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Executive Summary

ASTRA BUY-IN PRICE TO MERCK U.S. JOINT VENTURE WILL APPROXIMATE 1994 SALES of the four products licensed to Merck -- Prilosec, Plendil, Tonocard and Roxiam (once it is approved), AB Astra President and CEO Hakan Mogren explained to securities analysts in London on Dec. 5. The buy-in amount to be paid by Astra to Merck, Mogren said, "will represent one time the sales during the 12-month period following" Merck's attainment of a pre- set sales goal for the Astra products in the U.S. Industry sources estimate the cost to Astra of participating in the joint venture at $ 600 mil. to $ 700 mil. The 1982 cooperative agreement, under which Merck paid Astra $ 60 mil. for U.S. marketing rights to products emerging from Astra R&D, calls for the establishment of a separate business entity if Merck's sales of Astra products during a 12-month period hit a pre-set trigger level before December 31, 1993, Mogren noted. Merck Chairman Roy Vagelos, MD, told analysts in November ("The Pink Sheet" Nov. 18, p. 13) that Merck expects to reach the trigger sales level by 1993 and that the company's plans call for the establishment of the joint venture in 1993 as a division of Merck that would be spun out as a separate entity in 1995. "Once the new entity has been fully organized by Merck, including the transfer of personnel, fixed assets, inventories, receivables, etc., Astra will have the right to acquire a 50% interest in these operations," Mogren said. "As it looks today," he added, "Astra will decide during 1994/1995 whether to use its option or not." Mogren gave several indications that Astra sees participation in the joint venture as a positive for the company despite the initial cost to join. "In spite of the substantial financial cost in connection with the investment, Astra does not now expect any material net effect on its earnings at the beginning of operations of the new, jointly owned company compared to the licensing arrangement," Mogren told the analysts. "Of course, the major improvement of the earnings is expected in the longer term." If Astra decides to buy into the joint venture, it would receive 50% of the profits but no longer would receive royalties on the products already licensed to Merck. The Astra/Merck joint venture would have "option rights to most future pharmaceutical discoveries from Astra's research," Mogren explained, and Astra would be entitled to royalties on future products marketed by the joint venture in addition to a share of the joint venture's profits. Astra will continue to grow its wholly owned U.S. subsidiary Astra Pharmaceuticals and has recently created a new sales division directed at GPs in order to promote products not covered by the Merck agreement, Mogren said. Astra's hospital division sells two relatively new products -- Foscavir and Streptase -- as well as local anesthetics and a broad range of generics. That division generates sales of approximately $ 150 mil. The GP division now includes 150 people who will introduce a long-acting version of Ciba-Geigy's metoprolol, Toprol XL, planned for the first quarter of 1992, Mogren said. "The organization will be further expanded to take care of the launch of a program of respiratory products in the mid-1990s -- including Pulmicort Turbuhaler as well as Rhinocort, Bambec, and budesonide for intestinal diseases, he added.

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