AstraZeneca Inks Agreement

Recently, AstraZeneca PLC (AZN - Analyst Report) and India based generic company Aurobindo Pharma Ltd. inked a licensing and supply agreement aimed at enabling the Indian company to supply solid dosage and sterile products for emerging markets.  The products will be marketed in various emerging markets across the globe. The scope of the deal will expanded with time.

This deal, whose financial terms were not disclosed, highlights AstraZeneca’s efforts to strengthen its presence in emerging markets. The pact will see Aurobindo Pharma supplying the London based company with generic drugs in the anti-infective, cardiovascular and central nervous system therapeutic areas. The drugs would then be sold by AstraZeneca under its brand name.

The current deal is one of the many signed by international drugmakers with Indian suppliers in the last few years as  emerging markets are finding increasing importance with Western drugmakers. We note that Aurobindo has a similar deal with another pharmaceutical giant Pfizer (PFE - Analyst Report), which was signed last year.

These pacts are aimed to enable the Indian generic company extend the range of branded medicines offered by the company to patients in the high-potential emerging markets. This will enhance Aurobindo’s customer base and augment its revenues. Furthermore, the association with pharmaceutical giants also enhances the financial capabilities of Aurobindo as it seeks to transform itself from a low-margin bulk drugs producer to a highly profitable formulations company. 

Emerging markets are now a priority area for pharma companies. With sales in the European and US markets stalling and increasing generic competition, emerging markets represent an attractive growth opportunity for pharma companies. AstraZeneca estimates 25% of group sales to come from emerging markets by 2014 as against 13% in 2009.

Our Recommendation

We currently have a Zacks #2 Rank (short-term Buy rating) on AstraZeneca, given the June 29, 2010, favorable court ruling on Crestor’s US patent (which was upheld and validated until 2016), a major win for the company, and the US Food and Drug Administration (FDA) Committee’s favorable recommendation for the approval of Brilinta for acute coronary syndrome.

Longer term, we have a Neutral recommendation on AstraZeneca.

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