Merck & Co’s two year-long dispute with Johnson & Johnson over the marketing rights to the rheumatoid arthritis and Crohn’s disease blockbuster Remicade and newer arthritis treatment Simponi has been settled.
The spat began in May 2009 when J&J initiated an arbitration process claiming that Merck’s takeover of Schering-Plough constituted “a change of control” that would permit the ending of its marketing agreements with the latter regarding Remicade (infliximab) and Simponi (golimumab). Merck argued that the partnership should remain intact because it structured the deal as a reverse merger, allowing S-P to remain as a surviving entity.
However, a voluntary agreement has now been reached which will see Merck relinquish exclusive marketing rights for the two drugs in Canada, Central and South America, the Middle East, Africa and Asia Pacific, effective July 1. However it will retain rights throughout Europe, Russia and Turkey, territories which represent 70% of Merck’s 2010 revenue of $2.80 billion from Remicade and Simponi. In the USA, J&J has exclusive rights to both drugs.
Extra $500 million payment
In addition, all profit derived from Merck’s exclusive distribution of the two products in the retained territories will be equally divided with J&J; as it currently stands, the split is 58%-42% in Merck’s favour but would have equalled out in 2014. J&J is also receiving a one-time payment of $500 million.
Merck chief executive Kenneth Frazier said “we are pleased to have reached this voluntary agreement”, adding that the drugs will be “important contributors to our overall portfolio”. His counterpart at J&J, William Weldon, was also pleased, saying “we are working closely with Merck to make certain this is a seamless transition in the relinquished territories”.
Analysts believe the deal is a sensible one and although many believe Merck would have won if the dispute had been settled on court, Jeffrey Holford at Jefferies International issued a note saying that “the overhang is now out of the way and investors may look forward to some potentially more positive catalysts in the near term”. In particular, he mentioned possible US approval of Merck’s hepatitis C drug boceprevir.
