Pfizer (PFE) recently entered into an agreement with AstraZeneca (AZN) for the marketing of an over-the-counter (OTC) version of AstraZeneca's Nexium, which is approved for the treatment of the symptoms of gastroesophageal reflux disease (GERD).
Per the terms of the agreement, AstraZeneca will receive an upfront payment of $250 million from Pfizer along with milestone and royalty payments on product launches and sales. In return, Pfizer will gain exclusive rights to market OTC Nexium in the US, Europe and the rest of the world.
While AstraZeneca will continue marketing the prescription product, it will supply the OTC product to Pfizer. The OTC version of Nexium (20mg) has been filed for approval in the EU (June 2012). Meanwhile, a regulatory application for the approval of OTC Nexium in the US is slated for the first half of 2013. Pfizer could be in a position to launch the product in the US as early as 2014, provided it gains approval.
Pfizer and AstraZeneca are also looking to sign similar agreements for other prescription products which could be launched over-the-counter. In fact, AstraZeneca has granted Pfizer a right of first refusal for OTC rights to Rhinocort Aqua, which is approved for the treatment of non-infectious rhinitis (such as hay fever and house dust mite allergy).
Guidance Adjusted
With the signing of the OTC Nexium deal, Pfizer and AstraZeneca tweaked certain parts of their guidance for 2012. While Pfizer cut its 2012 earnings guidance by a couple of cents, AstraZeneca raised its 2012 earnings guidance by 16 cents.
Pfizer now expects earnings in the range of $2.12 – $2.22 per share. The company raised its R&D guidance to $6.75 – $7.25 billion from $6.5 – $7.0 billion. The Zacks Consensus Estimate for 2012 currently stands at $2.20 per share.
Meanwhile, AstraZeneca said that it will recognize the $250 million upfront payment as other income. As a result, the company now expects core earnings per share in the range of $6.00 – $6.30, up 16 cents from the previous guidance. The Zacks Consensus Estimate for 2012 currently stands at $6.00 per share.
Our View
We view this agreement as beneficial for both Pfizer and AstraZeneca. While the deal will boost Pfizer’s consumer health segment sales once OTC Nexium is launched, the launch of OTC Nexium will ensure that AstraZeneca continues generating revenues from Nexium even after its genericization. Moreover, the deal is immediately accretive for AstraZeneca. Nexium sales came in at $4.4 billion in 2011.
We currently have a Neutral recommendation on both Pfizer and AstraZeneca. Both stocks carry a Zacks #3 Rank (short-term ‘Hold’ rating).
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