ImClone Systems in payment dispute over Erbitux

In a Securities and Exchange Commission filing Friday, New York-based ImClone said Germany-based Merck KGaA claims a patent settlement over the key cancer drug last year resulted in a breach of contract. The companies will head into arbitration over the issue.

Merck KGaA has been separate from New Jersey-based Merck & Co. since the end of World War I.

In December, ImClone and drug company Sanofi-Aventis settled a long-standing patent dispute with Yeda Research and Development Company Ltd. over a key patent to Erbitux, which is approved to treat head and neck and colon cancer. ImClone and Paris-based Sanofi-Aventis agreed to each pay Yeda $60 million in cash and that Yeda would be the sole owner of the patent in the U.S., while Yeda and Sanofi would co-own it outside the U.S.

In turn, ImClone made a deal to pay a single-digit royalty fee on all sales to Yeda and a low single-digit royalty to Sanofi-Aventis on non-U.S. sales.

German Merck said there was a breach of representation in that settlement and it is asking for $10.4 million and other damages, citing the diminutive value of the agreement.

ImClone said the settlement did not alter the German Merck's obligation, and ImClone plans to defend the claim.

Shares of ImClone fell 54 cents to $63.27 in afternoon trading.