Seeking Alpha offers its take on the Merck - J&J arbitration hearing this past week concerning the fate of Remicade - a fate that could be worth billions of dollars. The decision could either deliver a windfall to J&J, which already holds the domestic rights to Remicade; or, could make Merck’s $49.6 billion takeover last year of Schering-Plough a rare home run in M&A. If Merck holds onto the Remicade rights acquired as part of the Schering-Plough deal, it would further boost Merck’s value to investors.
J&J had 2009 Remicade sales of $4.3 billion. It has the US rights. In addition, Merck and Schering-Plough’s sales of Remicade last year were $2.3 billion. As Merck faces its upcoming patent cliff, the Schering-Plough deal is crucial to Merck and also makes keeping Remicade rights very important.
Schering-Plough had a rights agreement with J&J owned Centocor. Centocor had the option to cancel the agreement if there was a change in control of Schering-Plough. To avoid that, Merck structured its takeover of Schering-Plough as a reverse merger, with Schering-Plough technically acquiring Merck, and then renaming the company Merck. How does that work? J&J smells something fishy in that logic and wants to pursue Centocor's termination rights. J&J also wants damages for the insult.
Posted by Bruce Lehr October 3rd 2010.