November 1, 2000, was renamed "King Pharmaceuticals Research and Development, Inc." Through King Research and Development, we are engaged in product life cycle management to develop new indications and line extensions for existing and acquired products and the development and global commercialization of cardiovascular medicines and adenosine-receptor technologies for multiple indications and markets
On August 31, 2000, the Company completed a merger with Jones Pharma Incorporated by exchanging 73,770 shares of its common stock for all of the common stock of Jones. Each share of Jones was exchanged for 1.125 shares of King common stock. In addition, outstanding Jones stock options were converted at the same exchange rate into options to purchase approximately 4,024 shares of King common stock. The Jones merger has been accounted for as a pooling of interests. In connection with the merger with Jones, the Company incurred total merger and restructuring related costs of $36.8 million.
On August 8, 2001, we acquired certain rights to three branded pharmaceutical products and a license to a fourth product from Bristol-Myers Squibb Company for $285.0 million plus approximately $1.5 million of expenses. The product rights acquired include Bristol-Myers Squibbs rights in the United States to Corzide, Delestrogen and Florinef. We also acquired a fully paid license to Corgard in the United States. Corzide, a combination beta-blocker and thiazide diuretic, is indicated for the management of hypertension. Corgard, a beta-blocker, is indicated also for the management of hypertension, as well as long-term management of patients with angina pectoris. Delestrogen is an injectable estrogen replacement therapy. Florinef is a partial replacement therapy for primary and secondary adrenocortical insufficiency in Addisons disease and for the treatment of salt-losing adrenogenital syndrome.
On May 29, 2002, we acquired all rights to Prefest, a branded pharmaceutical product, from Ortho-McNeil Pharmaceutical, Inc., a Johnson & Johnson subsidiary, for $108.0 million, plus approximately $3.3 million of expenses. During February 2003, we paid Ortho-McNeil an additional $7.0 million upon receipt of the FDAs approval to change the name of the product to Prefest from Ortho-Prefest. Prefest is a differentiated combination hormone replacement therapy with an intermittent progestin administration, together with a continuous administration of estrogen.
On December 30, 2002, we licensed or acquired the rights to three branded pharmaceutical products from Aventis for the initial cash payment of $197.5 million, plus $4.3 million of expenses. The products involved include rights in the United States, Puerto Rico, and Canada to Intal and Tilade, inhaled anti-inflammatory agents for the management of asthma. We also obtained worldwide rights, excluding Japan, to Synercid, an injectable antibiotic indicated for treatment of vancomycin-resistant enterococcus faecium and treatment of some complicated skin and skin structure infections. In addition to the initial cash payment, we paid $10.3 million in December 2003 as a milestone payment due to the continued recognition of Synercid as an effective treatment for vancomycin-resistant enterococcus faecium. As additional consideration for Synercid, we have agreed to remaining potential milestone payments to Aventis totaling $64.8 million.
On January 8, 2003, we acquired Meridian Medical Technologies, Inc. for $253.9 million in cash paid to its shareholders in exchange for their shares of Meridian common stock. Meridian pioneered the development, and is the leading manufacturer, of auto-injectors for the self-administration of injectable drugs. An auto-injector is a pre-filled, pen-like device that allows a patient or caregiver to automatically inject a precise drug dosage quickly, easily, safely and reliably. Meridians commercial pharmaceutical products primarily include EpiPen, an auto-injector filled with epinephrine for the emergency treatment of anaphylaxis resulting from severe or allergic reactions to insect stings or bites, foods, drugs and other allergens, as well as idiopathic or exercise-induced anaphylaxis. Meridian manufactures EpiPen under a supply agreement with Dey L.P., which markets the product. Other pharmaceutical products that are primarily sold to the U.S. Department of Defense, which we refer to as the DoD, under an Industrial Base Maintenance Contract include Atropen and ComboPen, nerve agent antidotes; the Antidote Treatment Nerve Agent Auto-injector, a nerve gas antidote utilizing Meridians patented dual chambered auto-injector and injection process; and auto-injectors filled with diazepam for treatment of seizures and morphine for pain management.
On December 29, 2008, we completed our acquisition of all the outstanding common shares of Alpharma at a price of $37.00 per share in cash, for an aggregate purchase price of approximately $1.6 billion. As a result of the transaction, Alpharma is now a wholly-owned subsidiary of King. The acquisition was funded with available cash on hand, borrowings of $425.0 million under our Senior Secured Revolving Credit Facility, as amended on December 5, 2008, and borrowings of $200.0 million under a term loan. Alpharma has a growing branded prescription pharmaceutical franchise in the U.S. pain market with its Flector Patch (diclofenac epolamine topical patch) 1.3% and a pipeline of new pain medicines led by Embedatm, a formulation of long-acting morphine that is designed to provide controlled pain relief and deter certain common methods of misuse an4d abuse. Alpharma is also a leading provider of MFAs for food-production animals, principally poultry, cattle and swine.
Pfizer Inc. and King Pharmaceuticals, Inc. announced that they have entered into a definitive merger agreement. Under the terms of the agreement, Pfizer will acquire King, a diversified specialty pharmaceutical discovery and clinical development company, for $3.6 billion in cash, or $14.25 per share, which represents a premium of approximately 40% to King's closing price as of October 11, 2010, and 46% percent to the one-month average closing price as of the same date.