Under the terms of the amended distribution agreement, Merck's subsidiary, Schering-Plough (Ireland) will relinquish exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson’s Janssen pharmaceutical companies in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific* (“relinquished territories”), effective July 1, 2011. Merck will retain exclusive marketing rights throughout Europe, Russia and Turkey (“retained territories”). The retained territories represent approximately 70 percent of Merck's 2010 revenue of approximately $2.8 billion from REMICADE and SIMPONI, while the relinquished territories represent approximately 30 percent. In addition, all profit derived from Merck's exclusive distribution of the two products in the retained territories will be equally divided between Merck and Johnson & Johnson, beginning July 1, 2011. Under the prior terms of the distribution agreement, the contribution income (profit) split, which is currently at 58 percent to Merck and 42 percent to Centocor Ortho Biotech Inc., would have declined for Merck and increased for Johnson & Johnson each year until 2014, when it would have been equally divided. Johnson & Johnson will also receive a one-time payment of $500 million in April 2011. Merck expects to file the amended agreement on a Form 8-K with the Securities and Exchange Commission shortly.
The company is providing the following additional details relevant to the amended agreement:
- In 2010,
Johnson & Johnsonreported annual sales for REMICADE of $4.6 billionand annual sales for SIMPONI of $226 million, which included sales of these products to its distribution partner Merck of approximately $1.2 billion. In the territories being relinquished to Johnson & Johnsonas a result of the amended agreement, 2010 annual end-user sales for REMICADE and SIMPONI were approximately $900 million. The amended agreement impact on 2010 sales on a pro forma basis would have resulted in nearly $500 millionin incremental net sales being recorded by Johnson & Johnsonon an annual basis for these products, which excludes sales that were previously recorded. Johnson & Johnson will begin recording 2011 sales of product from the relinquished territories on July 1, 2011.
- The division of contribution income on sales will be amended to a 50 percent/50 percent split between
Johnson & Johnsonand Merck, from July 1, 2011, through Oct. 1, 2024. This compares to the prior split of 42 percent/58 percent in 2011 for Johnson & Johnsonand Merck respectively, which would have increased to a 50 percent/50 percent split in 2014. Johnson & Johnsonwill receive a one-time, $500 millionpayment from Merck during the second quarter of 2011.
- The 2011 earnings impact is not expected to be significant.
- The company will discuss the amended agreement during its scheduled quarterly earnings call on
April 19, 2011.