Pfizer has hit the acquisition trail again and is splashing out $3.60 billion in cash to buy King Pharmaceuticals.

The world's largest drugmaker is paying $14.25 per share, which represents a premium of some 40% to King's closing price as of October 11 and 46%  to the one-month average price. The transaction has been approved by both boards and is expected to be completed by the end of the year or the start of 2011.

The rationale behind the deal for Pfizer is to get access to King's pain drugs portfolio, notably Avinza (extended-release morphine), Embeda (extended-release morphine plus naltrexone) and the Flector (diclofenac epolamine) pain patch. However arguably more interesting are King's new formulations of pain treatments designed to discourage misuse and abuse of such drugs.

These are headed by Remoxy, a long-acting oxycodone formulation and Acurox, a short-acting oxycodone product. However, both of the treatments have been rejected by the US Food and Administration over the past year or so, but resubmissions are planned; Remoxy by the end of the year and Acurox in the first quarter of 2011.

King, which itself acquired Alpharma in 2008 for $1.5 billion, had second quarter sales of $371 million and the biggest earners were actually its Alpharma animal health division ($85 million) and the Meridian Auto-Injector business for emergency drug delivery ($83 million).

Pfizer is very much a big player in pain already, with the blockbusters Lyrica (pregabalin) and Celebrex (celecoxib) and chief executive Jeff Kindler said the deal "will allow us to offer a fuller spectrum of treatments". He added that the revenue generated by King's portfolio will further diversify Pfizer's business, "while at the same time contributing to steady earnings growth and shareholder value."

The acquisition should be accretive to earnings by $0.02 per share in 2011 and 2012, and $0.03-$0.04 between 2013 and 2015. Pfizer expects the transaction to bring cost savings of at least $200 million to be realised by the end of 2013.

Analysts have been caught on the hop by the proposed deal but the consensus seems to be that Pfizer (and clearly King investors) have done well.  Barbara Ryan at Deutsche Bank issued a research note, describing it as a “disciplined, but not ’sexy’ acquisition,” while Goldman Sachs Jami Rubin believes King’s products "may potentially perform better under Pfizer’s umbrella, in our view, given Pfizer’s strong marketing machine.”

Datamonitor principal analyst Simon King noted that King is "predominantly a sales and marketing operation and reports minimal R&D expenditure" and "given its significant sales and marketing capabilities in the US market", the sole territory where it operates, "the acquisition will provide substantial opportunity for Pfizer to both reduce selling, general and administrative costs but also expand revenues".

He does note, though, that integration of sales from the King acquisition will have minimal impact on Pfizer’s turnover over the next few years, as the loss of US patent exclusivity for cholesterol blockbuster Lipitor (atorvastatin), which had global sales of $11.4 billion last year, kicks in from November 2011.