By Randall Osborne

Another round has ended in the skirmish between Amgen Inc. and Ortho Pharmaceutical Corp. over their marketing of erythropoietin (EPO), the anti-anemia drug they developed together.

Amgen will pay about $78 million plus $18 million in interest to Ortho, a division of New Brunswick, N.J.-based Johnson & Johnson — which had estimated the amount due at $423 million.

Amgen, of Thousand Oaks, Calif., said it would take a charge of 35 cents per share in the third quarter to pay off Ortho.

Judge Frank McGarr, a retired federal judge, said in his arbitration ruling that Amgen's method of keeping track of EPO sales was more accurate than Ortho's. Under a license agreement reached in 1985, Amgen was allowed to sell its brand of EPO, called Epogen, for dialysis use, and Ortho was allowed to sell its brand of EPO, called Procrit, for non-dialysis use. Procrit has been found effective in HIV-infected patients who are treated with AZT.

Some buyers use EPO for both, however, and the two companies could not agree on how to compensate each other for spillover sales.

In his ruling, McGarr said Amgen was correct in finding that all EPO sales to dialysis centers were used for dialysis only. Amgen was correct in other segments, McGarr said, except for the hospital and home healthcare segments, where he ordered adjustments. The one-time payment by Amgen to Ortho, of Raritan, N.J., is for the 1991-1994 period.

Whether payments are due for the years 1995 to 1997 must be clarified by the judge, said Amgen spokesman David Kaye. But the companies' numbers "have been converging over time," Kaye said. "The main thing is, which audit is to be used going forward?" That will be Amgen's, but McGarr must still decide whether Ortho should pay Amgen's attorneys' fees and half the cost of Amgen's audit, which was conducted between 1991 and 1997.

The amount "could be significant," Kaye said. "The audit is of a couple hundred hospitals over several years." He declined to estimate the amount. The arbitrator's ruling was not made public.

Anthony Butler, an analyst with Lehman Brothers, in New York, said Amgen had already set aside an unspecified amount for routine spillover payments. "The arbitrator made some modifications so the amount was slightly more than what they anticipated," Butler said. Amgen's calculations in the company's quarterly report, however, indicate Amgen believed Ortho owed $12.6 million in spillovers.

Kaye said Amgen sells $1.2 billion worth of Epogen per year, and Ortho sells "probably about half" that much Procrit. "This [case] was always about how much we spilled over into their market," he said, and some payment by Amgen to Ortho was anticipated. Butler predicted the arbitrator's ruling would have little effect overall.

Amgen's stock (NASDAQ:AMGN) closed Monday at $47.438, down $0.797.

Problems have erupted previously over the companies' 1985 licensing agreement. In 1991, an arbitrator ruled that Amgen had to pay $164 million in damages to Ortho. That dispute arose because Amgen failed to submit Ortho's EPO data with Amgen's in 1987, when Ortho filed with the FDA for permission to market the drug. As a result, Ortho did not win approval until 1989.

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. *