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September 9, 2010
Merck vs. J&J: It's Come to This, Eh?
Posted by Derek
I've been waiting for over a year now to find out what's going to happen between Merck and J&J. The Schering-Plough acquisition was ludicrously structured as an acquisition of Merck in order to try to finess the rights to Remicade (infliximab) and its follow-up golimumab. These lucrative TNF-alpha antibodies were part of a deal with Schering-Plough, but under a provision that if the company experienced a "change in control" that the rights would revert back to J&J.
Thus the eye-rolling it's-SP-buying-Merck stuff. (Never mind that Fred Hassan was able to exercise parts of his own contract that related to a change in control of Schering-Plough). Well, as Jim Edwards writes, the issue is now going to arbitration. Merck has filed a disclosure on this with the SEC, apparently in response to repeated questions from investors.
Most everyone has expected the two companies to come to terms somehow, but that doesn't seem to be happening. According to that filing from Merck, the arbitration process started in late May of last year, so both companies have known that this was coming for quite some time. The fact that J&J hasn't blinked makes one think that they expect to prevail, and thus have no interest in agreeing to any deal that's more favorable to Merck.
Well, the language says "late September", and the whole process should go on for a couple of weeks at most. Some very expensive lawyers are donning their ceremonial armor as we speak. Let the games begin!
Comments (18)
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1. K on September 9, 2010 7:46 AM writes...
Fascinating. I too expected a bit of posturing and sabre-rattling quickly followed by an agreement. If J&J do come out victorious someone at Merck has made one almighty error...!
Permalink to Comment2. anchor on September 9, 2010 8:06 AM writes...
The people in R and D (what is left) are anxiously hoping that Merck would come on top. They have been through lot of tumult for the past few years and they do not deserve this. The fact that Remicade has become second biggest drug for New-Merck had people really worried. Working under these circumstances is no fun indeed.
Permalink to Comment3. Hap on September 9, 2010 8:12 AM writes...
Why did S-P allow Hassan to claim his bonus? If he's gotten money from S-P, that immediately becomes another point for J+J to claim that S-P has changed control and not Merck.
I'm sorry for M R+D, but they'd better hope that either J+J's lawyers are incompetent or their lawyers are very good, or else this doesn't look like it will end well.
Permalink to Comment4. mad on September 9, 2010 10:04 AM writes...
I actually side with Merck on this one. I feel the J&J/SP original change control provision is almost if not as much as a “slickster” lawyer move as drafting SP to buy Merck. Playing with fire, fire in these case being lawyer nonsense. I expect the arbiter will see it as such.
Permalink to Comment5. Anonymous on September 9, 2010 10:08 AM writes...
So much energy and money wasted on pharma M&A games....
Lay off scientists to pay CEO's & bankers for completing mergers,
Lay off scientists to pay lawyers to squabble over the drugs the scientists created.
Companies that manage to create a culture able to create drugs are assimilated and disappear.
I don't see any "Creative Destruction" in this, just destruction.
Permalink to CommentSad to see Merck take the path of the Borg(PFE).
Where would we be if that energy and money was invested in R&D?
6. startup on September 9, 2010 11:38 AM writes...
I can't say I'll be particularly sorry if Merck gets punished for this merger.
Permalink to Comment7. Hap on September 9, 2010 11:54 AM writes...
If it was a slickster move, though, then why did Merck accept it? In a merger-happy environment, change-of-control clauses should have been seen as a problem, particularly with terms as punitive as this.
Ultimately, I figure if you signed it, and took the pretense of obeying the clause, you had to think that either it was valid or that other people would take it as being valid (which sort of kills the "obviously stupid and frivolous" objection). If it were slick enough to have been construed by a court as nonsense, then why put up the pretense of obeying it?
Permalink to Comment8. DC on September 9, 2010 12:03 PM writes...
All the poison pill clauses in the Remicade and Zetia/Vytorin deal were installed by the pre-Hansan management to prevent hostile takeover. However, Greedy Freddy is such a genius to come up with the reverse takeover scam. Merck can only blame Dick Clark for being too desparate for falling into the scam.
Permalink to Comment9. Hap on September 9, 2010 1:13 PM writes...
Sorry. I r dumb. Merck didn't come up with the clauses - S-P and J+J did.
On the other hand, you would have figured Merck might have accounted for the chance that they would lose the cash cows if they merged with S-P. Or did they already?
Permalink to Comment10. Chrispy on September 9, 2010 2:42 PM writes...
Anyone know why people are still using Remicade instead of Humira or Simponi? The first is "humanized" while the last two are fully human. Is it just a first-to-market issue?
Interestingly, Centocor (J&J) recently won a $1.8B lawsuit against Abbott for Humira. It seems more than possible that J&J could claim the bulk of the antibodies-against-TNF market. I wonder if they'll sue UCB over Cimzia, too...
Permalink to Comment11. Anonymous on September 9, 2010 7:48 PM writes...
Merck was willing to go happily along with the "reverse merger" nonsense regarding Organon layoffs too. The 2 year notification period started in 2007 at the time of the SP-Organon merger. If SP was the surviving entity, the clock would not have to restart regarding firing of Dutch workers. The Dutch Work Council appears to be able to see through the nonsense however. Another poorly thought out part of the merger. Or perhaps its just more of the usual arrogance at Merck. They are MERCK, so of course they can do whatever they want, because, well, they are Merck! More important than anyone else! Merck management seems to forget that just because they have successfully cowed their own R&D workforce into utter unproductive submission, not everyone else in the world can be bullied. Including J&J and the Dutch.
Permalink to Comment12. China Bonding on September 9, 2010 8:01 PM writes...
Just an aside linking the China outsourcing and $50 million 'change of control' bonus as reported in Fierce Pharma...
Just thinking out loud, $50 million would easily buy 500+ FTEs for a year, including reagents and overhead. Lets say, 75 biologists and 425 chemists? That's a HUGE site.
Permalink to Comment13. DCRogers on September 9, 2010 8:17 PM writes...
"Just thinking out loud, $50 million would easily buy 500+ FTEs for a year, including reagents and overhead. Lets say, 75 biologists and 425 chemists? That's a HUGE site."
You forgot the admin staff and executives. Leaves 10 bio and 50 chemists -- small biotech now.
Permalink to Comment14. Can we say... on September 10, 2010 9:39 AM writes...
...pyrrhic victory for either side? Poor New Jersey! In 10 years there will be nothing but shuttered research facilities and droves of pharma refugees, paying ridiculous property taxes with their pensions and severence packages.
Permalink to Comment15. Anonymous on September 10, 2010 9:46 AM writes...
Just thinking out loud, $50 million would easily buy 500+ FTEs for a year, including reagents and overhead. Lets say, 75 biologists and 425 chemists? That's a HUGE site.
Obviously not thinking at all. Where can you run a site for $100k per person, fully loaded costs. Try $50 million would provide for 200 FTEs. For one year.
Permalink to Comment16. Anonymous on September 10, 2010 10:20 AM writes...
15- your out of touch.
Permalink to Comment$100k/FTE is the high end FTE rate for contract chemistry in China. Days of $50k/fte are over and its creeping up fast because of competition for talent.
17. exMrk on September 12, 2010 7:34 AM writes...
Merck would not have to do this if they had a pipeline.
Merck would have a pipeline if they had not sabotaged MRL with "diversity" and other distractions that led to hiring of complete incompetents in senior management.
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