A high-stakes fight between Merck and Johnson & Johnson over the rights to a pair of lucrative arthritis meds - Remicade and Simponi - has finally been resolved. Under the deal, Merck will relinquish exclusive marketing rights to the drugs in various locales: Canada, Central and South America, the Middle East, Africa and the Asia Pacific region as of July 1.
But Merck will retain rights in Europe, Russia and Turkey, markets that represent about 70 percent of Merck's 2010 revenue from the drugs of about $2.8 billion. And the profit split in these markets will be equally divided; before arbitration proceedings began, 58 percent of the profits went to Merck. Meanwhile, J&J will receive a one-time payment of $500 million this month (read the Merck statement and the J&J statement).
The fight over the rights to Remicade, which overall generated $7.3 billion in sales last year, and the newer Simponi follow-up began after Merck bought Schering-Plough, with which J&J had a co-marketing agreement. That's because J&Jclaimed the takeover canceled their deal, citing a change-of-control provision. J&J subsequently filed for arbitration.
For its part, Merck claimed its takeover was really a reverse merger that was designed to avoid this conflict over the change-of-control language. Of course, as J&J has noted, the surviving entity has the Merck name on the front door, the Merck board is in control and operations are run from Merck headquarters in Whitehouse Station, New Jersey.
UPDATE: In an investor note, Deutsche Bank analyst Barbara Ryan wrote that the deal is reasonable and manageable - as far as Merck investors are concerned. She also addressed speculation that a resolution may have involved the sale of Merck's over-the-counter business, which was acquired as part of the Schering-Plough deal. In her view, the commitment to this business is "not unequivocal" and Merck could divest this business in the near term, and subsequently increase its share repurchase program." The unit, which includes Dr. Scholl's and Coppertone, could fetch $4 billion or more, based upon comparable assets, she writes.
pic thx to o5com on flickr