Merck: J&J Seeking Damages In Remicade Rights Dispute
September 07 2010 - 10:22AM
Dow Jones News
Johnson & Johnson (JNJ) is seeking damages from Merck &
Co. (MRK) on top of its effort to dissolve a partnership for the
anti-inflammatory drugs Remicade and Simponi, Merck disclosed
Tuesday.
Arbitration proceedings in the dispute--which arose from Merck's
$49.6 billion acquisition of Schering-Plough last year--are set to
begin in late September in New York, Merck said in a regulatory
filing. The proceedings are expected to last no more than 12
business days.
A panel of three former federal judges will hear the case, and
is expected to make a decision within 20 days of the conclusion of
the hearing, Merck said.
At stake are the ownership rights to Remicade, which had $5.45
billion in global sales last year, according to drug-data tracker
IMS Health. The drug is approved to treat forms of arthritis and
gastrointestinal disorders. The J&J-Merck partnership also
includes a newer drug, Simponi.
Last year, J&J claimed that its longstanding partnership
with Schering-Plough to co-market the drugs was nullified by
Merck's takeover of Schering-Plough. J&J claimed that
Schering-Plough's rights to distribute the drugs should revert to
J&J under a change-of-control provision of their partnership.
J&J initiated an arbitration proceeding to resolve the
dispute.
Merck, however, claimed its deal with Schering-Plough was
structured to avoid triggering J&J's right to dissolve the
partnership. Specifically, the deal was a "reverse merger" in which
Schering-Plough was the surviving corporation, even though it
retained Merck's name, leadership and headquarters. Thus, Merck
argues, there was no change in control.
Merck said J&J is claiming damages "in an amount to be
determined." If J&J prevails, Merck could "suffer an impairment
charge," Merck said.
"An unfavorable outcome in the arbitration would have a material
adverse effect on the company's financial position, liquidity and
results of operations," Merck disclosed.
Merck also cited the possibility the case could be settled, but
potentially on terms that could "reduce the benefits" of the
distribution partnership to Merck.
Merck said attorneys David Boies and William Ohlemeyer of the
firm Boies Schiller & Flexner LLP, and Scott Vernick of Fox
Rothschild LLP, will represent it at the arbitration proceedings.
Merck said J&J is being represented by the firm of Patterson
Belknap Webb & Tyler LLP.
J&J spokesmen couldn't immediately be reached.
J&J shares fell 25 cents to $58.68 in recent trading. Merck
shares fell 3 cents to $35.56.
-By Peter Loftus, Dow Jones Newswires; 215-656-8289;
peter.loftus@dowjones.com