Amgen Must Pay $164 Million Over Marketing Battle : Arbitration: The award to a Johnson & Johnson unit involves a kidney disease drug. The stock market takes the decision in stride.
An arbitrator ruled that Amgen Inc. must pay $164 million to its marketing partner, a unit of Johnson & Johnson, for interfering in Johnson & Johnson’s bid to market a biotechnology drug that treats anemia in patients with kidney disease, the companies announced Monday.
Separately, Genetics Institute Inc., which is trying to market its own version of the drug, said it asked the U.S. Supreme Court to overturn an appeals court decision that upheld Amgen’s patent on the drug--called erythropoietin, or EPO--and invalidated Genetics Institute’s patent.
Those rulings have given Amgen, based in Thousand Oaks, a near monopoly over EPO sales in the United States. EPO is the nation’s best-selling biotechnology drug, with annual sales expected to top $400 million this year.
Although Amgen lost the arbitration case, it does not have to pay the money immediately. The payment was delayed pending the arbitrator’s decision on other claims that Amgen made against Johnson & Johnson involving two other biotechnology drugs, interleukin-2 and a hepatitis B vaccine.
Nonetheless, Amgen said it will take an $88.5-million after-tax charge against its earnings for its fiscal first quarter ended June 30, which probably will give the company a net loss for the period.
David K. Stone, an analyst with the investment firm Cowen & Co. in Boston, agreed with Amgen’s view that the $164 million is “immaterial” to the company’s financial health, even though it is more than double the sum he expected to be awarded.
He said the $88.5-million charge should be the only one Amgen has to take in the Johnson & Johnson case, because Amgen “previously had reserved money in anticipation of a charge.” Stone also said he still expects Amgen to earn roughly $65 million in its current fiscal year and an additional $230 million in fiscal 1993.
The stock market likewise took the developments in stride. In national over-the-counter trading, Amgen’s stock closed at $117 a share, down 87.5 cents, while Genetics Institute’s stock slipped 75 cents, to $30 a share.
The arbitration case stems from a 1985 marketing agreement between Amgen and Johnson & Johnson’s Ortho Pharmaceutical Corp. unit. In general, the agreement was aimed at enabling both companies to bring their EPO products to the U.S. market at the same time, with Amgen selling the product to patients undergoing kidney dialysis. Ortho, in turn, would get to sell it for all other uses, including kidney patients not on dialysis treatment, in the United States.
EPO is a biotechnology-engineered copy of a protein found in the body. Patients with kidney disease are chronically anemic because they suffer from a shortage of red blood cells, and EPO triggers the cells’ production.
Ortho alleged that Amgen, through delaying tactics, prevented Ortho from getting U.S. Food and Drug Administration approval for its drug at the same time Amgen’s drug was approved in June, 1989. As a result, Ortho began selling its drug only last January.
“The damage award relates to our inability to get to market,” said William Nielsen, a spokesman at Johnson & Johnson’s headquarters in New Brunswick, N.J.
Ortho also complained that Amgen’s clearance enabled Amgen to sell the drug to all types of kidney-disease patients, therefore encroaching on Ortho’s market.
Genetics Institute, meanwhile, said it hired Laurence Tribe, a noted Harvard University constitutional law professor, to help argue its case before the Supreme Court. Genetics Institute, based in Cambridge, Mass., suffered a major blow in March when it lost its rival EPO patent case to Amgen in a federal appeals court.
The ruling also was a setback for drug giants Upjohn Co. in Kalamazoo, Mich., and Chugai Pharmaceutical Ltd. of Japan, whose joint venture was licensed to sell Genetics Institute’s version of EPO in the United States.
“The biotechnology industry and health care consumers are ill-served by the lower courts’ creative rewriting of patent law,” Tribe asserted in a statement. “I look forward to having the Supreme Court hear our case.”
The high court often shuns patent dispute cases, but analysts have said Tribe’s arrival on the scene could enhance Genetics Institute’s chances. Still, analyst Stone said Wall Street’s reaction to Genetics Institute’s announcement shows investors “evidently don’t expect the Supreme Court to entertain the appeal.”
In the meantime, Stone said, “the market is saying that, if and when the court actually agrees to hear the case, then it will worry about the different outcomes” for the companies involved.
