Exiting My King Pharma Position with a Nice Gain

Tuesday, only six days after I originally purchased stock in King Pharmaceuticals Inc. (KG), the company announced that it has agreed to end its patent infringement lawsuit against CorePharma LLC relating to its important muscle relaxant drug Skelaxin. Under the agreement CorePharma will be allowed to make an authorized generic version of Metaxalone 800 mg, as well as CorePharma's generic 800 mg metaxalone product.

The news immediately sent the stock up and I took this opportunistic exit with a 16.7% gain. The reason for exiting is that this type of an agreement is the only reasonable way this kind of dispute can be handled, so this should have been expected and does not materially change KG's position. In fact, the only thing that has changed is the short-term perception of market participants, creating a short-term supply/demand imbalance.

I expect KG to continue going up, but now at a much slower pace and in spurts.

Comments

[jimmy Turano:]

Dear Jake, You said you exited KG & made a profit of 16% ($1.70).
CONGRATULATIONS! JAN.9TH-ALSO RICHARD GIBBONS OF MOTELY FOOL
RECOMMENDED LAST WEEK TO BE IN ASTRA ZENECA VS KG.
Your choice to make a profit and run is fine. And Richard Gibbons opinion is fine with me too. However, I as a novice investor, I look at the fact that KG is a screaming discount of at least 50% Off.
That's nice! It's not a first Tier Drug Co., but it is a second Tier Co.
Ergo, if I was a first Tier company looking to acquire other companies,
I think I would have my sights on a company now at 50% OFF.
Secondly I would think there is more potential upward appreciation on KG VS. AZ. at current stock prices. I also believe more upgrades are to come out for KG now than ever. And long term for the next 12 months I feel strongly that sales, further phase advancements, and unexpected good news will push this stock back up to $18 dollars during the time interim (12 months)
Longer term scenario's with a solid company like KG offers more opportunity to an investor or institutional than people who think small!

2008 Jan 17 08:21 AM

[Jake Berzon:]

I agree with you 100%. KG has great potential for appreciation and under good market conditions could be a $18/share stock, while AZN is not a bargain basement pick. However, health care companies are a traditional recession play and too many people have been shifting too much money into them, recently. Whenever this happens, the group becomes overbought and experiences a correction. In addition, market players are very jittery these days and are eager to take money off the table whenever there is a gain. For these reasons it was prudent to sell KG quickly and this is also why it was trading for under $10 again today.

2008 Jan 23 08:56 PM