Tag Archives: Benadryl JNJ v. Claritin Another Battle Royale Sunscreens JNJ Neutrogena Coppertone Remicade Simponi August 6 2009 December 7 2010

Is There New “Deal Talk” — On A J&J Remicade®/Simponi® Settlement?

Apparently, at the Goldman conference during the week, Mr. Frazier off-handedly said there might be a Remicade®/Simponi® resolution “soon“.

While all the post arbitration briefs ought to be filed by now, I suspect the oral argument portion hasn’t yet occurred. So, the most likely explanation for Mr. Frazier’s statement would be renewed settlement talks.

If so, as I’ve long contended, the settlement will almost certainly involve a significant reduction in Merck’s share of the revenue and profit. J&J/Centocor has essentially no motivation to make offers. No matter how one slices it, the current agreement is enforceable, and nothing J&J could have done would amount to the sort of egregious level of bad faith that would even arguably allow Merck to claim an increased share of the profits. No, if there is a settlement, it will J&J doing the taking — and New Merck doing the surrendering — of profits.

Here is a first hand account of Mr. Frazier’s remarks — from a[nother] anonymous commenter:

. . . . Anonymous said. . .

Frazier also indicated that Remicade arbitration could be resolved soon. Seemed to imply a settlement could occur. . . .

January 7, 2011 11:33 PM. . . .

My guess is — based on various earlier independent stock analysts’ consensus projections, of the financial impact here — that J&J wouldn’t settle for anything less than a 50 percent reduction in Merck’s take from the deal — so, the net present value of such an arrangement would be around $5 billion of reduced sales through Merck. Given the high margins on these two products, I’d put the net earnings hit to New Merck at close to 60 percent of that figure, or say around $3 billion, most of it spread over just the next three years. With about 3.08 billion shares outstanding, that would make the EPS hit a little more than $0.97 (also spread over three years) — or more than all of the expected GAAP 2010 Merck EPS. If it all fell in 2011, it would eclipse Merck’s 2011 net earnings.

If all of that transpires in roughly the way I expect, Merck will be a stock with a handle in the high $20s, in my estimation (assuming a continuing less than 12 P/E multiple). So — it may be that Frazier is going to take a 50 percent hit now, to avoid a 100 percent loss, later (like April of 2011).

To be fair here — on a non-GAAP basis — Merck projects more like $3.27 to $3.41 of NON-GAAP EPS for 2010. That makes the loss number seem less dire. However, recall that to “fill the hole“, at Merck’s 28 percent average gross margins (trailing twelve months), it will need 1/0.28 dollars of NEW sales — or $3.57 of new sales, for each dollar of the missing earnings, just to “stay even“.

If the missing earnings (from the settlement, in 2011 alone) are $1.15 billion to $1.55 billion (with another $1.5 billion in 2012, and beyond) then Merck will need new sales of between $4.11 billion, and $5.53 billion, in 2011 alone. And that will likely be on something like $42 billion of 2011 revenue. Where on Earth could Merck possibly scare up an incremental $5 billion in sales, or an additional 12.5 percent? I have no idea.

Remember, however — a full-on win in arbitration, by J&J, would be even worse than this.

Merck Backs Away From “Fast Acting” Claim | Claritin® (Or Clarityn®, In The UK)

Any notion that these two companies are still in any meaningful way friends (despite that Pepcid® co-marketing agreement) should be laid to rest by this news item out of Pete Loftus‘s laptop (he, often published in The Wall Street Journal), tonight:

. . . .The U.K. Medicines and Healthcare products Regulatory Agency said “point of sale” material for Merck’s Clarityn — sold in the U.S. as Claritin — claimed it provided fast-acting relief for hay fever, according to a notice posted Tuesday on the agency’s website.

J&J complained about the claim in the summer, and the MHRA investigated. The agency sided with J&J in November, finding there wasn’t enough evidence to show that Clarityn could provide symptomatic relief within about 30 minutes. The agency says a fast-acting claim should be reserved for hay-fever treatments that provide relief within 30 minutes for the average consumer.

Merck, of Whitehouse Station, N.J., agreed to remove the use of the “fast acting” claim from its advertising, the MHRA said. . . .

J&J, of New Brunswick, N.J., markets the allergy medicine Benadryl in the U.K. . . .

Indeed. And it is fast acting. Stay tuned — much more to come, on this — as the same sorts of J&J v. Merck battles continue — on sunscreens (legacy Schering-Plough’s Coppertone v. J&J’s Neutrogena Ultra Sheer), and of course — the Centocor arbitration post proceedings get down to brass tacks, here in the US.