Amgen Inc.'s arbitration against Johnson & Johnson over epoetin alfa ended with a bang - the pharmaceutical company must pay Amgen $150 million - but who (if anyone) should whimper was uncertain, since Amgen had asked for much more.
Both sides claimed a degree of victory.
Amgen said in a statement that its "serious concerns were vindicated" about J&J's "wrongful activities," adding that the company was "gratified that the arbitrator ruled in our favor."
J&J noted in its own statement that the arbitrator's "complete rejection" of Amgen's bid for $1.2 billion in damages (along with termination of the license agreement) gave J&J cause to believe that J&J is the "prevailing party."
Amgen's stock (NASDAQ:AMGN) closed Monday at $50.38, down 10 cents, after falling as low as $49.49. J&J's shares (NASDAQ:JNJ) ended the day at $61.11, up $1.76.
"Both sides won," said Stefan Loren, an analyst with Legg Mason Wood Walker Inc. in Baltimore. "Amgen won because they get cash; it's better than a zero. But for [J&J] it has so little impact that, in essence, that's a win."
Loren told BioWorld Today the award for Amgen was less than Wall Street expected, in his view.
"We'd been hearing a range of numbers, from $150 million or so, and some people were out there saying $1.5 billion," he said. "Obviously, there was a little bit of a disappointment here [for Amgen], or the stock wouldn't be down. It's nothing to J&J."
The dispute dates back to 1995, when Thousand Oaks, Calif.-based Amgen alleged that the Ortho Biotech Products LP subsidiary of J&J, of New Brunswick, N.J., breached a licensing deal entered a decade earlier.
Under the terms of that deal, J&J got the exclusive right to promote and sell its version of epoetin alfa, called Procrit, for use with non-dialysis patients in the U.S., while Amgen retained the exclusive right to promote and sell its brand of the same drug, the blockbuster red blood cell booster Epogen, for use in dialysis patients.
The arbitrator, former federal judge Frank McGarr, said in his decision that sales had been made in markets where J&J did not belong, but he said this didn't warrant ending the contract. J&J allowed that "isolated occurrences of inappropriate conduct" took place in the early 1990s, but these were "discovered and corrected" in 1993.
J&J said it will pay the $150 million, but ask for attorney's fees and costs from Amgen, which is seeking the same from J&J, and a decision from the arbitrator on that matter is expected by the end of the year.
J&J noted this was the fourth arbitration (and the last) between Amgen and J&J since 1989, all handled by McGarr, who earlier awarded Ortho $164 million for Amgen's delaying the entry of Procrit into the non-dialysis market, and $187 million for sales by Amgen's force in Ortho's market. Amgen got an earlier award - $90 million - related to a dispute over the license, too. (See BioWorld Today, April 16, 1998.)
J&J said it will take a charge for the latest damage award in the third quarter of this year.
Amgen, which merged with Seattle-based Immunex Corp., could use some of the $150 million to buy back a portion of the 41 percent of Immunex shares owned by Wyeth, of Madison, N.J., and put it toward improvements at the Rhode Island facility for manufacturing Enbrel (etanercept), Immunex's rheumatoid arthritis drug.
"You'll see a stepped-up buyback program, and part of that will be Wyeth," Loren said, noting that $150 million is not a huge amount in the overall buyback effort, "but it's incremental."
Now that the main part of the longstanding case is history, investor attention is likely to turn toward other matters. Those include Amgen's ongoing patent dispute with Transkaryotic Therapies Inc., of Cambridge, Mass., over Dynepo (epoetin delta), TKT's gene-activated erythropoietin.
A ruling that favored Amgen is under appeal in the U.S., and "we're not expecting [a decision] until the end of the year," Loren said, calling a win by TKT "unlikely."
Also on the upside, Amgen's previously released second-quarter earnings of $412 million, or 38 cents per share, showed a 27 percent increase over earnings per share of 30 cents for the same period in 2001 and 4 cents ahead of analysts' consensus estimate. It will release third-quarter earnings Wednesday.
Total revenue in the second quarter increased 27 percent to $1.2 billion in the quarter over 2001, primarily due to the launch of new products such as Neulasta (pegfilgrastim), used to decrease the incidence of infection during many types of cancer-related chemotherapy.
Combined sales of Neulasta and Neupogen (its first and shorter-acting version) jumped 39 percent to $473 million from $340 million for Neupogen alone in the second quarter of 2001. Other sales included Aranesp (darbepoietin alfa) at $56 million. That drug is the second generation of Epogen, which sold $570 million, up 10 percent.
All of this causes more optimism than anything else regarding Amgen, Loren said.
"It's truly a big pharmaceutical company," he said. "We like what we see."