Tag Archives: Ed Silverman InVivo Blog Remicade Simponi Sch-Merck outlicensing “change of Control” September 2010 hearing date material adverse effect February 26 July 20 September 29 2010

Reuters Picks Up My “Merck Morning Meme” — “Billions At Stake” — Adds Analysts’ Color. . .

Reuters just released a news-analysis story, to the wires that echoes — almost to the word, each of the items I’d earlier ticked off, about the coming Merck v. J&J arbitration ruling. Reuters adds significant value by sourcing pull-quotes from various stock analysts — to back up the meme. Do go read it all, but I do love being the start of a MSM news cycle:

. . . .J&J has said it is seeking a ruling that Merck’s acquisition of Schering-Plough was a change of control that triggered J&J’s right to terminate the deal.

“The termination of the agreements would return full rights to Johnson & Johnson for the distribution of these products in markets outside the United States where Schering-Plough currently has the rights to distribute these products,” J&J said in a statement. . . .

J&J has little to lose from its challenge outside of legal expenses, but the stakes are extremely high for Merck. The company reported $669 million in second-quarter sales from Remicade, making it one of Merck’s biggest products. And Simponi, with many years’ more patent life than its older cousin, may prove to be the more important bargaining chip.

“I think this is more of a Simponi story than Remicade. It’s a drug that has a bright future,” said Funtleyder, who sees it becoming a multibillion-dollar medicine.

Merck said in a regulatory filing that it expects a ruling within 20 days of the conclusion of the arbitration hearing. . . .

Indeed — I’ll write it; they’ll read it — and repeat it. Perfect.

Merck v. JNJ Arbitration Wrapping Up Now?

Regular readers know this narrative nearly by heart:

The MSM is vastly understating the size of the potential downside liability to New Merck: it is not “only” $2.6 or $2.7 billion in lost sales revenue — it is closer to $10 billion, over the next three years — from Merck’s perspective.

Simponi® sales are ramping up ferociously overseas, and Remicade® is a juggernaut — outside the US. And all of that — all the high-margin non-US revenue — may vanish into the mists of Brigadoon, and soon — for New Merck.

Moreover, Merck would owe J&J about $3.5 billion in refunds, in sales of the pair, just since November of 2009. So, $10 billion over the next three years is a fair estimate, if Merck loses. [BTW, there is no corresponding downside to J&J, should Merck win, as J&J will keep the US market under the agreement, no matter what. And it will still get its split on the non-US sales, from Merck, no matter how the arbitration ends.]

It was Schering-Plough, afterall, that had entered the non-US distribution pact with J&J’s Centocor. Now its CEO is gone; its stock is no longer listed on the NYSE; its board of directors disbanded (save 3 — of 12). . . yet “New” Merck would say that tiny old Schering-Plough ate its lunch. A ghost did it, I guess.

As Jim Edwards at B|Net’s Placebo Effect has pointed out, the reverse merger was enough of a “change in control” to trigger Schering CEO Fred Hassan’s $50 million golden handshake:

. . . .Remicade is now Merck’s second-biggest drug. If it has to say goodbye to those revenues — just as it did to Fred Hassan — one of its reasons for buying Schering in the first place will have vanished. And Merck’s stock price would suffer, angering investors. . .

The final, non-appealable arbitrators’ decision in this matter could be announced at any time in the next 20 to 35 days — if Merck’s own previously announced timeline remains accurate. We’ll keep you posted.