Return of the King, Pharmaceuticals that is

King Pharmaceuticals, Inc.  (Public, NYSE:KG) stock has finally inched up 4% since Tuesday (10/16) after falling 49% since this summer.  Shares of the King are in the $10 range which has made its P/E more reasonable with a value of 8.5.  Friday KG announced they are eliminating 20% of their workforce and we think its the right move for shareholders.

Yesterday (10/19) Citi Investment Research analyst Andrew Swanson upgraded King to "Hold" from "Sell", saying the job cuts were the right move.  Swanson expects King's earnings to keep falling for the next few quarters, but said the stock price, which is trading around two-year lows, now reflects that risk.

King Pharma's game plan is to devote more attention to its painkilling drugs, and because it will need fewer sales representatives to sell those drugs, it could cut its 1,200-person sales force in half.  "The company can now focus on its pain portfolio, where it is looking to reinvigorate soft prescription trends for Avinza and is awaiting Phase III data for Remoxy," said Swanson.

Positive trial data could lift the stock, he said, but painkiller Remoxy is the only promising drug in King's pipeline and it will not reach the market for at least a year. Swanson kept a price target of $12 per share.

The last three years for King included a rise to the top and then right back down again. So now can they finally get their act together? 

Last month, a federal appeals court ruled to overturn the patent supporting Altace, in a case brought against King and distribution partner Sanofi-Aventis by Indian generic drug maker Lupin Ltd. King appealed the ruling, but said it will focus on other drugs.

King stock has lost nearly half its value over the last three months as investors worried about the Altace ruling, along with challenges to the patent on King's muscle relaxant Skelaxin and greater generic competition for its hemostatic product, Thrombin-JMI. The three drugs are King's top sellers.  The Masters like the money KG has been pulling in the past two years and we're starting to like the odds on King:

King Pharma's Financials (In millions of USD)

Income Statement Quarterly
(Jun '07)
Annual
(2006)
Annual
(2005)
Total Revenue 542.73 1,988.50 1,772.88
Gross Profit 417.20 1,568.69 1,449.90
Operating Income 88.31 403.17 180.08
Net Income 64.78 288.95 117.83

 

If King Pharma can continue to get its act together, there's no reason this stock can't return to the $20 range.


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Ted G

Article by Ted Gottsegen 

Contributor at TheStockMasters.com

Disclaimer: The Author does not hold any positions or shares in the securities mentioned in this publication nor does he stuff his shorts.



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