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Sudden Exit at King Pharma

The company says its CEO and chairman stepped down on Friday.

King Pharmaceuticals


said Monday that Jefferson J. Gregory Jr. resigned as chief executive and chairman effective last Friday. He also resigned from the board of directors.

The announcement was notable more for its timing than for its substance. King, which has been under investigation by the

Securities and Exchange Commission

, said Feb. 19 that Gregory would quit as chief executive but remain in place until a successor had been chosen. At the time, however, Gregory said he would keep the job of chairman.

The company made no comment about a potential successor.

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King's stock lost 25 cents, or 1.8%, to $13.63 in early afternoon trading. That's not much better than the stock's 52-week low of $12.29.

The Bristol, Tenn.-based company issued a first-quarter financial report earlier this month that fell well below analysts' estimates. Plagued by inventory problems, King also withdrew its full-year financial guidance.

For the three months ended March 31, the company earned, excluding special charges, $25.9 million, or 11 cents a share, on revenue of $290.6 million. That was below the Wall Street consensus for earnings of $81.3 million, or 33 cents a share, on revenue of $412.8 million.

Those first-quarter results also paled in comparison with the results from the same period last year, in which King earned $82.3 million, or 34 cents a share, on sales of $338.4 million.

King has been negotiating new inventory agreements with drug wholesalers, noting that first-half sales would be "negatively affected" by the deals. The first-quarter impact was greater than the company had expected.

When Gregory, 48, announced in February his plan to quit the CEO's job, he told investors and analysts that he was seeking to spend more time with his family and pursue other business opportunities. He became CEO in January 2002 and chairman in June 2002. He had been president of the company since its creation in 1993.

The company has been under investigation by the SEC since March 2003 for its billing practices for several drugs relating to the Medicaid program and for the sales of products to two companies. It also has received subpoenas from the Department of Health and Human Services (HHS) concerning some of the matters being investigated by the SEC.

In its latest quarterly financial report filed with the SEC, King said it continues to discuss possible underpayments to Medicaid and other government programs with HHS, the Justice Department, the Department of Veterans Affairs and the U.S. Public Health Service. "We expect that these discussions will include a detailed review by the appropriate agencies of our calculations of our underpayments, and it is possible that this review could result in material changes," the company said in its 10-Q report filed May 10.