July 27, 2006
Drug Companies Face Inquiry for Patent Deal
By STEPHANIE SAUL
Two big drug companies that market the best-selling drug Plavix — Sanofi-Aventis and
Bristol-Myers Squibb — had been looking for good news this week: an all-clear from the federal government and several states to settle a patent dispute.
Instead, they got a notice that the proposed settlement is the subject of a criminal investigation by the Department of Justice.
The companies announced the existence of the investigation today but gave few details.
Peter R. Dolan, the chief executive of Bristol-Myers Squibb, issued a statement saying that the patent-settlement talks between the companies and another manufacturer,
Apotex, had been totally appropriate and thoroughly reviewed by outside lawyers.
But even so, the news of the investigation rattled investors. Shares of both companies dropped sharply in morning trading on the New York Stock Exchange: Bristol-Myers was trading around $24.50 at midday, off 5.7 percent, and Sanofi-Aventis’s American depositary receipts were trading around $47.80, off 4.4 percent.
Plavix, a blood thinner, is one of the world’s top-selling drugs, with $6.2 billion in 2005 sales, and an important product for both companies, but especially for Bristol-Myers, based in New York: the company’s $3.8 billion share of sales under the companies’ comarketing agreement make Plavix Bristol-Myers’s largest product by far.
The criminal investigation is a setback for Bristol and its chief, Mr. Dolan, who was hoping that resolving the Plavix patent dispute would end a five-year period in which the company was sued by its shareholders and was investigated for its inventory practices.
Anthony Butler, an analyst for Lehman Brothers, said it was hard to tell how big a problem the new investigation would pose. “I’m not clear that it’s a major setback,” Mr.
Butler said. “It does scare investors. ‘Criminal investigation’ is a negative phrase. I’m not clear today that anything has changed.”
A trial in the patent dispute had been scheduled for June in Manhattan, and some analysts put the chances that Bristol and Sanofi would lose their exclusive right to market the drug as high as 40 percent.
Under the settlement, first announced in March, the two companies agreed to pay an undisclosed amount to Apotex and also to allow Apotex to begin selling the drug in
September 2011, eight months before the United States patent on Plavix is to expire. The terms were later revised to move that date forward to June 2011.
Bristol-Myers signed a consent decree in 2003 in an unrelated case, in which it was accused of improperly using patents to thwart generic competition to two drugs, the
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cancer treatment Taxol and the anti-anxiety drug Buspar. Under the terms of that decree, the company is obliged to submit agreements like the one it reached with Apotex to review by state attorneys-general and by the Federal Trade Commission.
The state attorneys-general are required to issue their ruling on the matter on Friday. It was unclear today how the announcement of the criminal investigation would affect that.
Meredyth Andrus, an assistant attorney general in Maryland who is coordinating the review, would not comment.
Under its rules, the trade commission is obliged to forward any evidence of criminal activity that it encounters suspects during such a review to the Department of Justice.
It was also unclear whether the investigation would affect Bristol-Myers’s probationary status in a criminal case it settled last year in New Jersey. That case involved false statements that company officials made to investors about an inventory practice called channel-stuffing. Under the terms of that agreement, the company is obliged to be a good corporate citizen for two years.
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