Merck Increasingly Less-Bullish, On Remicade®/Simponi® Arbitration: Latest SEC Filing

In a direct (and almost certainly intentional) contradiction to statements of “unnamed senior Merck executives” quoted at SeekingAlpha earlier this week, Whitehouse Station’s latest official (i.e., effectively sworn) statement on the J&J Remicade^®/Simponi^® arbitration is not very sunny, at all. In fact, it is mostly cloudy.

You’ll recall that the purported Merck executives said that the matter, even if adversely determined, would be “immaterial” to New Merck.

I immediately pointed out that that was preposterous — and now, New Merck has too (from page 25 of last night’s SEC Form 10-Q):

. . . .Centocor Distribution Agreement

On May 27, 2009, Centocor, now a wholly owned subsidiary of Johnson & Johnson, delivered to Schering-Plough a notice initiating an arbitration proceeding to resolve whether, as a result of the Merger, Centocor is permitted to terminate the Company’s rights to distribute and commercialize Remicade and Simponi. Sales of Remicade and Simponi included in the Company’s results for the post-Merger period in 2009 were $430.7 million and $3.9 million, respectively. Sales of Remicade recognized by Schering-Plough in 2009 prior to the Merger were $1.9 billion. Sales of Remicade and Simponi included in the Company’s results for the first six months of 2010 were $1.3 billion and $28.1 million, respectively. The arbitration process involves a number of steps before a final decision will be reached. A hearing in the arbitration is scheduled to commence in late September 2010. An unfavorable outcome in the arbitration would have a material adverse effect on the Company’s financial position, liquidity and results of operations. . . .

This section, immediately above, may be why Merck rushed^{(Footnote 1)} the 10-Q out early this quarter — to contradict the alleged statements of “unnamed executives“, and to quantify the amount of sales in the franchise, post November 2009. Should J&J prevail, it will argue that Centocor is entitled to a return of all sales (plus interest) since November 2009 — some $1.4 billion, to this moment — in addition to ending Merck’s revenue from this franchise “going forward“.

So, the all-in loss could be between $3 and $4 billion per year going forward, plus a one time $1.4 billion — or, more than $9.8 billion, on a discounted present value basis, over just the next three years. Ouch! — and do stay tuned, right here.