Covidien Teams Up with Horizon

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On June 18, 2012, Mallinckrodt, the Pharmaceuticals business of Covidien (COV) revealed that it had inked a definitive co-promotion agreement with Horizon Pharma, Inc. (HZNP), a biopharmaceutical company. As per the agreement, Mallinckrodt will promote DUEXIS (ibuprofen and famotidine) in the U.S. through December 14, 2014. The agreement includes the possibility of renewal for additional periods.

As per the understanding between the companies, Mallinckrodt will receive compensation for every prescription generated according to the physician promotion targets agreed upon. The promotion of DUEXIS to physicians is expected to begin from August 2012. However, Horizon will continue to be the exclusive manufacturer and supplier of DUEXIS and record its revenue.

DUEXIS is a single tablet combination, indicated for the relief of signs and symptoms of rheumatoid arthritis and osteoarthritis. It also reduces the risk of developing ulcers in the upper gastrointestinal tract. It has been available to U.S. physicians since December 2011 and was fully launched in January 2012.

Though the sales force at Horizon since the launch of DUEXIS performed satisfactorily, the significant promotional efforts by Mallinckrodt are expected to yield improved results. Management at Horizon is optimistic about the co-promotion agreement expanding its market reach amongst primary care physicians in the U.S.

The agreement will take some weight off the sales and marketing expenses of Horizon, which had increased almost ten-fold to $11.0 million in the first quarter, primarily due to increased marketing, advertising and promotional efforts for DEUXIS. The commercialization strategy also includes employment of an additional 80 sales representatives to build up its sales force, to drive the DUEXIS revenue.

Horizon is rigorously bolstering the sales of its proprietary DUEXIS. The company generated 41% net sales from the tablet. Considering the company’s therapeutic focus on pain management, osteoarthritis, rheumatoid arthritis and gastro-intestinal side-effects, DUEXIS has the potential to become its flagship product.

The agreement provides Mallinckrodt’s sales forces the right to sell DUEXIS in the U.S. market. Management at Covidien believes that the co-promotion agreement represents a key opportunity for its pharmaceuticals business as Mallinckrodt prepares to spin off the next year, as announced in December 2011.

The addition of DUEXIS to its portfolio will boost Covidien’s efforts to improve standards of care. DUEXIS is thus expected to be an excellent accompaniment to Covidien’s existing portfolio of pain relief products.

Covidien is a leading developer, manufacturer and distributor of medical devices and services on a global scale. Its business segments overlap with the business of its competitors such as Becton, Dickinson and Company (BDX), Johnson and Johnson (JNJ) and CR Bard Inc. (BCR) among others. While acquisitions remain the most important part of the company’s growth strategy, the agreement reflects its aggressive strategy of portfolio extension.

The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. This is in agreement with our long-term Neutral recommendation.

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