AstraZeneca's
(
AZN
) global biologics arm MedImmune recently joined forces with WuXi
AppTech, a subsidiary of China-based
WuXi PharmaTech Inc.
(
WX
) to develop and commercialize MEDI5117 in China. MEDI5117 is being
developed for autoimmune and inflammatory diseases such as
rheumatoid arthritis.
AstraZeneca and WuXi have formed a joint venture and will share the
development and commercialization right to MEDI5117 equally in
China. AstraZeneca has an option to acquire full commercialization
rights to MEDI5117. While WuXi will recognize revenues earned on
the basis of services provided, AstraZeneca will get milestone
payments as the candidate advances.
The companies plan to file an investigational new drug (IND)
application in China, following which they plan to initiate phase I
studies. We note that in the US and Europe, MEDI5117 is in phase I
studies.
The Chinese pharmaceutical market is growing rapidly. From being
worth $10 billion in 2004, its value increased to $41 billion in
2010. According to IMS Health, the market is further anticipated to
grow and would be valued at over $100 billion by 2014. AstraZeneca
aims to tap this market and expand in this region.
With factors like pricing pressure in the EU and intensifying
generic competition affecting sales in large pharmaceutical
markets, emerging markets have become an area of focus for several
companies. AstraZeneca strengthened its presence in China through
the acquisition of privately-held generics manufacturing company,
BeiKang Pharmaceutical Company Ltd. The recent collaboration with
WuXi further emphasizes AstraZeneca's strategy.
Our Recommendation
We are encouraged by AstraZeneca's focus on the high-potential
emerging markets and are pleased with its effort to drive the
bottom line through cost-cutting initiatives and share buybacks.
However, we remain concerned about the generic competition faced by
the company's key products. In 2011, the company lost revenues
worth almost $2 billion to generic competition. The weak late-stage
pipeline coupled with slow Brilinta uptake also bothers us.
We currently have a Neutral recommendation on AstraZeneca. The
stock carries a Zacks #3 Rank (Hold rating) in the short run.
ASTRAZENECA PLC (AZN): Free Stock Analysis
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