The Power Of The Pipeline

Bristol-Myers Squibb is beset with troubles, but its new-drug potential makes it a target

In his decade in the research trenches at Bristol-Myers Squibb Co. (BMY ), Dr. Elliott Sigal has seen more than his share of turmoil. After Bristol's chief scientific officer died unexpectedly in 2004 at age 51, Sigal was named his successor by then-Chief Executive Peter R. Dolan. Last September, Dolan lost his job over a botched deal with a company that wants to sell a generic version of Bristol's hit anti-clotting drug Plavix. Now Bristol is searching for a CEO and fighting a patent battle with the generic drugmaker. Sigal tunes out the noise by focusing on the task he started as part of Bristol's R&D leadership team in the late 1990s, when the company was suffering through a five-year drought of new product launches. "We had to uncork a passion for drug hunting," he recalls.

NOT IF, BUT WHEN

That uncorking has gone so well that it may have turned Bristol into a hot takeover target. As interim CEO James M. Cornelius tries to steady Bristol's wobbly finances—the New York drugmaker just recorded its first quarterly loss since 1995—the one part of the company he's barely touching is Sigal's. Bristol has launched eight new drugs since Sigal became head of development in 2002, has three cancer drugs in late-stage development and has more than a dozen compounds in its pipeline to treat diseases ranging from diabetes to depression. With many growth-starved Big Pharma companies desperate for new potential blockbusters, and a verdict due soon in the Plavix trial, a Bristol acquisition, predicts Morgan Stanley (MS ) analyst Jami Rubin, "is not a question of if. It's a question of when."

Bristol will not comment on the merger speculation, nor will one of the widely mentioned names, Plavix co-marketer Sanofi-Aventis (SNY ). Cornelius says that he is developing a plan he believes will increase Bristol's chances of surviving as an independent company, but that if an offer comes in "we have a fiduciary responsibility to consider any deal." Meanwhile, the board is interviewing CEO prospects, and Sigal has emerged as one of three internal candidates. "He has built a tremendous machine in research," Cornelius says.

Sigal has turned around Bristol's unproductive research labs using a combination of hard and soft incentives. He has fine-tuned a compensation plan that ties scientists' bonuses to the drugs they discover, awarding the highest premiums to the compounds that reach late-stage clinical trials. Sigal keeps his troops motivated by introducing them to patients who have been treated with Bristol's drugs, most recently bringing in a cancer patient who has benefited from Bristol's new product, Sprycel. "It makes scientists appreciate what they're doing," says Dr. Peter S. Ringrose, Bristol's former chief scientific officer, who retired in 2002. "The end point is the patient. Elliott has been quite good at communicating that."

Another way Sigal has managed to pump up Bristol's pipeline is through what he calls the globalization of the research process. While developing Sprycel, for example, the company recruited 911 trial patients in 33 countries. Because the drug treats a rare form of leukemia, it would have taken several months to find enough patients just in the U.S. "The globalized approach allows us to enroll clinical trials faster, and time is money," Sigal says. Bristol coordinated the trial with 13 research hubs around the world that had previously operated independently. They were linked up electronically so that they could analyze data 24 hours a day. Bristol filed for FDA approval just two years after the first trial patient was treated—a process that normally takes six years.

Bristol has also become more selective in choosing its partners, seeking deals that will fill holes in its strategy of developing drugs to address large, unmet medical needs without stretching its resources too thin. In January Bristol structured a smart deal with London-based drug giant AstraZeneca PLC (AZN ) to develop two diabetes drugs. In return for a 50% cut of the commercial profits, AstraZeneca is footing 75% of the development costs and half of the launch expenses. And Bristol, which recently slashed its primary-care sales force, will be able to share AstraZeneca's massive sales force. The deal does not include a "change of control" provision, meaning that any Bristol acquirer will get the same perks.

TRIMMING THE FAT

While sigal is plowing ahead with the strategy that has transformed Bristol's research and development productivity, interim CEO Cornelius must contend with more immediate concerns. When he was rushed into the top job last September, Bristol had already implemented a plan called WorkRight, aimed at cutting $100 million in costs in 2006 and $500 million this year. Cornelius believes that he can weed out an additional $1 billion or so, and he's now developing what he informally calls WorkRight 2. The first phase of the program was about cutting the fat; Bristol has reduced the types of pens that it orders for its staff from 700 to 32, for example. For the second phase, Cornelius is considering more drastic measures, such as closing some of Bristol's 28 manufacturing plants. "There are no sacred cows," he says.

Investors and potential acquirers will be watching closely for the verdict in the Plavix patent trial. Bristol is expected to prevail and regain its exclusive hold on the market until 2011. But the damage has already been done: Bristol's generic rival, Weston (Ont.)-based Apotex Inc., flooded distribution channels with six months' worth of its version of Plavix before a judge ordered it to stop selling the drug last August. Bristol decided to go ahead and market Plavix as if nothing had happened and instructed its salespeople to focus on the merits of the anti-clotting drug and not talk about the patent fight. Bristol's sales team did just that. Perhaps they did it a little too well: Sales of both versions of the drug jumped 14% in each of the last two quarters, with much of the new business going to Apotex. Bristol lost more than $700 million in Plavix sales in the last quarter alone. And the company now faces a criminal investigation into how it handled the Apotex deal.

The Plavix debacle only underscores the urgency of Sigal's quest to generate a variety of new drug candidates that will mitigate the risk of future patent losses. "Good business will follow good medicine," says the scientist. But in the struggling pharmaceutical industry, good business that is mixed with legal woes could translate into a loss of independence for Bristol.

By Arlene Weintraub

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