Thursday, October 14, 2010

Merck Announces Delayed Remicade®/Simponi® Arbitration Decision Timetable

As an update to this post, Merck's legacy Schering-Plough (Ireland) unit has agreed with J&J's Centocor unit, to change the decision-making process, and timetable, post arbitration. Apparently the arbitration concluded last Friday or on this Monday. How can I surmise that? Well, as a plainly "material development", on a "material event", about which Merck has already made factual (but forward looking statements, and expressly promised to update), under the applicable SEC Form 8-K rules, Merck is thus under a legal duty to disclose this change within four business days (See Instruction B.1. to the PDF of the form). And so, full post arbitration briefs will be filed, and post arbitration oral arguments will be heard, during December 2010. Interesting.

From the SEC Form 8-K Merck just filed:

. . . .Merck’s subsidiary, Schering-Plough (Ireland) Company and Centocor Ortho Biotech Inc., a Johnson & Johnson subsidiary, have concluded the previously disclosed hearing. Under an agreement with the arbitration panel, the parties will file post-hearing briefs and present arguments to the arbitration panel in late December. The Company anticipates a decision in 2011. . . .

I have reset the countdown clock -- at left -- and I would suggest that some settlement talks might now intervene, as these briefs are being written, and oral arguments prepared. The settlement would likely not favor Merck, however, given that J&J loses esssentially nothing (other than the sunk costs of writing the briefs and making the oral arguments, in December) to ride it out, and see what happens. Wild.

Worst case (from J&J's perspective): Merck keeps the entire package of non-US rights -- and Merck STILL has to pay J&J 40% of each sale under the contract (on all those sales), increasing to a 50-50 split, over the next three years. Thus, J&J is clearly in the driver's seat, should any settlement talks occur.

Here's some later AP reporting:
. . . .Merck says the hearings have ended, but refuses to say when that happened or how many hearings were held.

The dispute centers on rights to roughly $2 billion in annual sales for two medicines for rheumatoid arthritis and other immune diseases, Remicade and successor drug Simponi. J&J argues that since Merck bought Schering-Plough Corp., J&J's deal to share the drugs' revenue with Schering-Plough is invalid. . . .

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