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By Peter Loftus
Dow Jones Newswires
09-12-06 1526ET
Shareholders welcomed Peter Dolan's departure from the helm of Bristol-Myers Squibb Co. (BMY) Tuesday, but the drug company continues to face challenges and may find its days of independence numbered.
Meeting Tuesday in New York, Bristol-Myers' board announced Dolan was leaving effective immediately, following the recommendation of a federal monitor. Bristol-Myers named as interim CEO James Cornelius, a Bristol director and former CEO of Guidant, the medical-device maker acquired earlier this year by Boston Scientific Corp. (BSX). Bristol's board will search for a permanent CEO.
The news sent Bristol-Myers shares up 87 cents, or 3.7%, to $24.26. Earlier, the stock traded as high as $24.47.
Dolan's ouster follows some tumultuous weeks during which a Canadian company, Apotex Inc., launched a cheaper, generic version of Bristol-Myers' best-selling product, Plavix, a heart medication. Many observers believe Dolan mishandled the situation, which not only cost Bristol-Myers big sales and profits but also landed the company in a federal criminal investigation over a proposed settlement with Apotex. The investigation, believed to center on alleged oral agreements among Bristol and Apotex, is pending, and Bristol-Myers has said its own internal probe has uncovered no unlawful conduct.
"I think it's a logical step" to oust Dolan, said Laurent Payer, a portfolio manager with Sectoral Asset Management in Montreal. "Now, you have a criminal investigation.... It's bad for the company. If the CEO steps down, then you can always say it was with the previous management team."
Payer and others believe Bristol-Myers has become a takeover target. The board's decision to name Cornelius as interim CEO could further fuel this speculation, given that he led Guidant through its sale to Boston Scientific, Bank of America analyst Chris Schott suggested in a research note Tuesday.
Also, Bristol-Myers has a good pipeline of potential new drugs, Payer said. A larger company with healthy cash flow but a weaker pipeline might be interested in acquiring Bristol's pipeline, he said.
In Payer's view, potential buyers of Bristol-Myers primarily include European drug companies such as AstraZeneca PLC (AZN), Novartis AG (NVS) and Sanofi-Aventis (SNY). Sanofi-Aventis already has a business relationship with Bristol, including the co-marketing of Plavix [the two companies also share Avapro and Avalide].
Spokespeople with those companies couldn't immediately be reached.
"We'll always look to do what's in the best interest of shareholders," Bristol-Myers spokesman Tony Plohoros said, but wouldn't comment more specifically on takeover talk.
Bristol-Myers recently lowered its profit forecast for the year due to the availability of generic Plavix, which Apotex began selling in early August, then stopped selling after a federal judge in New York issued an injunction in late August.
A trial in long-running patent litigation among Bristol, Sanofi and Apotex is set to begin in January, and it could take months for the judge to issue a ruling. So it could be awhile before investors know whether Bristol will be able to preserve its market exclusivity on Plavix until a key U.S. patent expires in 2011.
Already, lost sales have led Bristol-Myers to cut its forecast for earnings per share this year by 17%-24%. On Tuesday, the company said it doesn't expect to have to cut its dividend payout next year, something some analysts had feared could be necessary. [I would not take this statement at face value.]
A permanent replacement for Dolan will have to contend with the aftermath of Plavix. Also, the new CEO will have to continue to build sales of some of Bristol's newer drugs such as Orencia, a treatment for rheumatoid arthritis, and shephard experimental drugs to market.
Payer gave Dolan credit for building Bristol's pipeline and bringing new drugs to market. Some pipeline drugs, however, didn't make it to market under his watch, such as Pargluva for diabetes.
Bristol-Myers said Tuesday the board would consider internal and external candidates for the permanent CEO post. Payer said one logical candidate would be Karen Katen, who lost a three-way race to succeed ex-Pfizer Inc. (PFE) CEO Hank McKinnell recently. Pfizer said last month Katen would be leaving the company to pursue other opportunities. A Pfizer spokesman couldn't immediately be reached.
Bristol-Myers also said Tuesday Richard Willard will leave the position of senior vice president and general counsel effective immediately. The company named Sandra Leung, vice president and corporate secretary, as interim general counsel.
A federally appointed monitor, former federal judge Richard Lacey, recommended to the board that the employment of both Dolan and Willard be terminated. Lacey monitors Bristol-Myers' deferred prosecution agreement with the U.S. Attorney for the District of New Jersey.
Bristol-Myers signed the deferred prosecution agreement in June 2005 to settle a federal investigation into an alleged fraud case at the company. The agreement gave Christopher Christie, the federal prosecutor in New Jersey, and Lacey oversight of certain Bristol-Myers activities.
Bristol-Myers said Tuesday that Lacey and Christie didn't find there had been any violation of the deferred prosecution agreement. Bristol also said "no finding of any unlawful conduct by the company or any of its employees has been made."
Lacey said in an email message his policy is to not comment on his work as monitor. A spokesman for Christie couldn't immediately be reached.
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