The Zacks Analyst Blog Highlights: AmerisourceBergen, Walgreen, Cardinal Health, McKesson and St. Jude Medical

CHICAGO, March 21, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include AmerisourceBergen (NYSE: ABC), Walgreen Company (NYSE: WAG), Cardinal Health (NYSE: CAH), McKesson Corporation (NYSE: MCK) and St. Jude Medical (NYSE: STJ).

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Here are highlights from Wednesday's Analyst Blog:

ABC Inks Deal with Walgreens

AmerisourceBergen (NYSE: ABC) recently announced that it has entered into a strategic agreement with Walgreen Company (NYSE: WAG) and Alliance Boots GmbH.

The agreement includes a 10-year pharmaceutical distribution contract with Walgreens and access to generic drugs and related pharmaceutical products through the Walgreens Boots Alliance Development joint venture.

In return, both Walgreens and Alliance Boots have been granted rights to jointly purchase a minority equity position in AmerisourceBergen.

Walgreens and Alliance Boots can purchase up to 7% stake in AmerisourceBergen. Additionally, AmerisourceBergen has granted warrants to both the companies for a 16% stake. AmerisourceBergen will allocate the warrants equally among Walgreens and Alliance Boots.

The first tranche of warrants with a strike price of $51.50 represents an 8% stake, which can be exercised in a six-month period beginning Mar 2016. The second tranche of warrants represents the remaining 8% stake with a strike price of $52.50 and will be exercisable for a six-month period beginning Mar 2017.

The agreement is intended to streamline the distribution of pharmaceuticals to Walgreens' stores along with leveraging global supply chain efficiencies. The broader goal is to maintain an efficient healthcare system by improving patient access to affordable pharmaceuticals.

The agreement also allows Walgreens to appoint one director to AmerisourceBergen's board as and when Walgreens and Alliance Boots together acquire a 5% equity stake. Walgreens can also appoint a second director upon exercising the first tranche of warrants.

Meanwhile, both Walgreens and Alliance Boots have agreed to customary transfer restrictions on their equity stake. Under the terms of a standstill agreement, both the companies will not try to acquire additional equity stake in AmerisourceBergen.

The agreement is effective Sep 1, 2013 and is expected to be accretive in fiscal 2014 with an incremental contribution of $28 billion to the top line and approximately 20 cents per share to the bottom line.

AmerisourceBergen expects incremental brand revenues of at least $2 billion in Sep 2013. Consequently, AmerisourceBergen revised its guidance for fiscal 2013. The company now expects revenues to increase 8% – 11% in fiscal 2013, up from the previous guidance of 6% – 9% increase. 

We note that Walgreens existing pharmaceutical distribution contract with Cardinal Health (NYSE: CAH) ends on Aug 2013 and the contract will not be renewed further. Walgreens is one of Cardinal Health's two largest customers, generating approximately 21% of revenue in fiscal 2012.

Hence, we believe the agreement will further augment ABC's strong distribution network paving the way for incremental growth as Walgreens is well positioned in retail pharmacy business. Competition in the pharmaceutical distribution market remains tough with players like McKesson Corporation (NYSE: MCK).

Positive Data for St. Jude's Trifecta

Medical devices major – St. Jude Medical (NYSE: STJ) made an online release of a new study about its Trifecta pericardial aortic stented tissue valve in The Journal of Thoracic and Cardiovascular Surgery. The device is used as a replacement for the damaged or malfunctioning aortic heart valve, which controls blood flow from the heart through entire body.

The Trifecta valve, which has been constructed using a polyester and tissue-covered titanium stent, is designed to offer improved hemodynamic performance and durability. It offers a number of novel features that improve the implant ability, thereby offering surgeons more flexibility in selecting the appropriate replacement valve for each patient's heart.

The encouraging results published online re-emphasized the easy-to-implant and safe Trifecta valve's efficiency in hemodynamic performance. St. Jude conducted this large-scale study as a part of the U.S. Food and Drug Administration (FDA) pre-market approval study. The study was held across 31 centers in the U.S., Europe and Canada and evaluated 1,041 patients between 2007 and 2009. The results helped the company obtain the European CE Mark approval in 2010, FDA clearance in 2011 as well as a nod from the Japanese regulatory body in 2012.

Dr. Bavaria, the lead author of the article, is impressed by the excellent performance data collected over a span of 1-2 years and the minimal risk of valve leakage evident from the strong clinical results. He has used the product for 5 years and is extremely satisfied with the outstanding hemodynamic support provided by the Trifecta.

The Trifecta valve further strengthens St. Jude's market-leading heart valve franchise. The Trifecta product line led to a 3% increase in sales in St. Jude's structural heart products business in 2012. The overall sales volume of tissue heart valves grew 20% in 2012, which is encouraging.

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