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EPO ARBITRATION JUDGE ORDERS AMGEN AND ORTHO TO "NEGOTIATE QUICKLY"

Executive Summary

EPO ARBITRATION JUDGE ORDERS AMGEN AND ORTHO TO "NEGOTIATE QUICKLY" and "in good faith," according to statements released by both companies April 10. Upholding a 1985 agreement signed by Amgen and Ortho, Chicago arbitration judge Frank McGarr concluded that Amgen must supply Ortho with erythropoietin and take steps to obtain FDA approval for Ortho to market the drug under the Eprex label. Under the 1985 licensing agreement, Amgen retained rights to develop EPO for the U.S. dialysis market and granted Ortho rights to other indications worldwide, including nondialysis chronic renal failure anemia. The agreement provided that Amgen would supply Ortho with EPO at "standard cost" and the two companies would cooperate in developing EPO for the chronic renal failure market. Last March, a Delaware Federal Court judge found that both companies had contributed to the "souring" of the agreement, Amgen by not assisting Ortho to gain approval of its product and Ortho by refusing to make a purchasing commitment to Amgen ("The Pink Sheet" March 27, p. 3). Amgen execs had testified that they wanted out of the contract altogether by the summer of 1988. The Delaware judge ordered the companies to seek expedited arbitration, and required Amgen to supplement its dialysis data with Ortho's pre-dialysis data at FDA. Amgen received approval for Epogen in the treatment of anemia associated with chronic renal failure (dialysis and non-dialysis) in June ("The Pink Sheet" June 5, p. 3). While Amgen was required to file Ortho's data, the Delaware judge did not require the company to name Ortho as a distributor. Because it was not named as a distributor, Ortho did not gain simultaneous approval of EPO with Amgen. While arbitration has resolved the larger question of whether the companies are to abide by their agreement, exactly how the firms will implement the terms of the agreement still appears unclear. Ortho wants Amgen to name it as a distributor of EPO in an application to FDA. However, Amgen contends that distributorship is not the only way to comply with the terms of the agreement. Amgen stated in its release that "Ortho must purchase all EPO it will sell in the U.S. from Amgen," while Ortho is reluctant to specify exactly how much EPO it will buy from Amgen. The J&J subsidiary would only say that Amgen must "supply Ortho with product so that it can begin serving pre-dialysis kidney patients in the U.S." Ortho said that the amount of EPO it will buy from Amgen is still under negotiation. Several remaining issues disputed by the companies will be the subject of future arbitration. "Monetary damages claimed by Ortho over Amgen's breach of its contract will be dealt with separately," Ortho remarked in its release. These damages could include lost sales since June to the non-dialysis market. Amgen has filed a counterclaim relating to an agreement by Ortho to develop Amgen's interleukin-2 and hepatitis B vaccine. According to Amgen, Ortho has not been diligent in the development of these products. Ortho recently reported its IL-2 is in Phase II/Phase III and its hepatitis B vaccine is in Phase II. * In the Boston patent case, where Amgen is trying to stave off an injunction against the sale of Epogen that was to take effect April 13, Judge Young stayed the injunction until April 17 in light of an appellate review of his March 14 ruling. Young's March order required Amgen and Genetics Institute to enter into a royalty-free cross-licensing agreement and mandated that Amgen remove all objections it has to the entry of Chugai's Marogen into the market ("The Pink Sheet" March 19, p. 12). The judge set a hearing for April 17 to discuss actions proposed by Amgen and Genetics Institute and Chugai to comply with the order. Amgen filed an appeal on April 2 to stay the injunction until an appellate decision on the patent issues.
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