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Merck (MRK - Analyst Report) recently announced that its biologic drug, Remicade, received a positive opinion from the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) for the treatment of severely active ulcerative colitis (UC) in pediatric patients (ages 6 to 17 years).

The CHMP recommended the use of Remicade in pediatric patients who have not responded sufficiently to conventional therapy, including corticosteroids and 6-mercaptopurine or azathioprine, or who are unable to opt for conventional therapy due to intolerance or medical contraindications.

The recommendation was based on data from a phase III multicenter, randomized, open-label, parallel-group study that was conducted to evaluate the efficacy and safety of Remicade.

A final decision should be out in the first quarter of 2012. A positive decision would make Remicade the first and only biologic therapy approved in the EU for the treatment of pediatric UC.

Remicade is already approved in the EU for several indications like the treatment of moderately to severely active UC in adults, severely active Crohn's disease and moderately to severely active pediatric Crohn’s disease.

Remicade became a part of Merck’s portfolio following its merger with Schering-Plough in 2009. Originally, Johnson & Johnson (JNJ - Analyst Report) had licensed ex-US rights of Remicade and another product, Simponi, to Schering-Plough. Both compounds were developed by Johnson & Johnson. However, in May 2009, Johnson & Johnson announced an arbitration demand against Merck requesting a ruling regarding the ex-US rights of Remicade and Simponi. According to Johnson & Johnson, the merger between Merck and Schering-Plough triggered a change-of-control provision in the original agreement, resulting in its termination. Therefore, Johnson & Johnson asserted that full rights to both drugs should be returned to it.

In April 2011, the companies settled the dispute and amended the terms of the agreement. While Merck gave up exclusive marketing rights for Remicade and Simponi to Johnson & Johnson in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific, the company retained exclusive marketing rights throughout Europe, Russia and Turkey.

Merck recognized Remicade sales of $561 million in the third quarter of 2011. Approval for the pediatric indication should help drive sales. We note that Remicade gained approval in the US in September 2011 for the treatment of moderately to severely active ulcerative colitis in pediatric patients who have not responded adequately to conventional therapy .

Neutral on Merck

We currently have a Neutral recommendation on Merck, which carries a Zacks #3 Rank (short-term Hold rating). While headwinds remain in the form of patent expirations of key drugs, EU pricing pressure, US health care reform, and pipeline setbacks, some of the company’s recent launches should start  contributing significantly to the top line in the forthcoming quarters.

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