Johnson & Johnson Wants Out Of Schering-Plough Deal

NEW YORK (AP) -- Johnson & Johnson has notified Merck & Co. that it plans to seek arbitration on whether it can pull out of a blockbuster drug partnership with Schering-Plough Corp. as that company sells itself to Merck for $41.1 billion.

Merck said in a filing Wednesday with the Securities and Exchange Commission that Johnson & Johnson told the company of the move May 5.

At stake in arbitration is about $2 billion a year in revenue to the newly combined company from the arthritis drug Remicade, whose sales J&J and Schering-Plough split.

Merck and Schering-Plough have structured their deal as a reverse merger, allowing Schering-Plough to remain as the surviving entity. That's intended to avoid triggering terms in J&J's deal with Schering-Plough that allow it to pull out of the Remicade venture and take all its revenue if control of Schering changes hands.

Johnson & Johnson made clear in an e-mailed statement that it wants back the full rights to Remicade and another drug made by its Centocor Ortho Biotech subsidiary because of the acquisition deal.

"As its public statements make clear, Merck is acquiring Schering-Plough," the statement said. "The acquisition constitutes a change of control and triggers Centocor's right to terminate."

Under the existing deal, Schering-Plough has rights to sell the drug overseas. The joint venture also includes the arthritis drug golimumab, approved by the Food and Drug Administration in April.

The move by Johnson & Johnson isn't surprising, said Steve Brozak of WBB Securities.

"We know J&J wants something, and we know that Merck and Schering-Plough are going to defend," he said. "The question is what will be the ultimate agreement."

Analysts have previously warned that 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.

Merck says it still expects its acquisition of Schering-Plough to close by the end of the year.

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