- By Nicholas Kitonyi
AstraZeneca (AZN) is the company behind Nexium, one of the world's most successful drugs in terms of sales. Nexium, the brand name of esomeprazole, is a proton-pump inhibitor that reduces stomach acid. It was developed in the 1990s for the purpose of treating dyspepsia, peptic ulcer disease, gastroesophageal reflux disease and Zollinger-Ellison syndrome.
The intrinsic value of AZN
Nexium is one of AstraZeneca's top products. In 2015, it generated $2.49 billion in revenue, which is more than 10% of the company's overall $24.75 billion in revenue for the year. While Nexium's revenue contribution is barely half of Crestor's $5.02 billion (one of AstraZeneca's other top products), it is still seen as one of its main revenue drivers going forward, despite the expiry of its patent last year.
However, according to the latest developments, Nexium could potentially be facing more problems down the road as lawsuits against the product have begun to emerge. Since the start of the year, there have been no less than a dozen lawsuits filed against AstraZeneca in regard to the side effects of prolonged use of Nexium.
Research has established that proton-pump inhibitors (PPIs) have a unique side effect on the kidneys, including acute interstitial nephritis and acute kidney injury. In December 2014, the Food and Drug Admisitration forced the manufacturers of Nexium and Prevacid (another PPI-type drug) to update their drug labels to include warnings about acute interstitial nephritis.
Since the start of the year, several reports have been published claiming that Nexium, Prilosec and Prevacid may cause kidney injuries, a proclamation that has now triggered a series of lawsuits against the makers of the three drugs.
One of the attorneys leading the plaintiffs' cases, Maxwell S. Kennerly, has been following developments in the Nexium lawsuit closely. According to his conclusions, there seems to be a strong case against prolonged usage of proton-pump inhibitors .
In February of 2016, researchers at Johns Hopkins published an article in JAMA Internal Medicine that found people who used proton-pump inhibitors were 45% to 50% more likely to develop chronic kidney disease. The report claims that the researchers had reviewed the records of more than 10,000 patients in North Carolina, Mississippi, Minnesota and Maryland.
Two months later, researchers from the U.S. Department of Veteran Affairs in Saint Louis published an article in the Journal of the American Society of Nephrology that found people who used proton-pump inhibitors were more likely to develop chronic kidney disease and end-stage renal disease. This study involved a review of VA medical records of more than 170,000 proton-pump inhibitor users.
While a few dozen lawsuits against AstraZeneca's Nexium may not impact cash flows significantly, they may affect the company's top line in the long run. Studies have established that more than 70% of proton-pump inhibitor prescriptions in older patients are unwarranted.
Ideally, this means that if a situation develops where Nexium and other proton-pump inhibitors are proven to cause kidney injuries, thereby putting the health of the patient in danger, physicians may consider the circumstances under which they prescribe these treatments to their patients.
This could have long-term effects on drugs like Nexium, which, as noted earlier, is a key contributor to AstraZeneca's revenue matrix. The company could have significant top line troubles going forward, especially now that the product's patents have also expired.
While the Nexium lawsuit may continue to fly under the radar for some time, AstraZeneca could experience the impact down the road as more patients consider their usage of PPI-based products.
With studies highlighting the potential hazards associated with unwarranted and continuous usage of proton-pump inhibitors , it might not be long before Nexium sales start experiencing the impact of the lawsuits.
Disclosure: I have no position in any stock mentioned in this article.
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The intrinsic value of AZN