AZN Tries to Revive Off-Patent Drug

AztraZeneca (AZN - Analyst Report) recently announced a new initiative, the Arimidex Direct program, to provide branded Arimidex (anastrozole) directly to patients. As per this scheme, patients will receive the breast cancer drug, Arimidex, for $40 per month. The product will be mailed directly to patients by a pharmacy benefit management services provider, Express Scripts (ESRX - Analyst Report).

All patients with valid prescriptions are eligible for the Arimidex Direct program. The program does not require a qualification process, any kind of coupons or savings cards. However, patients cannot use prescription coverage for any type of reimbursements. Thus, only patients who will chose to pay out of their own pockets will benefit from this scheme.

We believe that AstraZeneca has floated this program in order to reduce the impact of generics on the sales of Arimidex. The company has witnessed significant reduction in Arimidex product sales since the time Arimidex lost patent protection in 2010.

Global Arimidex sales, which came in at $1.9 billion in 2009, reduced to $1.5 billion in 2010. The situation got worse in 2011, when the generic version of the product captured 97% of the US anastrozole market. Worldwide Arimidex sales plummeted 53% (on a constant currency basis) to just $756 million in 2011. Thus, we look forward to the coming quarter to gauge the effect of the program.

We note that Pfizer (PFE - Analyst Report) also implemented several plans to help reduce the impact of the genericization of its branded drug Lipitor (atorvastatin). Lipitor lost US exclusivity in November 2011.

Neutral on AstraZeneca

We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Even though we are encouraged by the strong cardiovascular franchise at AstraZeneca and the company’s focus on the high-potential emerging markets, we remain concerned about the generic competition faced by its key products.

In 2011, the company lost almost $1 billion revenues due to generic competition (primarily for Nexium, Arimidex, and Merrem). AstraZeneca is looking to lessen the impact of genericization by reducing its cost structure through restructuring initiatives.

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