Friday, January 22, 2010

Bayer's Cipro® OS Royalties Lawsuit Settled, In Delaware, On Eve Of Trial


In a dispute dating back to the middle of the last decade, an arm of Bayer Health Care had sued legacy Schering-Plough, claiming that Ex-CEO Fred Hassan and crew were stiffing Bayer out of about $200 million in royalties -- on Bayer's blockbuster antibiotic drug Cipro® OS, for which each company possessed some shared rights. [Cipro OS is the oral suspension of the drug, as opposed to the intravenous version, first introduced by Bayer in 1991.]

For over three years, or over twelve quarters, Schering-Plough made full payments, then it suddenly started short-paying by 10 percent, claiming the contract allowed it to do so -- and claiming the earlier, higher payments were all simply accounting errors.

The size of those errors?

About $200 million. Seems implausible to me, on its face -- that a sophisticated global concern would make a three-year string of mistakes -- crossing multiple GAAP audit periods (all reviewed by PWC), also crossing a few annual federal income tax filings -- and of this magnitude? It's a fifth of a billion, friends.

So -- now, on the eve of trial (opening arguments were scheduled for next week) -- New Merck has agreed to a confidential settlement with Bayer. We can be certain that it involves the payment of monies to Bayer -- but we'll likely never know exactly how much.

Given the exerpt (at right) -- of proceedings in Delaware Chancery Court, late in 2008 -- we may surmise that Schering-Plough was not getting the best of the argument. In fact, throughout, the Delaware Chancery Court Judge seemed truly skeptical, quizzical even, about Schering's supposed reading of the contract (Imagine that!). [Take a look; click the image to enlarge it.]

In any event, CEO Clark was smart to settle up, and agree to pay the toll -- putting this one behind him, quietly. Otherwise, the process would have likely become the penalty, as well. That's all I've got -- it is now officially the weekend. [H/T -- for the story idea -- to AmLaw Litigation Daily, January 22, 2010 Online Edition.]

3 comments:

Anonymous said...

$200m? Why that is awfully close to what Hassan got for leaving S/P after the merger. So, I wonder why the new Merck didn't just withhold Fred's going away bundle.

Condor said...

Great question -- I think CEO Clark might well have lost MORE than $200 million -- in attorneys' fees, interest and expenses -- for continuing this particular specious legal sophistry -- the bad faith refusal to pay what was actually owed, under the Cipro license schedules, to Bayer.

But this is only one of many, many very poor judgments made on Ex-CEO Hassan's watch (if not decisions made directly by him). Thanks for the insight!

Namaste

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