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Update on Pfizer's OTC Nexium 24HR

Zacks Equity Research

Pipeline updates are eagerly awaited by investors in the biotech/pharma space. An insight into late-stage candidates (including regulatory approval) targeting lucrative markets often influence their investment decisions on a particular stock.

Late last week, Pfizer (PFE) announced that it has received the U.S. Food and Drug Administration (:FDA) approval for its over-the-counter (OTC.TO) version of AstraZeneca's (AZN) Nexium 24HR. Nexium is approved for the treatment of the symptoms of gastroesophageal reflux disease (:GERD).

We remind investors that in Aug 2012, Pfizer acquired exclusive worldwide rights from AstraZeneca to market OTC Nexium. Per the terms of the agreement, AstraZeneca received an upfront payment of $250 million from Pfizer and will further receive milestone and royalty payments on product launches and sales.

Pfizer plans to work with AstraZeneca to launch the product in the U.S. Pfizer expects to launch the drug in Europe and other countries later this year.

Our Take

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 24HR is launched, it will also ensure that AstraZeneca continues generating revenues from Nexium even after its genericization.

Nexium generated sales of approximately $3.9 billion in 2013, accounting for more than 15% of AstraZeneca’s total revenues. However, the company expects Nexium sales to decline in 2014 due to generic competition, which is expected at the end of May. We remind investors that AstraZeneca is entangled in patent litigation related to Nexium with several generic companies including Kremers Urban Pharmaceuticals Inc., a subsidiary of UCB (UCBJF).

Pfizer carries a Zacks Rank #3 (Hold), while AstraZeneca carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector include Gilead Sciences Inc. (GILD). The stock carries a Zacks Rank #1 (Strong Buy).

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