Zacks.com: Analyst Blog

On August 22, Alpharma, Inc. (ALO) disclosed that it had received a buyout offer from King Pharmaceuticals, Inc. (KG), which was rejected by Alpharma's Board of Directors. King had made an all-cash offer of $33 per share to Alpharma, which represents a 37% premium over the closing price of Alpharma common stock on August 21.

The shares shot up 43% on the news, and are now trading well above the $33 offer.  We previously had a Sell rating on the stock based on concerns regarding prospects for key product, Kadian's growth, as well as for the newly launched Flector Patch.  However, we are moving Alpharma back to a Hold rating with a $37.50 price target following the announcement of King's takeover bid.  We expect the deal to close at a higher price than the current $33 offer. Our best guess is a deal closing between $35 and $40 per share.

Despite the challenges being faced by the company's Animal Health business, Alpharma maintained its guidance for 2008. Management expects 2008 revenue growth from its continuing operations to be in the range of 30% to 35% over the $535 million in revenues in 2007.
 
Sales of Alpharma's lead product, Kadian, a morphine sulfate sustained release capsule, grew to $43.6 million, up 2.3% year-over-year in the second quarter of 2008. In order to maintain growth in the Kadian franchise, Alpharma is working on developing a second-generation opioid product, Embeda. It is a combination of an extended-release opioid and naltrexone, which is added as an abuse deterrent.

However, we are concerned that a generic version of Kadian could hit the market before Alpharma is able to launch Embeda. Alpharma resubmitted the NDA for Embeda in June 2008. But we do not expect the product to hit the market before the first quarter of 2009.

Arpita Dutt, CA, contributed to the report.

Read the full analyst report on ALO

Read the full analyst report on KG