Tag Archives: Ed Silverman InVivo Blog Remicade Simponi Sch-Merck outlicensing “change of Control” February 26 2010

The Goldman Transcript | J&J Arbitration Outcomes Hints, From Ken Frazier

More — of Ken Frazier rather broadly hinting settlement — at the Goldman conference, this past week — under Jami Rubin’s relentless questioning:

. . . .Jami Rubin | Goldman Sachs | Analyst
Ken, you said in relation to the J&J arbitration that cooler heads will prevail. This has been dragging on a lot longer I think than most people had anticipated [but to be pretty] straightforward resolution. Can you walk us through your current thinking, where we are in terms of the process, any color at all around timing would be very helpful.

Ken Frazier | Merck & Co. | President and CEO

So the hearing is finished now. The final arguments have been made. I can’t add a lot to it other than the fact that the case is decisional now and I can’t comment on what may or may not happen between the parties. But we continue to be very confident that the transaction that we used in order to effectuate this merger does not violate the provisions of the contract including specifically the change in control provisions.

Jami Rubin | Goldman Sachs | Analyst

Is it true that most arbitration cases result in settlements?

Ken Frazier | Merck & Co. | President and CEO

Well I think if you look historically, there’s pretty much good empirical data that suggest that most large commercial disputes are resolved without either a judicial determination or an arbitration decision. But that doesn’t mean that I can comment about this particular case, but it’s true that historically most cases have settled. . . .

Jami Rubin | Goldman Sachs | Analyst

You know, as the new CEO, Ken, you are — the Company is facing two very important binary events. I mean, arbitration will go which way it ever — where it goes. You don’t have much control over that. It is what it is. . . .

We hope it results favorably to Merck, but it’s really out of your hands. . . .

Ken Frazier | Merck & Co. | President and CEO

So I think one of the benefits of being a company that is large and with as broad a portfolio as we now have is that we’re not dependent on any one product, we’re not dependent on any one geography for example. We have lots of opportunities.

And I think the way that you plan for it is to actually manage your whole portfolio and to ensure that you have a reasonably balanced set of opportunities and risks. As I said, the nature of this business has always been that at the end of the day, if you’re going to be in the business of innovation — and the standards are higher now — there’s a certain amount of risk associated with that.

But at the same time, we are a very strong company. We take really careful looks at our internal portfolio. We look at the outside world. We’re always scanning the outside world for value creating business development opportunities. So I would just answer your question by saying those are big binary events and there’s a certain amount of risk associated with them. But we actually have a balanced portfolio of opportunities and our job as a senior management team is to plan for those things and be in a position to actually execute as much as we can on the downside and as much as we can on the upside. . . .

I am now of the rather firm opinion that this dialogue is more than arguably material new information on the J&J arbitration — and it ought to be filed, by Monday night, with the SEC — on a Form 8-K, by Whitehouse Station. If Merck doesn’t, it will be open to criticisms about selective disclosures. I think this exchange may explain, in large measure, the nearly 5 percent increase in Merck’s NYSE price, in the days since Wednesday.

I think Ken Frazier ought to make this more-widely available to the investing public, by a formal SEC Form 8-K filing.

Merck To Ramp Up Its Out-Licensing (And In-Licensing) Deal Volume: InVivo

Overnight, the InVivo blog ran a very solid interview piece, with a legacy Schering-Plough, now New Merck licensing executive, David Nicholson.
The bottom line is that the No. 2 drugmaker in the world is openly admitting it won’t have the financial, logistical and human resources to develop all the candidates in its pipeline — not without partners. These deals almost never raise front-end cash for the company spinning off the patents, know-how and technology — but offer the prospect of additional royalty income to Merck, should one or more of the candidates ever reach market. That said, however, the deals always transfer most or all of the cash burden of doing the R&D, required FDA studies, pre-marketing and scale up away from companies like Merck — and onto the licensing party — which, in effect, frees up that cash, for other uses, inside Merck.

And so, this is actually a quite-sensible response to the accelerating rate of resource constraints all of pharma faces: create some “pure plays” in certain niche-spaces, and let investors bet on those, separate from the blended behemoth’s overall assumed rate of return. Here is a snippet — but do go read it all:

. . . . The company has some very attractive assets, but there is “no way Merck can afford to develop everything” in its R&D program. “Our R&D model is to generate a lot of output — more than we can deal with. So we have to make some tough choices and it poses the question: What do we do with these other assets?” And who might be potential in-licensors? Take note: Merck’s not only interested in talking to biotechs and small pharma — its Big Pharma competitors could take a look too.

Details have yet to be worked out — Merck’s looking at the best business models and deal structures for outlicensing and “brainstorming” ideas. And the company is generating a list of out-licensing assets. . . .

Interesting — especially the idea of partnering with potential competitors (that is what this shared Pfizer, Merck and Lilly cancer database deal, announced earlier this week, is all about). The InVivo blog article goes on to address Merck’s in-licensing programs, as well. A must read for anyone interested in understanding Merck’s future prospects, opportunitites and potential pitfalls.

It is obvious that if Merck is going to keep spending $600 million a year on advertising, it cannot afford to fund all of its pipeline, thus the graphic at right. [I should also mention that this is, in part, why I have long referred to the Merck-Schering-Plough deal as a “bust-up” — it has always been clear, to the more experienced observers, that New Merck would have to take this tack, with both packets of intellectual property assets, and entire business units — like Merial, Consumer Health and eventually, the Intervet Animal Health assets, too.]