AstraZeneca Plc (AZN) has postponed its option to buy out Merck & Co. (MRK)’s interest in heartburn treatments Nexium and Prilosec until 2014 after agreeing the U.S. company’s stake is worth $327 million.
A joint venture, called AstraZeneca LP, was created after Sweden-based Astra AB and UK-based Zeneca Group merged in 1999 and covers royalties and an agreement with Merck to manufacture some of the treatments Prilosec and Nexium.
Merck, based in Whitehouse Station, New Jersey, said it will continue to receive income from the partnership, which is expected to contribute about $200 million to Merck’s revenue and from 3 cents to 5 cents in earnings per share this year. The delay won’t affect either company’s forecasts for 2012, the companies said in statements today.
Continuation of the agreement will offset income lost when Merck’s blockbuster asthma drug Singulair loses patent protection in the U.S. this year, Merck Chief Financial Officer Peter N. Kellogg said in the 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,” he said.
The value of Merck’s stake will be reassessed after four years from the date of the option’s closing, based on sales of the drugs between 2014 and June 2018. That means Merck would pay AstraZeneca more money if sales of the drugs are worth more.
The exercise price also includes a value equal to 10 times Merck’s average 1 percent annual profit in the partnership three years prior to the exercise of the option. London-based AstraZeneca expects this to be about $80 million.
Merck forecast the quarterly contribution from the venture to its earnings in 2013 will be lower than in fourth quarter of 2012 because of declining sales of Nexium and bulk supply of Nexium by third-party suppliers.
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