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Merck: J&J Seeking Damages In Remicade Rights Dispute

Published Tuesday, 7th September 2010 09:07 pm - © 2010 Dow Jones


By Peter Loftus

Of Dow Jones NEWSWIRES

Johnson & Johnson (JNJ) is seeking damages from Merck & Co. (MRK) on top of its effort to dissolve a partnership for the anti-inflammatory drugs Remicade and Simponi, Merck disclosed Tuesday.

Arbitration proceedings in the dispute--which arose from Merck's $49.6 billion acquisition of Schering-Plough last year--are set to begin in late September in New York, Merck said in a regulatory filing. The proceedings are expected to last no more than 12 business days.

A panel of three former federal judges will hear the case, and is expected to make a decision within 20 days of the conclusion of the hearing, Merck said.

At stake are the ownership rights to Remicade, which had $5.45 billion in global sales last year, according to drug-data tracker IMS Health. The drug is approved to treat forms of arthritis and gastrointestinal disorders. The J&J-Merck partnership also includes a newer drug, Simponi.

Last year, J&J claimed that its longstanding partnership with Schering-Plough to co-market the drugs was nullified by Merck's takeover of Schering-Plough. J&J claimed that Schering-Plough's rights to distribute the drugs should revert to J&J under a change-of-control provision of their partnership. J&J initiated an arbitration proceeding to resolve the dispute.

Merck, however, claimed its deal with Schering-Plough was structured to avoid triggering J&J's right to dissolve the partnership. Specifically, the deal was a "reverse merger" in which Schering-Plough was the surviving corporation, even though it retained Merck's name, leadership and headquarters. Thus, Merck argues, there was no change in control.

Merck said J&J is claiming damages "in an amount to be determined." If J&J prevails, Merck could "suffer an impairment charge," Merck said.

"An unfavorable outcome in the arbitration would have a material adverse effect on the company's financial position, liquidity and results of operations," Merck disclosed.

Merck also cited the possibility the case could be settled, but potentially on terms that could "reduce the benefits" of the distribution partnership to Merck.

Merck said attorneys David Boies and William Ohlemeyer of the firm Boies Schiller & Flexner LLP, and Scott Vernick of Fox Rothschild LLP, will represent it at the arbitration proceedings. Merck said J&J is being represented by the firm of Patterson Belknap Webb & Tyler LLP.

J&J spokesmen couldn't immediately be reached.

J&J shares fell 25 cents to $58.68 in recent trading. Merck shares fell 3 cents to $35.56.

-By Peter Loftus, Dow Jones Newswires; 215-656-8289; peter.loftus@dowjones.com

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