Merck Continues to Divest Ophthalmology Products - Analyst Blog

Merck MRK entered into an agreement with Santen Pharmaceutical Co., Ltd. to divest its ophthalmology products including Cosopt, Cosopt PF, Trusopt, Trusopt PF, Timoptic, Timoptic PF, Timoptic XE, Saflutan and Taptiqom in Japan and key markets in Europe and Asia-Pacific. The agreement is expected to close in most markets in the next few months.

These ophthalmology products generated annual sales of approximately $400 million in the above-mentioned territories. We note that the patent for Cosopt has expired in a number of major European markets in Mar 2013. Sales are expected to decline in those markets.

As per the terms of the deal, Santen will pay for supply of these ophthalmology products from Merck for the next two to five years. Merck will receive an upfront payment of approximately $600 million from Santen. Santen will make additional payments based on defined sales milestones as needed.

We note that this is not the first time that Merck has decided to divest its ophthalmology products. Last November, the company had sold the rights to ophthalmic products --Cosopt, Cosopt PF and AzaSite -- in the U.S. to Akorn, Inc. AKRX. These ophthalmology products generated annual sales of approximately $45 million in the U.S.

Meanwhile, the company stated that it will continue to sell its ophthalmology products in Latin America, Canada, Australia, the Middle East, Africa and other markets.

We believe that the divestments are in line with Merck's ongoing strategy to streamline its operations and improve operational efficiencies. Earlier this month, Merck entered into an agreement with Bayer (BAYRY) to sell its consumer care business for $14.2 billion.

Merck carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Allergan Inc. AGN carrying a Zacks Rank #1 (Strong Buy).