Strong Medicine for Bristol-Myers

The drug company will pay $499 million to settle regulatory investigations into its drug pricing and marketing activities

Bristol-Myers Squibb (BMY) said Dec. 21 that it reached a preliminary agreement to pay $499 million to settle several years of regulatory investigations into its drug pricing, sales and marketing activities.

Perhaps expressing relief at resolution of the issue, investors bid up the stock 0.5% to $25.91 per share in early trading Dec. 21 on the New York Stock Exchange.

Pharmaceutical companies like Bristol-Myers, generic drug makers, and regulators, are struggling with the question of how long drug patents should last. Now the New York company has a settlement with the Office of the United States Attorney in Massachusetts and the U.S. Department of Justice.

There are no criminal charges, but Bristol-Myers must enter into a corporate integrity agreement, subject to approvals, with the Office of Inspector General of the U.S. Department of Health and Human Services. The company did not provide any detail about the activities under investigation in a press release Dec. 21.

Bristol-Myers increased its reserves for losses with respect to such matters by $353 million and expects to record the move in its fourth quarter 2006 results. After taking a $220 million pre-tax charge related to a debt restructuring completed in the fourth quarter, the company lowered its forecast for the full year of 2006 to between 72 cents and 77 cents per share. Guidance given at the end of the third quarter 2006 had been for 97 cents to $1.02 per share during 2006.

The New York drug maker's CEO Peter R. Dolan got ousted on Sept. 12 after he botched a patent fight with Canadian generic drugmaker Apotex Inc. over BMS's blockbuster anti-clotting drug, Plavix. He tried to pay Apotex to prevent it from selling generic copies of Plavix, but failed in the effort. And then it turned out that the Plavix patent wasn't as vulnerable as Dolan had feared, according to an Aug. 31 ruling in the U.S. District Court (see BusinessWeek, 9/25/06, "Why Peter Dolan Got The Boot").

Standard & Poor's equity analyst Herman Saftlas, while encouraged by continuing strong growth in Bristol-Myers' key drugs and its robust pipeline, thinks the shares will tread water at least until a court decision is rendered in Plavix patent litigation. He believes the main rationale for holding the stock is the dividend, yielding 4.3%.

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