As well as fending off a hostile bid from its US partner for Erbitux (Bristol-Myers Squibb), ImClone Systems is now facing a legal battle over royalties on the cancer drug from its European partner, Merck KGaA.

The German firm has started arbitration proceedings against ImClone, relating to a patent settlement reached last December between the US biotechnology firm, Sanofi-Aventis and Yeda Research and Development Co, a commercial arm of Israel’s Weizmann Institute. That agreement led to Yeda being named as the sole US owner of the 866 patent on Erbitux (cetuximab) and share it with Sanofi internationally. ImClone agreed to pay $60.0 million in cash, as well as a single-digit royalty fee on all sales to Yeda.

Now Merck is saying that it should not have to pay any part of its royalties from Erbitux toward this settlement and it is ImClone’s business. The latter firm said in a regulatory filing with the US Securities and Exchange Commission that it does not believe that the settlement with Yeda alters Merck's obligation to pay ImClone a royalty reimbursement on the patent and will vigorously defend itself against Merck's claims.

Merck is asserting a claim of about $10.4 million, the SEC filing notes, as well as other unspecified damages which some reports suggest will be more than $18 million.

Meantime, observers are waiting with interest to see the next installment of B-MS’ battle with ImClone, as the former is looking to acquire the 83% of the biotech group it does not already own for $62 a share. That sweetened bid was dismissed by Carl Icahn, the chairman of ImClone, as "absurd" last week and the billionaire noted that a third party has offered $70 per share subject to due diligence.

That due diligence was due to be completed yesterday and it is expected that ImClone will announce a deadline for any potential deal to be sealed later today.