In a direct (and almost certainly intentional) contradiction to statements of "unnamed senior Merck executives" quoted at SeekingAlpha earlier this week, Whitehouse Station's latest official (i.e., effectively sworn) statement on the J&J Remicade®/Simponi® arbitration is not very sunny, at all. In fact, it is mostly cloudy.
You'll recall that the purported Merck executives said that the matter, even if adversely determined, would be "immaterial" to New Merck.
I immediately pointed out that that was preposterous -- and now, New Merck has too (from page 25 of last night's SEC Form 10-Q):
. . . .Centocor Distribution Agreement
On May 27, 2009, Centocor, now a wholly owned subsidiary of Johnson & Johnson, delivered to Schering-Plough a notice initiating an arbitration proceeding to resolve whether, as a result of the Merger, Centocor is permitted to terminate the Company’s rights to distribute and commercialize Remicade and Simponi. Sales of Remicade and Simponi included in the Company’s results for the post-Merger period in 2009 were $430.7 million and $3.9 million, respectively.Sales of Remicade recognized by Schering-Plough in 2009 prior to the Merger were $1.9 billion. Sales of Remicade and Simponi included in the Company’s results for the first six months of 2010 were $1.3 billion and $28.1 million, respectively. The arbitration process involves a number of steps before a final decision will be reached. A hearing in the arbitration is scheduled to commence in late September 2010. An unfavorable outcome in the arbitration would have a material adverse effect on the Company’s financial position, liquidity and results of operations. . . .
This section, immediately above, may be why Merck rushed(Footnote 1) the 10-Q out early this quarter -- to contradict the alleged statements of "unnamed executives", and to quantify the amount of sales in the franchise, post November 2009. Should J&J prevail, it will argue that Centocor is entitled to a return of all sales (plus interest) since November 2009 -- some $1.4 billion, to this moment -- in addition to ending Merck's revenue from this franchise "going forward".
So, the all-in loss could be between $3 and $4 billion per year going forward, plus a one time $1.4 billion -- or, more than $9.8 billion, on a discounted present value basis, over just the next three years. Ouch! -- and do stay tuned, right here.
1 comment:
Someone elsewhere took me to task for saying that Merck "rushed" this 10-Q out -- the person claimed I was wrong about it being hurried out.
Simply put, that person was wrong.
It was, in fact, rushed out. And so, since I took the time to compile the facts for my rebuttal in a clear manner, I thought I repost them here. This supports my assertion that this 2010 Q2 Merck SEC Form 10-Q was filed very quickly:
Okay -- the first step is to get the quarterly earnings press release figures finalized, publish that release, and "furnish" it to (not file it with) the SEC (as an attachment to a Form 8-K), and then prepare the balance sheet and cash-flow statements, then finalize the MD&A narrative -- then file the Form 10-Q.
The number of elapsed days between this year's press release (on July 30, 2010) and this year's SEC Form 10-Q filing (on August 6, 2010) was seven days, INCLUDING weekend days -- only FIVE days, if you count only business days. That is extraordinary -- especially in the first post-SGP-merger year.
Okay, now let's look at what ACTUALLY happened in 2009:
Press release: July 21, 2009 | 10-Q: August 3, 2009 | 13 elapsed days -- i.e., about TWICE AS LONG AS 2010.
No matter -- let's keep looking, shall we? That might have been an abberation, right?
So, consider now 2008:
Press release: July 21, 2008 | 10-Q: July 31, 2008 | 10 elapsed days. Ooh -- a little speedier, but still SLOWER than this year.
Now, 2007:
Press release: July 23, 2007 | 10-Q: August 8, 2007 | 16 elapsed days -- once again, more than TWICE AS LONG AS 2010.
Finally, 2006:
Press release: July 24, 2006 | 10-Q: August 7, 2006 | 14 elapsed days -- i.e., once again about TWICE AS LONG AS 2010.
The difference is especially pronounced, if one considers that this was the first year of integrating all the legacy Schering-Plough reporting (thus the slightly later press release date, in 2010). Not that I pay MUCH attention to these things, mind you. . . .
Namaste, to all of good will. . . .
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