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Nexium (esomeprazole) for gastroesophageal reflux disease generated sales of approximately $2 billion in the first half of 2013, accounting for approximately 15% of AstraZeneca’s (AZN - Analyst Report) total revenues. However, the company expects Nexium sales to decline from 2014 onwards due to generic competition. We remind investors that AstraZeneca is entangled in patent litigation related to Nexium with several generic companies including Actavis, Inc. (ACT - Analyst Report).

Additionally, the U.S. Court of Appeals for the Federal Circuit (CAFC) has lifted the temporary injunction against the U.S. launch of Hanmi Pharmaceutical’s esomeprazole strontium. Esomeprazole strontium was approved by the U.S. Food and Drug Administration (FDA) in Aug 2013.

We remind investors that in Jun 2013 AstraZeneca had entered into an agreement with Hanmi Pharma and Amneal Pharmaceuticals (the U.S. marketing partner of Hanmi Pharma), to resolve patent issues related to AstraZeneca’s Nexium involving esomeprazole strontium.

As per the terms of the agreement, Amneal Pharma and Hanmi Pharma accepted that two of AstraZeneca’s patents (5,714,504 and 5,877,192) protecting Nexium in the U.S. are valid. The consent judgment provides that Hanmi’s esomeprazole strontium product does not infringe these patents based on the District Court’s claim construction issued in Dec 12, 2012.

AstraZeneca filed a Notice of Appeal in the U.S. Court of Appeals for the Federal Circuit seeking reversal of critical aspects of the District Court’s Dec 2012 construction.

We believe the sooner-than-expected entry of generics and similar products will put additional pressure given that the company is already witnessing plunging revenues due to generic competition for several key drugs including Seroquel.

AstraZeneca, a large-cap pharma company, presently carries a Zacks Rank #3 (Hold). Other large-cap pharma stocks such as Bayer (BAYRY - Analyst Report) and Allergan Inc. (AGN - Analyst Report) currently appear to be more attractive with a Zacks Rank #2 (Buy).

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