Cholesterol management drug Crestor is a key product at AstraZeneca (AZN). However, Crestor is facing a steep decline in revenues in Canada (down 42% in the third quarter of 2013) and Australia (down 68% in the third quarter of 2013) due to the loss of exclusivity. Additionally, Crestor is slated to lose exclusivity in the U.S. in Jul 2016 (including pediatric exclusivity).
Last week, AstraZeneca and Shionogi & Co. Ltd. announced that arbitration proceedings related to the treatment of certain excise taxes and other specific items related to the calculation of royalties on Crestor sales have been resolved.
It was also announced that the licensing agreement for Crestor will extend till 2023. As per the terms of the agreement, AstraZeneca will make payments to Shionogi from 2014 until 2023. AstraZeneca will pay fixed minimum annual royalty (low hundreds of millions of dollars) till 2020 from 2014, apart from royalty payments (during 2016 to 2020).
Additionally, the companies have modified the royalty structure, which will be effective from Jan 1, 2014. As per the new terms of the agreement, the effective royalty rate for 2014-2015 will be lowered by a low single-digit number.
Shionogi had initiated the arbitration proceedings in July 2012. We remind investors that Shionogi was also a party to the Mar 2013 settlement agreement between AstraZeneca and Actavis Inc. (ACT) regarding the Crestor patent litigation. Actavis was looking to launch its generic version of Crestor.
As per the terms of the agreement, Actavis may launch its generic version of Crestor 67 days before Crestor loses exclusivity on paying 39% of net sales to AstraZeneca. Thus, a generic version of Crestor may enter the market in May 2016.
We believe that the resolution of the arbitration proceedings is a positive for AstraZeneca and removes uncertainty over future Crestor revenues.
AstraZeneca carries a Zacks Rank #4 (Sell). Some better-ranked stocks include Vanda Pharmaceuticals, Inc. (VNDA) and Jazz Pharmaceuticals (JAZZ). Both carry a Zacks Rank #1 (Strong Buy).
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