J&J and Merck heading for showdown over drug rights

Johnson & Johnson’s disagreement with Merck over rights to two arthritis drugs is set to come to a head in the next few weeks.

Revenues from sales of Remicade (infliximab) and Simponi (golimumab) could be due to Johnson & Johnson if arbitration, expected to start this month, goes its way.

It is a potentially very expensive situation for Merck, as it could result in the full marketing rights of the products in non-US markets reverting to Johnson & Johnson.

Merck admits an “unfavourable outcome…would have a material adverse effect on the company’s financial position, liquidity and results of operations”.

Johnson & Johnson subsidiary Centocor Ortho Biotech previously had a revenue-sharing agreement for the two brands with Schering-Plough.

The small print of J&J’s agreement with Schering-Plough stated that if Schering-Plough was acquired by another company, J&J could take back its marketing rights.

When Merck made its move to acquire Schering-Plough last year, this was a major obstacle to the takeover.

To avoid this, Merck engineered a ‘reverse takeover’ so that in legal terms Schering-Plough acquired it, rather than the other way round.

Johnson & Johnson is challenging the legal validity of this ‘reverse merger’, arguing that it was Schering-Plough’s status which changed – thus invalidating its agreement.

“As its public statements have made clear, Merck is acquiring Schering-Plough,” J&J said in a statement last year.

“The acquisition constitutes a change of control that triggers the right of our Centocor Ortho Biotech subsidiary to terminate the agreements.”

Centocor is also claiming damages, “in an amount to be determined”, that result from Merck’s alleged non-termination of the distribution deal.

But a Merck spokesman told InPharm: “We continue to believe very strongly that the transaction was structured in a way that is appropriate to the distribution of Remicade.”

A panel of three former federal judges in New York will attempt to make sense of the situation in a hearing which is expected to take two weeks.