AstraZeneca today announced that AstraZeneca 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 1
March 2014 and 30 April 2014, with closing on 30 June 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 30
June 2014 is subject to a true-up in 2018 that replaces a shared forecast with
actual sales for the period from closing in 2014 to June 2018.
In addition, the exercise price of the Second Option also includes a
multiple of ten times of Merck's average 1% 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 5% 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 26 July 2012.
Further information on the AstraZeneca arrangements with Merck, including
the history, and details of the previous termination arrangements completed in
March 2008 and in April 2010, can be found in the AstraZeneca 2011 Annual
Report and Form 20-F Information for 2011, pages 181-183.