Pharmaceuticals : Merck And J&J Settle Arthritis Franchise Dispute | April 25, 2011 Issue - Vol. 89 Issue 17 | Chemical & Engineering News
Volume 89 Issue 17 | p. 9 | News of The Week
Issue Date: April 25, 2011

Pharmaceuticals : Merck And J&J Settle Arthritis Franchise Dispute

Department: Business | Collection: Special Issue
Keywords: acquisition, dispute, Remicade

Merck & Co. and Johnson & Johnson have resolved their two-year-long legal wrangle over rights to market the J&J arthritis drugs Remicade and Simponi outside the U.S. Merck will make a one-time payment to J&J of $500 million and give up rights to sell the drug in certain territories, among other concessions.

The dispute over the arthritis franchise originated in March 2009 after Merck announced its merger with Schering-Plough, which was then J&J’s marketing partner for the two drugs. The carefully crafted deal left Schering-Plough as the surviving company, operating under the Merck name. Merck calculated that the structure would avoid triggering a clause in the drug-marketing agreement between J&J and Schering-Plough that would return rights to J&J if Schering-Plough were to be acquired.

J&J didn’t buy Merck’s strategy. It filed a lawsuit in May 2009 claiming the merger triggered the change-of-control provision for the drug franchise.

Under the settlement, J&J gains exclusive rights to the drugs in Canada, Central and South America, the Middle East, Africa, and Asia-Pacific. Merck retains rights in Europe, Russia, and Turkey—territories it says represent about 70% of the $2.8 billion the drugs contribute to its revenues annually. In addition, the profit split on sales, which now favors Merck 58:42, will be equal in the future.

The deal “lifts a critical overhang” for Merck, says Seamus Fernandez, a stock analyst for Leerink Swann. Still, the loss of about a third of the company’s stake in the Remicade/Simponi franchise could lower its earnings per share by 15 to 20 cents per year, he adds.

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