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Rights Dispute Could Affect Schering-Plough Buyout

Merck's $41.1 billion buyout of Schering-Plough could face a bump in the road to closing because of an international rights dispute over a drug made by Johnson & Johnson.

NEW YORK (AP) -- Merck & Co.'s $41.1 billion buyout of Schering-Plough Corp. could face a bump in the road to closing over an international rights dispute to the drug Remicade, several analysts said Tuesday.

Kenilworth, N.J.-based Schering-Plough has international marketing rights to the inflammatory condition treatment, which is made by Johnson & Johnson. But, the company loses those rights if it changes control, such as in a buyout. But, the buyout deal has been structured as a "reverse merger" where Schering-Plough will remain as the surviving company, though it will be renamed Merck.

"With Schering-Plough and Merck stating that they believe the merger will not impact these marketing rights, we believe that J&J is likely to make the next move via a potential lawsuit (against the companies) to claim the international rights, or by negotiating a payment to reacquire them," said Caris and Co. analyst David Moskowitz, in a note to investors.

He said the buyout could be thrown into upheaval if New Brunswick, N.J.-based J&J ends up with full rights to Remicade, which would in turn lower the value of Schering-Plough. The latter's investors would be unlikely to accept the $23-per-share bid and Whitehouse Station, N.J.-based Merck's investors would be unlikely to pay that much, he said.

Still, he said the problem will likely be solved through a deal that gives J&J international rights to Remicade for a fair price, while Schering-Plough gets additional cash.

Meanwhile, Leerink Swann analyst Seamus Fernandez also expects some action from J&J, but that all the parties involved will work out a fair deal.

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