Amgen Inc. expects to collect $90 million from its one-timepartner, a Johnson & Johnson subsidiary, under an arbitrator'sdecision announced Wednesday.

The award was based on a finding that J&J's OrthoPharmaceutical Corp. failed to follow through in developingAmgen's hepatitis B vaccine and interleukin-2 (IL-2) products.Ortho returned both products to Amgen last year after takingthem into Phase II clinical trials.

The decision announced Wednesday nearly closes the book onone of the longest-running legal disputes to arise overbiotechnology products. Amgen was ordered to pay Ortho $154million under a 1990 arbitration award related to its Epogenerythropoietin (EPO) product for which Amgen received approval in 1989 for treating kidney dialysispatients. Ortho, which markets EPO as Procrit (Eprex outsidethe U.S.), has U.S. rights for all other uses of EPO.

Among the issues still to be resolved is a method tocompensate EPO sales by each company into the other's salesareas, which is expected to cost Amgen. The arbitratorwill also assess Ortho for legal fees, royalties that Amgen mighthave collected if IL-2 and the vaccine had been developed, andexpenses that it might now incur to develop them.

The entire dispute stems from a 1985 development contractbetween Amgen and J&J. The imprecise language of the dealswept both companies into a dispute starting just before the1989 approval and EPO's rapid rise to become biotechnology'stop-selling product.

"This is a textbook case of how not to do a deal," said BrandonFradd, an analyst with Montgomery Securities in San Francisco.It also mirrored the skepticism of pharmaceutical companiestoward biotechnology drugs just a decade ago, he said. "Drugcompanies turned the product down right and left." After doingthe deal with Amgen, Ortho moved slowly to develop uses ofEPO beyond treating kidney dialysis patients.

The arbitration decision was announced after the stockmarket's close. Amgen's stock (NASDAQ:AMGN) closed down 13cents a share at $64.25.

Amgen of Thousand Oaks, Calif., expects to book the roughly$90 million as a gain in the quarter when the final arbitrationorder is issued, said Sarah Crampton, who heads the investorrelations program. The company has already charged toearnings the $154 million arbitration award to Ortho for EPO.

Because the decision does not affect Amgen's ongoing business,"I think it's not all that important," said Denise Gilbert, ananalyst with Smith Barney.

The biggest plus for Amgen? "It's now behind us, which isgood," Gilbert said. But with about $500 million in cash andwith operations expected to generate more than $300 millionthis year, Amgen hardly needs cash.

Both returned products are under review at Amgen, saidCrampton.

Two competing hepatitis B vaccines are already approved forthe U.S. market, and Chiron Corp. received U.S. marketingapproval this year for IL-2, said John Kreger of VectorSecurities.

-- Ray Potter Senior Editor

(c) 1997 American Health Consultants. All rights reserved.