EU Nod for J&J/Schering Drug

Yesterday, Schering-Plough Corp. (SGP) and Johnson & Johnson (JNJ - Analyst Report) announced the approval of their drug Simponi (golimumab) in the European Union for the treatment of rheumatoid arthritis and other immune system disorders. The drug was approved by the U.S. Food and Drug Administration (FDA) in April 2009.
 
As a reminder, Schering acquired co-development rights to Simponi in the third quarter of 2005 from Johnson & Johnson’s biotech arm, Centocor Inc., which had developed and discovered the drug. Johnson & Johnson enjoys exclusive marketing rights of Simponi in the U.S., while Schering-Plough holds marketing rights outside the U.S.  excluding Japan, Indonesia and Taiwan where the drug will be co-marketed with other vendors subsequent to regulatory approvals.
 
Simponi, a next-generation, fully human, anti-tumor necrosis factor (TNF), received European approval as a once-a-month treatment for rheumatoid arthritis (RA), psoriatic arthritis (PA) and ankylosing spondylitis (AS), which is a painful, progressive form of spinal arthritis.
 
Simponi is a follow-up to Schering’s big revenue driver rheumatoid arthritis drug Remicade. An April 1998 distribution agreement with Centocor, Inc., allowed the company to market Remicade in Europe. Schering has rights to market the drug, which generated sales of $2,119 million in 2008, until 15 years after the first sale of Simponi. Remicade is currently approved for the treatment of RA, early RA, Crohn’s disease, AS, PA, psoriasis and for moderate-to-severe ulcerative colitis.
 
Schering-Plough and Johnson & Johnson are in arbitration over revenues from Remicade and Simponi. Johnson & Johnson is claiming entitlement to entire revenues since Schering-Plough will be bought by Merck & Co. (MRK - Analyst Report) by year-end in a $41.1 billion deal.
 
Under the terms of the deal with Johnson & Johnson, Schering-Plough is obliged to return overseas rights if there is a change in Schering control.
 
In a bid to avoid losing the substantial revenues from the drugs, Merck has structured the transaction as a "reverse merger," implying that Schering-Plough would technically acquire the larger Merck and will continue as the surviving public corporation.
 
The strategy would allow Schering-Plough to claim that it has not undergone a change in control. Thereby, it would not have to give up overseas rights.
 
Currently, we are Neutral on Schering-Plough.

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