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King Pharma Gets Clubbed

Shares drop 20% following the company's weak quarterly report.

Shares of

King Pharmaceuticals


plummeted Tuesday after the company's fourth-quarter financial results fell well below Wall Street's estimates because of inventory problems.

King blamed "reporting errors" by two major wholesalers for causing higher-than-expected inventories of the company's two biggest drugs, the blood pressure medication Altace and the muscle relaxant Skelaxin.

The errors caused King to make inaccurate inventory estimates during the third quarter, but the company said inventory levels were later reduced during the fourth quarter. King didn't identify the wholesalers. The top three wholesalers handle more than three-fourths of King's business.

King's shares fell down $3.98, or 20%, to $15.89 recently. Trading volume was five times the daily average for the past three months.

For the fourth quarter, King earned $106.4 million, or 38 cents a share, before items. Revenue was $423.3 million. Analysts polled by Thomson First Call had forecast a profit, excluding items, of 43 cents a share on revenue of $482.7 million.

Altace accounted for $150 million in fourth-quarter sales and Skelaxin contributed $70 million. Inventory problems knocked $13 million and $17 million, respectively, from the sales totals.

The full-year profit of $1.66, excluding items, was 4 cents below the consensus estimate. Revenue of $1.77 billion was slightly below the consensus forecast of $1.81 billion.

The fourth quarter was affected by several one-time items, resulting in a total pretax charge of $284.4 million. The biggest item was a charge of $188.7 million relating to an agreement with

Pain Therapeutics


to collaborate on developing and marketing as many as four painkillers. King took $94.1 million in asset impairment charges for the insomnia medication Sonata and the blood pressure drug Corzide.

King recorded a $6.5 million charge primarily for fees associated with investigations by the

Securities and Exchange Commission

and the Justice Department.

The Justice Department investigation was

settled in November with King agreeing to pay $124 million to answer allegations that it overcharged government agencies and underpaid rebates to Medicaid recipients between 1994 and 2002. The SEC has been examining King's past pricing practices as well as accounting for returned products.

In November, King said the SEC staff told the company it won't recommend an enforcement action on the pricing issues. King spent $19.8 million in fees during 2005 for these investigations.

When all items are included, King lost $94.6 million, or 39 cents a share, for the most recent fourth quarter. For the same period in 2004, the company earned $14.7 million, or 6 cents a share, on revenue of $342.6 million.

King didn't provide guidance for 2006.