Merck 2014 Annual Report Download - page 136

131GROUP MANAGEMENT REPORT → Report on Risks and Opportunities
Risks from product-related and patent law disputes
The litigation risk with Israel Bio-Engineering Project Limited
Partnership (“IBEP”) was eliminated as of the end of 2014. IBEP
asserted claims for property rights and the payment of license fees
for the past and the future. The legal disputes were connected to
the financing of the development of medical research projects in
the early 1980s. The Group had taken appropriate accounting
measures for these legal disputes in the past. In 2014, the company
achieved a settlement with IBEP according to which the legal dis-
putes were settled in exchange for a sum of money. The settlement
led to lower cash payments than previously expected.
The Group is involved in a patent dispute in the United States
with Biogen IDEC Inc. (Massachusetts, USA) (“Biogen”). Biogen
claims that the sale of Rebif® in the United States infringes on a
Biogen patent. The patent in question was granted to Biogen in
2009 in the United States. Subsequently, Biogen sued Merck
KGaA, Darmstadt, Germany, and other pharmaceutical companies
for infringement of this patent. The Group defended itself against
all allegations and brought a countersuit with the claim that the
patent was invalid and not infringed on by the company’s actions.
A Markman hearing took place in January2012, however a deci-
sion has not yet been announced. The parties are currently engaged
in court-ordered mediation proceedings that have not yet officially
ended. It is currently not clear when a first-instance decision will
be made. Merck KGaA, Darmstadt, Germany, has taken appropriate
accounting measures. Given the potential critical negative effects
of the legal dispute on the financial position in case of a negative
decision, the Group nevertheless classifies this as a high risk.
Risks due to antitrust and other government proceedings
Raptiva®: In December2011, the federal state of São Paulo sued
Merck KGaA, Darmstadt, Germany, for damages because of al-
leged collusion between various pharmaceutical companies and
an association of patients suffering from psoriasis and vitiligo.
This collusion is alleged to have been intended to increase sales of
the medicines from the companies involved to the detriment of
patients and state coffers. Moreover, patients are also suing for
damages in connection with the product Raptiva®. The Group has
taken appropriate accounting measures for these issues. Risks in
excess of this with a substantial negative effect on the net assets,
financial position and results of operations cannot be ruled out,
but are considered unlikely. This is rated as a medium risk.
In one jurisdiction, the company is subject to a government
investigation regarding compliance with foreign exchange transfer
restrictions. In this connection, the responsible authorities are
investigating whether import prices led to impermissibly high for-
eign exchange transfers. Appropriate accounting measures have
been taken for repayments and fines that are estimated to be prob-
able due to the uncertain legal situation in the affected country.
The Group rates this as a medium risk since significant negative
effects on the financial position cannot be ruled out.
Risks from drug pricing by the divested Generics Group
Paroxetine: In connection with the divested generics business, the
company is subject to antitrust investigations by the British
Competition and Market Authority (CMA) in the United Kingdom.
In March2013, the authorities informed Merck KGaA, Darmstadt,
Germany, of the assumption that a settlement agreement entered
into in 2002 between Generics (UK) Ltd. and several GlaxoSmith-
Kline companies in connection with the antidepressant drug
paroxetine violates British and European competition law. Merck
KGaA, Darmstadt, Germany, the then owner of Generics (UK) Ltd.,
was allegedly involved in the negotiations for the settlement
agreement and is therefore liable. The investigations into Generics
(UK) Ltd. started in 2011, without the Group being aware of this. It
is considered likely that the CMA will impose a fine on Merck KGaA,
Dar
mstadt, Germany. The Group has taken appropriate accounting
measures. Given the lawsuit’s potential substantial negative impact
on the financial position, the company classifies this as a medium
risk.
HUMAN RESOURCES RISKS
The Group’s future growth is highly dependent on its innovative-
ness. Therefore, the expertise and engagement of employees in all
sectors in which Merck KGaA, Darmstadt, Germany, operates are
crucial to the success of the company.
The markets relevant to the Group are characterized by inten-
sive competition for qualified specialists and by demographic
challenges. Staff turnover risks specific to countries and industries
have to be identified ahead of time and specifically addressed in
order to keep the skills and expertise critical to success and busi-
ness within the company.
Recruiting and retaining specialists and talent at the Group is
therefore one of the key priorities for the company and is man-
aged through the targeted use of, for instance, employer branding
initiatives, global talent and succession management processes
as well as competitive compensation packages. Nevertheless, em-
ployee-related risks that affect business activities are possible, even
though their impact is difficult to assess. The Group rates this as a
medium risk.