Bristol-Myers Squibb Is Feeling Woozy

The drugmaker faces challenges on several new products

When ImClone Systems Inc. (IMCL ) dropped a bombshell on Dec. 28 about problems with the Food & Drug Administration application for its new cancer drug Erbitux, the fallout extended well beyond the biotech upstart. The news was a blow to Bristol-Myers Squibb Co. (BMY ), which agreed in September to co-develop and co-promote Erbitux. Bristol bought $1 billion in ImClone stock and agreed to pay the company $1 billion as the drug hit key milestones including final FDA approval.

That pricey investment speaks volumes about Bristol these days. The deal was part of Bristol Chief Executive Officer Peter R. Dolan's aggressive bid to remake the drug giant in the face of slowing growth. But with FDA problems surfacing just months after Bristol inked its deal, analysts are raising questions about whether the company's need to bolster the pipeline took precedence over due diligence. "How desperate was Bristol to get product?" asks Mike Krensavage, an analyst at Raymond James & Associates.

Dolan declined to be interviewed. But Richard J. Lane, president of Bristol's worldwide medicines group, says the company remains confident about the future of Erbitux. "There is no doubt it works," says Lane. And certainly, the ImClone setback will not be devastating for Bristol. Analysts believe the drug will be approved eventually, and it was only expected to contribute about $600 million to Bristol's sales by 2005--a modest figure for a company with 2001 revenues of nearly $20 billion.

Still, Dolan's job just got a whole lot tougher. It's no surprise he's been scrambling to fill the pipeline. As the company loses exclusivity on some big products, including the $2 billion-in-sales diabetes drug Glucophage, cheap generic competitors will grab market share from Bristol. In response, Dolan has shed slower-growing businesses such as hair-care operation Clairol and focused on pharmaceuticals. In addition to the ImClone deal, he shelled out $7.8 billion for DuPont's drug business in October.

But questions remain about whether Dolan has done enough. After seeing earnings grow at a healthy average annual rate of 10% over the past four years, SG Cowen Securities Corp. analyst Stephen M. Scala figures intensifying generic competition and the cost of the ImClone and DuPont deals will send Bristol's net income down 4% this year, to $4.5 billion on sales of $21.1 billion. And while Scala says 2003 will mark a return of healthy growth for Bristol as new products launch, others aren't so sure. Bristol's stock is down about 30% over the past year, to a recent $50. Warns Samuel D. Isaly, managing partner of OrbiMed Advisors, a pharmaceutical fund-management firm: "Bristol's problems are too widespread to be covered over by their near-term pipeline."

The ImClone headache doesn't help. ImClone has said the FDA's questions relate largely to data collection. But ImClone execs acknowledged on Jan. 9 that the agency could require another clinical trial, a move that could postpone the drug's approval until 2003. That delay could hurt as competing therapies from companies like AstraZeneca PLC (AZN ) could also be on the market by then.

Bristol has even more at stake with Vanlev, its hypertension drug. Expected to be a multibillion-dollar blockbuster, Vanlev was held up after the FDA asked for more data on a potentially dangerous side effect. And while approval is expected this year, Lehman Brothers Inc. analyst C. Anthony Butler says sales could be limited if the drug has a higher incidence of side effects than competing therapies.

Given the challenges ahead, it's no wonder Bristol has been fighting aggressively to delay generic competitors. It has been sued, for example, by a number of states and consumer groups over what they contend were improper tactics to delay the launch of a generic competitor to Bristol's anti-anxiety drug BuSpar. But such delaying tactics hardly solve Bristol's fundamental problem. That's why some on Wall Street believe that Dolan may strike more licensing or acquisition deals. Bristol's Lane says the company hasn't ruled more deals out. Even given the ImClone setback, Dolan may need to roll the dice a few more times.

By Amy Barrett in Philadelphia

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