Merck ($MRK) can breathe a bit easier now that arbitrators have determined the fates of Remicade and Simponi, the arthritis drugs the drugmaker co-markets with Johnson & Johnson ($JNJ). With J&J disputing Merck's rights, those drugs--and their substantial contribution to Merck's sales--might have been lost. Worldwide, Remicade brought in $8.7 billion last year, with Merck's share at $2.8 billion, Reuters said.
Sure, Merck has agreed to pay $500 million up front to settle the fight, and it has conceded some sales territories and profits. But the company gets to keep exclusive marketing rights in about 70 percent of the geographical areas in which it currently sells the arthritis drugs. Profits will be split with J&J 50-50; the original deal had divided profits 58-42 in Merck's favor, with the split moving to 50-50 in 2014.
The dispute arose from Merck's merger with Schering-Plough, which had inked the original partnership with J&J. That agreement included a change-in-control provision, stipulating that the rights to Remicade and Simponi would revert to J&J if Schering were sold. J&J invoked that provision, bringing in the arbitrators.
The Merck-Schering merger wrapped up in late 2009, so this uncertainty over Remicade rights has been hanging over the company for more than a year. Analysts say Merck's stock should benefit now that the cloud is lifted. "Resolution of the J&J arbitration dispute may be what's needed to unlock shareholder value," Leerink Swann's Seamus Fernandez recently said in a client note (as quoted by Bloomberg). Indeed, investors bid up Merck stock by three percent on the news.