Wednesday, September 29, 2010

Merck v. JNJ Arbitration Wrapping Up Now?

Regular readers know this narrative nearly by heart:

The MSM is vastly understating the size of the potential downside liability to New Merck: it is not "only" $2.6 or $2.7 billion in lost sales revenue -- it is closer to $10 billion, over the next three years -- from Merck's perspective.

Simponi® sales are ramping up ferociously overseas, and Remicade® is a juggernaut -- outside the US. And all of that -- all the high-margin non-US revenue -- may vanish into the mists of Brigadoon, and soon -- for New Merck.

Moreover, Merck would owe J&J about $3.5 billion in refunds, in sales of the pair, just since November of 2009. So, $10 billion over the next three years is a fair estimate, if Merck loses. [BTW, there is no corresponding downside to J&J, should Merck win, as J&J will keep the US market under the agreement, no matter what. And it will still get its split on the non-US sales, from Merck, no matter how the arbitration ends.]

It was Schering-Plough, afterall, that had entered the non-US distribution pact with J&J's Centocor. Now its CEO is gone; its stock is no longer listed on the NYSE; its board of directors disbanded (save 3 -- of 12). . . yet "New" Merck would say that tiny old Schering-Plough ate its lunch. A ghost did it, I guess.

As Jim Edwards at B|Net's Placebo Effect has pointed out, the reverse merger was enough of a "change in control" to trigger Schering CEO Fred Hassan's $50 million golden handshake:

. . . .Remicade is now Merck's second-biggest drug. If it has to say goodbye to those revenues -- just as it did to Fred Hassan -- one of its reasons for buying Schering in the first place will have vanished. And Merck's stock price would suffer, angering investors. . .

The final, non-appealable arbitrators' decision in this matter could be announced at any time in the next 20 to 35 days -- if Merck's own previously announced timeline remains accurate. We'll keep you posted.

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