AstraZeneca, a global, innovation-driven biopharmaceutical business with a primary focus on the discovery, development and commercialisation of prescription medicines, and Merck have agreed to amend certain provisions of the agreements relating to the companies’ arrangements in the United States.
AstraZeneca believes that the amendments provide a greater degree of certainty to the valuation of the Second Option that is preferable to the previous arrangements and, barring unforeseen circumstances, the company now intends to exercise the Second Option in 2014.
The principal areas covered by the amendments are a change in the timing for AstraZeneca to exercise the Second Option, and agreement on the valuation methodology for setting certain aspects of the option exercise price.
Under the amended agreement, the companies have agreed that Merck will grant to AstraZeneca a new Second Option exercisable by AstraZeneca between March 1, 2014 and April 30, 2014, with closing on June 30, 2014. The options exercisable in 2017 or if combined annual sales fall below the minimum amount also remain available to AstraZeneca.
In addition to this revised timing for the Second Option, the companies have also reached agreement on the valuation methodology for setting certain components of the option exercise price for a 2014 exercise. In lieu of third-party appraisals, this valuation for a 2014 exercise is now a fixed sum of $327 million, based on a shared view by the companies of the forecasts for sales of Nexium and Prilosec in the US market. The agreed amount payable on June 30, 2014 is subject to a true-up in 2018 that replaces a shared forecast with actual sales for the period from closing in June 2014 to 2018.
In addition, the exercise price of the Second Option also includes a multiple of ten times of Merck’s average one per cent annual profit allocation in the Partnership for the three years prior to exercise. AstraZeneca currently expects this amount to be around $80 million.
The component of the exercise price of the Second Option that includes the net present value of up to five per cent of future US sales of Vimovo, with the precise amount dependent on an annual sales threshold that has not yet been achieved and the timing of the option exercise, will continue.
Under the amendments, if AstraZeneca exercises in 2014, Merck’s existing rights to manufacture Nexium and Prilosec would cease upon closing.
This amended Second Option arrangement has no impact on AstraZeneca’s Core financial guidance for 2012, which will, in accordance with normal practice, be reviewed in conjunction with the announcement of the Second Quarter and Half Year Results on July 26, 2012.