Merck and AstraZeneca have opted for a little more togetherness. The two companies amended their marketing-and-supply arrangement on the stomach drugs Prilosec and Nexium, allowing Merck ($MRK) to continue booking profits from sales of the two drugs for at least two more years. Now, AstraZeneca ($AZN) has the chance to buy Merck out in 2014, rather than this year.
And now, that option carries an already agreed-upon price tag. The two companies agreed on a base price of $327 million for a 2014 buyout, based on their own sales forecasts for the two drugs in the U.S. On top of that, AstraZeneca would pay 10 times Merck's average 1% profit share for the previous three years; that's expected to be about $80 million. Total: $407 million.
The deal also might include an additional payment in 2018, if the sales forecasts used to calculate the $327 million price fall short of actual sales from 2014 to 2018.
AstraZeneca plans to take its chance to buy out the partnership in 2014, the company said in a statement. But if it doesn't, there's another set of options in 2017.
For Merck, the deal will help bolster sales and earnings as its patent on the blockbuster allergy-and-asthma drug Singulair expires later this year. It's also expected to add about 3 cents to 5 cents per share to earnings and about $200 million to 2012 revenues. Its financial forecasts for the year won't change, however, the company said.
"This amendment provides clarity about the valuation of this long and successful partnership and enhances our ability to drive Merck's performance through the impact of U.S. Singulair patent expiration later this year," Merck CFO Peter N. Kellogg said in a statement. "We are confident that we can achieve our 2012 targets, and this agreement will help partially offset the macroeconomic and market austerity pressures anticipated in 2013."
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