Pfizer-AstraZeneca’s Nexium Deal. Win-Win for both Companies?
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Pfizer (NYSE: PFE) had been looking for ways to expand its customer healthcare business. So, the US Viagra maker decided to pick up the exclusive global rights to market the non-prescription version of Nexium from AstraZeneca (NYSE: AZN), Britain’s second biggest pharmaceutical company. As per the deal, Pfizer will be paying AstraZeneca $250 million up front and other milestone and royalty payments based on product launches and sales. Pfizer would be in a position to launch the product in the US by 2014 provided it gets the required regulatory approval.
Acid reflux treatment Nexium was the world’s fifth best selling medicine last year and was AstraZeneca’s second largest seller in the April-June period. According to IMS health, Nexium had net global revenue of around $8 billion last year. The drug has been advertised heavily on television and is commonly known as the “purple pill,” which provides relief from heartburn for 24 hours.
As Pfizer looks to strengthen its core drug business and expand its consumer health business, this deal should be a sure boost for the company. “Pfizer is continuing to enhance the value of our Consumer Healthcare business,” stated Ian Read, Pfizer’s Chairman and Chief Executive Officer after this deal. “Through its strong connection to our core biopharmaceutical business and to emerging markets and pharmacy customers worldwide, Pfizer Consumer Healthcare will have the opportunity to help more consumers better manage their health, while extending the value of certain important pharmaceutical brands.” Over the years, Pfizer's main motive has been to provide affordable medicines to the payers without compromising the quality which is associated with the reputation of the company.
Pfizer is one of the high yielding stocks in the healthcare sector, with a dividend yield of 3.6%. The company has beaten earnings expectations for each of the last four quarters and posted a 25% increase in earnings in the most recent quarter. If the over-the-counter version can replicate the performance of the prescription version of Nexium, it could provide a significant upside in earnings for the company. The solid portfolio of drugs and the recent deal has surely made Pfizer a more attractive company and a value buy at current levels. It currently has a portfolio of quite well known products. Even after selling Listerine to Johnson & Johnson, the company still has quality healthcare products like ChapStick, Central Vitamins, Norvasc, Zoloft, Effexor, Zithromax and Dr. Scholl's foot care as well as the Coppertone sun care product line in its portfolio to name a few.
AstraZeneca is also on a high after this deal. The company has revised its earnings guidance for 2012 raising its EPS target by 16 cents, thereby lifting the full-year EPS target to between $6 and $6.30. Even after this deal, the company will continue to manufacture and market the prescription version of Nexium, as well as supply Pfizer with the OTC version. The patent for Nexium is due to expire in 2014 and after that the company may face generic competition from other players in the industry who may want to enter the same segment. "This agreement will help AstraZeneca realize the substantial, long-term value of this brand and also the other brands in our portfolio," said Tony Zook, the Executive Vice President of the company after this deal. The company firmly believes that the sales and marketing expertise of Pfizer, makes them the optimal partner to commercialize the over-the-counter version of Nexium globally. Moreover, the two companies are looking for agreements in other AstraZeneca prescription brands for which an over-the-counter version will be appropriate.
The market reacted positively on this deal with the shares of AstraZeneca rising 38 cents to $47.49 in the extended trading following the announcement. AstraZeneca, will still manufacture and sell the drug Nexium, and will supply Pfizer with the nonprescription version once that's approved. This deal looks beneficial to both the companies. Pfizer's revenue from the consumer health segment is sure to get boosted with the inclusion of Nexium in their portfolio. Furthermore, the launch of the over the counter version of the drug will ensure that AstraZeneca continues generating revenue even after the drug gets generic. Hence, this deal surely looks a win-win for the both the companies. It would be interesting to look out for these two companies in the pharmaceuticals space and see how they fare in the forthcoming days.
yashup has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.