By Lisa Seachrist
WASHINGTON — The eight-year conflict between Amgen Inc. and Ortho Pharmaceutical Corp. over their marketing of erythropoietin (EPO), the anti-anemia drug they developed together, has come to an end, with an arbitration judge ordering Amgen to pay Ortho $205 million for EPO sales that occurred during 1991-1994.
The payment is approximately $50 million more than an Amgen calculation last September of $157 million pre-tax and much less than the $423 million estimated by Ortho, a division of New Brunswick, N.J.-based Johnson & Johnson. In addition, the judge ruled Amgen had fulfilled its obligations to Ortho in the years since 1994.
Having taken a $0.35 per share charge in the third quarter of 1997, Thousand Oaks, Calif.-based Amgen is fully reserved to pay Ortho.
"We knew that we had the greatest part of the market in those years, so we expected to owe them something," said Amgen spokeman David Kaye. "For the more recent years we owe them nothing. This is a huge victory, because our sales were much higher in those years."
Judge Frank McGarr, a retired federal judge, ruled that Amgen's method of keeping track of EPO sales was more accurate than Ortho's. The $205 million sum was calculated from the Amgen method that McGarr had modified.
Under a license agreement reached in 1985, Ortho received licensing rights around the world. In the U.S., Amgen was allowed to sell its brand of EPO, called Epogen, for use in dialysis, and Ortho was allowed to sell its brand of EPO, called Procrit, for non-dialysis uses, such as preventing anemia in HIV-infected patients taking AZT.
However, buyers are likely to use EPO for either indication regardless of who provided the drug. As a result, the two companies could not agree on how to compensate each other for spillover sales.
In his ruling, McGarr accepted Amgen's claims that all EPO sales to dialysis centers were used for dialysis, but adjusted Amgen's audit methods for hospital purchases in the years 1991-1994. From 1995 forward, McGarr ruled Amgen's audit methods were appropriate and they should be applied without adjustment.
Ortho Owes Amgen $100M
In addition, McGarr confirmed Amgen as the successful party in the arbitration and ordered Ortho to pay all of Amgen's attorney's fees and one half of the audit expenses, which Amgen said totaled $100 million. Ortho plans to seek reconsideration of the award to Amgen of any fees, costs and expenses. McGarr's ruling, said Kaye, was confidential but "the judge makes it very clear there will be no further discussions of substantive issues."
Amgen's stock (NASDAQ:AMGN) closed Wednesday at $57.9375 down $0.0625.
Ortho and Amgen have battled previously over the licensing agreement. In 1991, an arbitrator ruled that Amgen had to pay $164 million in damages to Ortho. Amgen had failed to submit Ortho's EPO data with Amgen's in 1987, when Ortho filed for marketing clearance. As a result, Ortho did not win approval until 1989.
In addition, Amgen and Ortho have clashed over other drugs. In 1992, Amgen accused Ortho of failing to follow through in developing Amgen's hepatitis B vaccine and interleukin-2 products. An arbitrator ordered Ortho to pay Amgen $90 million. *