Media release from GlobalData

LONDON, UK (GlobalData), 14 August 2012 - On August 13 2012, Pfizer Inc. announced the agreement of a deal with AstraZeneca for exclusive global marketing rights to the over-the-counter (OTC) version of AstraZeneca's blockbuster proton pump inhibitor (PPI), Nexium (esomeprazole). In addition to receiving an upfront payment of $250m from Pfizer, AstraZeneca will continue to market the prescription version of Nexium and be eligible to receive milestone and royalty payments from Pfizer based on launch and sales of the OTC version. Furthermore, Pfizer would be granted first refusal on the nonprescription rights to AstraZeneca's Rhinocort Aqua (budesonide), a nasal pump spray for treating hayfever and dust mite allergies. Both companies are also exploring the idea of a partnership to convert other AstraZeneca prescription drugs to OTC medicines. Pfizer expects to begin marketing OTC Nexium in 2014 (after obtaining FDA approval), which is also when the drug's prescription version loses patent protection.

Nexium was the world's fifth best-selling medicine last year, with global revenue of nearly $8 billion and is popular for being regarded in TV commercials as "the purple pill" that stops heartburn for 24 hours. Despite being hurt by generic competition (revenue from Nexium fell 13% to $949 million in Q2 2012), it was AstraZeneca's second largest seller in Q2 2012. Nexium will not be AstraZeneca's first PPI to be launched as an OTC. Its predecessor, Prilosec (omeprazole) was launched as an OTC product by Proctor & Gamble in 2003 and consequently provides a reference point for Nexium's potential status switch. Pfizer will be hoping to replicate AstraZeneca's success in the prescription market of promoting Nexium as the most effective PPI product, in the OTC space, with the utilization of its considerable sales and marketing capabilities.

GlobalData believes both companies stand to gain immensely from this deal. It would potentially help Pfizer expand its consumer health business, as it continues a restructuring process targeted at strengthening its core drug business and divesting its infant-formula and animal-health businesses. The arrangement would also help AstraZeneca continually obtain revenue from one of its top sellers despite generic competition. In addition, it is a significant development for Pfizer as it seeks to reinvent itself with the upcoming patent cliff. The company is still reeling from revenue loss due to the expiration of the patent to its blockbuster drug, Lipitor, in November 2011, and currently has no follow-on products. In 2012 alone, at least 19 drugs including the anti-stroke drug, Plavix, are expected to lose patent protection, thereby exposing pharmaceutical companies to billion dollar losses in sales. By positioning itself in the OTC market, Pfizer would be able to continue generating revenues from off-patent drugs. However, such sales would pale in comparison to proceeds received before patent expiry. Nevertheless, the FDA's recent indication that it is exploring proposals to make more pharmaceuticals for the treatment of chronic conditions available without a prescription should serve as a growth catalyst for the OTC market.

Like many pharmaceutical companies, Pfizer is at the cross-roads trying to figure a way out of decades of dependence on blockbusters for revenues and the inevitable patent cliff. With mergers and acquisitions, generic manufacturing, emerging markets, increased innovation, and R&D productivity as some of the few options available, the OTC market seems to offer a 'low hanging fruit'. Pfizer will undoubtedly want to hedge its bets by not depending solely on OTC sales for profitability, bearing in mind the slim margins involved. Consequently, it will be interesting to see what other alternative revenue sources the company decides to create in subsequent months.