New, And Material, Information From Merck -- On Remicade®/Simponi® Arbitration

Merck has made some effectively-sworn, SEC-filed pronouncements, on the eve of the $4 to $9 billion Remicade^®/Simponi^® arbitration -- with J&J's Centocor unit -- thus:

. . . .When and where will the Arbitration take place?

The arbitration hearing is set to commence in front of a three member panel in late September 2010 in New York City and is expected to continue for no more than 12 business days.

What law firms are representing the parties to the Arbitration?

Centocor is represented by Patterson Belknap Webb & Tyler LLP. Merck & Co., Inc. and its subsidiary are represented by David Boies and William Ohlemeyer of Boies, Schiller & Flexner LLP and Scott Vernick of Fox Rothschild LLP.

Who are the members of the Arbitration Panel?

The Panel is composed of three former federal judges.

What is the timing of a decision in the Arbitration?

Under the procedures agreed to by the parties, the Panel is expected to make a determination within 20 days of the conclusion of the arbitration hearing although that determination could be delayed by mutual agreement.

What happens if Centocor prevails in the Arbitration?

The Company is vigorously contesting Centocor’s attempt to terminate the Distribution Agreement as a result of the Merger. However, if the arbitrators were to conclude that Centocor is permitted to terminate the Distribution Agreement as a result of the Merger and Centocor in fact terminates the Distribution Agreement, the Company’s subsidiary would not be able to distribute Remicade or Simponi. In addition, in the Arbitration, Centocor is claiming damages, “in an amount to be determined”, that result from Merck’s alleged non-termination of the Distribution Agreement. If Centocor were to prevail in the Arbitration, Merck could be liable for the net damages, excluding any offsets or mitigation, that the Arbitration panel finds Centocor incurred as a result of non-termination and the Company would suffer an impairment charge. An unfavorable outcome in the Arbitration would have a material adverse effect on the Company’s financial position, liquidity and results of operations.

What happens if the Company prevails in the Arbitration?

If the Company prevails, its affiliate will retain the right to distribute Remicade and Simponi pursuant to the terms of the Distribution Agreement.

Are there alternatives to the Arbitration for resolving this dispute?

Due to the uncertainty surrounding the outcome of the Arbitration, the parties may choose to resolve the dispute under mutually agreeable terms but any agreement reached with Centocor to resolve the dispute under the Distribution Agreement may result in the terms of the Distribution Agreement being modified in a manner that may reduce the benefits of the Distribution Agreement to the Company. . . .

More in moments -- including analysis.

It would seem that -- even if Merck prevails on every count -- it is simply preserving the "status quo". That is, there is no upside surprise scenario here for Merck.

On the other hand, should Merck lose, or settle unfavorably, it is not unreasonable to expect a $4 to $9 billion adverse impact on sales -- when the next three years' worth of Remicade/Simponi franchise sales are totaled. And that would be monstrous -- even for the No. 2 drugmaker in the world, by revenue.

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_{Trivial Pursuit Note: Peter Loftus -- of the WSJ -- was only 25 minutes behind me, in getting this news out. Cool.}