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[DewDiligence]

Dolan Is a Goner

http://online.wsj.com/article/SB115802286278860139.html

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Federal Monitor Urges Bristol-Myers Board to Fire CEO, Counsel

By JOHN CARREYROU and BARBARA MARTINEZ
September 12, 2006

The board of directors of Bristol-Myers Squibb Co. is under pressure to fire Chief Executive Peter R. Dolan and the drug maker's general counsel at a meeting Tuesday after a federal monitor overseeing the company urged the directors to dismiss them.

The monitor, former federal judge Frederick B. Lacey, recommended late Monday to a special session of the company's board that it terminate Mr. Dolan and Bristol-Myers general counsel Richard Willard, according to a person familiar with the matter. The meeting was attended by the U.S. Attorney for New Jersey, Christopher Christie, who appointed Mr. Lacey. The board is scheduled to meet formally Tuesday.

Bristol-Myers executives weren't immediately available for comment. A spokesman for Bristol-Myers declined to comment.

Mr. Lacey made his recommendation after finding that Bristol-Myers's actions in pursuing a deal to delay generic competition to the company's best-selling drug, the blockbuster blood thinner Plavix, violated the terms of a deferred prosecution agreement, the person said. Mr. Christie backed Mr. Lacey's recommendation, leaving the board no choice but to follow it, the person added.

Under the terms of last year's deferred prosecution agreement, the board can appeal Mr. Lacey's recommendation to Mr. Christie, but it has to implement it if Mr. Christie gives his backing to the monitor. Mr. Lacey briefed Mr. Christie and obtained his backing before speaking to the board, the person familiar with the situation said.

The deferred prosecution agreement was put in place last year following Mr. Christie's three-year investigation into a $2.5 billion scandal at the company involving "channel-stuffing," or overloading wholesalers with inventory to meet quarterly sales targets. Under the terms of the agreement, Bristol-Myers was supposed to stay out of trouble for two years to avoid an indictment.

As part of the agreement, Mr. Christie also made Mr. Dolan surrender his chairman title to a senior member of the Bristol-Myers board, James B. Robinson III, and appointed Mr. Lacey to monitor the drug maker for two years through April 2007. Mr. Lacey has been attending all the company's board meetings and filing regular reports to Mr. Christie.

Mr. Dolan was already on shaky ground with the board after negotiating a deal that would have paid Canada's Apotex Inc. tens of millions of dollars to delay its introduction of a generic version of Plavix. That deal, aimed at settling Apotex's legal challenge of the Plavix patent, unraveled in late July when the Department of Justice's antitrust division opened an investigation into it and state attorneys general rejected it.

In filings to the federal court in New York overseeing the patent litigation, Apotex has alleged that Bristol-Myers struck an verbal side agreement with it during the settlement negotiations that it then hid from regulators. A lawyer for Bristol-Myers has denied this to the court and suggested that Apotex fabricated the allegation to torpedo the settlement.

Apotex launched its Plavix knockoff Aug. 8, exploiting binding concessions it obtained from Bristol-Myers during the negotiations. The court overseeing the patent case ordered Apotex to stop selling the generic Aug. 31, but didn't force it to recall the product already in the distribution channel, costing Bristol-Myers up to $600 million in revenue.

The Bristol-Myers board had already been planning to discuss whether to remove Mr. Dolan at its regularly scheduled meeting Tuesday, before Mr. Lacey convened Monday special session. The board had become worried that the Plavix debacle, coming on top of a series of other controversies during Mr. Dolan's five-year tenure, had so angered shareholders that it was impairing his ability to lead the company effectively. Bristol-Myers shares have fallen nearly 60% since Mr. Dolan became CEO in May 2001.

It's unclear what misconduct Mr. Lacey has uncovered, but it has to do with "the Plavix shenanigans," the person familiar with the matter said. In a statement it issued last month, the Bristol-Myers board said an internal investigation headed by former U.S. Attorney Mary Jo White had found no wrongdoing by Bristol-Myers employees, though the statement added that the board was taking the Justice Department probe very seriously.
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