Replies to post #74291 on Biotech Values

[DewDiligence]

Agree that JNJ probably won’t counterbid for SGP; memory of the bidding war JNJ got into with BSX for Guidant is probably still fresh.

However, it would be negligent of JNJ to not attempt to gain the ex-US rights to Remicade/Golimumab. At the least, JNJ should be able to extract a decent-sized cash payment in return for waiving the right to go to binding arbitration.

[DewDiligence]

JNJ will almost certainly be able to extract some value by challenging the “reverse merger” structure of the MRK-SGP deal, which is an attempt by MRK and SGP to circumvent the change-of-control provisions in SGP’s agreement with JNJ covering the ex-US commercial rights to Remicade and Simponi. I base this assertion on the following:

• The reverse merger is a sham insofar as MRK (not SGP) is clearly the surviving entity in terms of management and BoD composition. Thus, JNJ has a strong case from a legal standpoint, IMO.

• From a practical standpoint, it makes more sense for MRK to give JNJ a modest percentage of SGP’s ex-US rights to Remicade and Simponi (or a lump-sum payment in lieu of such a %) rather than spend a lot of money on legal fees.

• All three companies declined to comment on this matter during their 1Q09 CC’s.