Plavix Setback Has Bristol CEO In the Hot Seat
By JOHN CARREYROU and JOANN S. LUBLIN
August 16, 2006; Page C1
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During his five years as chief executive of Bristol-Myers Squibb Co., Peter Dolan has overcome a series of controversies, ranging from a financial scandal to research failures and questionable deals.
But some shareholders aren't inclined to let Mr. Dolan off the hook for the company's latest setback: the loss of marketing exclusivity over its best-selling drug, the blood thinner Plavix, five years ahead of schedule.
"He's either the most unlucky guy in the world or he's just not suitable to be CEO," says Thomas Cooper, a former stockbroker in Atlanta whose family owns more than 125,000 Bristol-Myers shares, valued at $2.6 million.
Shareholders such as Mr. Cooper have been dismayed by the 61% decline in Bristol-Myers's stock price during Mr. Dolan's tenure. The stock has dropped 20% since July 26, when Federal Bureau of Investigation agents raided Mr. Dolan's New York office as part of a probe into a deal to delay generic competition to Plavix.
Complaints about Mr. Dolan have surfaced often during his tenure, and the board has always steadfastly stood behind him. Directors believe the chief executive fixed his inherited problems, bolstered internal controls and amassed a strong research pipeline, according to one individual familiar with the situation. Nor do board members expect anything will result from the FBI's surprise raid, this person says. A Bristol-Myers spokesman said Mr. Dolan wasn't available to be interviewed. The company issued a statement from Bristol-Myers Chairman James D. Robinson III saying Mr. Dolan "has the full and complete confidence of the Board."
The July 26 raid wasn't the first hint of trouble for Bristol-Myers's deal with Apotex Inc., which was intended to put an end to a legal challenge of a Plavix patent by the Canadian generic-drug maker. An early version of the deal had fallen apart, and the companies had warned the pact might be rejected by regulators -- which it subsequently was.
It has since emerged that Apotex Chief Executive Barry Sherman outmaneuvered Mr. Dolan by negotiating two clauses into the settlement that allowed him to launch a copycat version of Plavix if the settlement was rejected by regulators. One clause limits the damages Bristol-Myers can seek from Apotex if it wins the patent lawsuit. The other gave Apotex time to flood U.S. pharmacies with its generic product before Bristol-Myers could ask the court hearing the patent case to halt its shipments. A hearing on Bristol's request for an injunction is set for Friday.
Mr. Dolan's handling of the Plavix case has led Wall Street analysts to predict that the company will have to cut its dividend. Some have even questioned whether Bristol-Myers can continue as an independent company without the $4 billion in annual revenue generated by the drug.
Before the latest events, some analysts had estimated that Plavix accounted for about $2.50 of Bristol-Myers's share price. In the past three weeks, Bristol's share price has fallen more than $5, suggesting investors may be overreacting to the generic launch.
However, takeover speculation is likely to put a floor under the stock. Richard Evans, an analyst for Sanford Bernstein, says Bristol-Myers would make an attractive target for a number of other big drug makers because it has one of the best research pipelines in the industry and the cost of reproducing such a pipeline organically would be much higher than buying Bristol.
A European acquirer would gain access to Bristol-Myers's well-regarded sales force and could extract substantial cost savings from a merger. Possible takeover candidates often cited include France's Sanofi-Aventis SA, Plavix's developer; Switzerland's Novartis AG; and the United Kingdom's AstraZeneca PLC.
If Bristol-Myers's injunction request is granted, its Plavix sales are still likely to take a big hit this year. In a research note, Mr. Evans says pharmacy-benefit managers have told him they received enough supply of the generic to last a year. It is unclear whether the injunction would cover that inventory and, if so, whether recalling it is logistically feasible.
The Plavix situation "is so bad, it's beyond imagining," says Dan Flaherty, a Malibu, Calif., retiree who holds 152,000 Bristol-Myers shares valued at more than $3.1 million.
Mr. Flaherty is the former chief financial officer of Unitek Corp., a company Bristol-Myers acquired in the late 1970s. He has held onto his Bristol shares but has become increasingly frustrated with Mr. Dolan's management. In March, he met with Mr. Robinson to voice his concerns about Mr. Dolan and make the case that Bristol-Myers should be sold. And last week, he sent a letter to Mr. Robinson and the company's eight independent directors, demanding Mr. Dolan be fired. After receiving the letter, Mr. Robinson called Mr. Flaherty over the weekend and promised to convey his views to the whole board, Mr. Flaherty says.
Mr. Dolan has told the board that the Justice Department investigation is a wild goose chase that was likely triggered by false statements Dr. Sherman made to the Federal Trade Commission, according to a person familiar with the matter. The board has bought that explanation, this person says.
In an interview last week, Dr. Sherman denied lying to the U.S. government. "I conducted myself at all times in a manner that is lawful and ethical and entirely truthful," he says. "We provided the truth to the FTC."
It isn't clear what the Justice Department investigation is focused on or how it will impact the company or Mr. Dolan's tenure there. Bristol-Myers is operating under a deferred-prosecution agreement with the U.S. attorney in New Jersey following an accounting scandal, under which it pledged to conduct itself lawfully for two years to avoid criminal indictments.
Regardless, Bristol-Myers has lost months or possibly years of sales of its most important drug. Kim Sanchez, a 49-year-old home builder in Richmond, Va., whose family owns more than 150,000 Bristol-Myers shares, laments: "I don't understand how a company of this magnitude can be run in such a disastrous way."
--Elena Cherney contributed to this article.
Write to John Carreyrou at john.carreyrou@wsj.com1 and Joann S. Lublin at joann.lublin@wsj.com2 URL for this article:
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