Bristol-Myers Squibb: - Arthur W. Page Society

Bristol-Myers Squibb
Overview of case issues
Bristol-Myers brief history and general information
Peter Dolan bio
Plavix information
Pharmaceutical industry
Generic competition
Bristol-Myers accounting scandal
Failed patent protection agreement
Patent protection court battle
Challenges facing the board
Discussion questions
Overview of Issues
In the Bristol-Myers Squibb corporate Pledge, the company
We pledge Bristol-Myers Squibb to the highest standard of moral and ethical behavior and to
policies and practices that fully embody the responsibility, integrity and decency required of free
enterprise if it is to merit and maintain the confidence of our society.
1999-2001 accounting scandal at Bristol-Myers Squibb
Patent protection of Plavix
Plavix is the company’s top-grossing drug: responsible for approximately 30% of
BMS revenues. (Second is Pravachol, a widely-applicable anti-cholesterol
medication, responsible for 12% of BMS revenues.)
 Nascent patent protection agreement with Apotex
 Failure of negotiations in August 2006
 Department of Justice investigation
History of Bristol-Myers Squibb
“Starting with a dream, a handful of people and a few thousand dollars in capital,”
William McLaren Bristol and John Ripley Myers founded the Bristol, Myers company
in 1887. The original mission of Bristol-Myers was “to sell quality medicines directly
to doctors.”
In the latter half of the 19th century, Dr. Edward Robinson Squibb also launched a
pharmaceutical business that carried his name.
Bristol-Myers and Squibb merged in 1989, one of the largest mergers in corporate
history. At the time, they formed the world’s second-largest pharmaceutical company.
Core products include: Videx (1991), Monopril (1991) and Pravachol (1991, expanded
usage granted in 1995 by the FDA), TAXOL Injection (1991), Glucophage (1993),
Avapro (1997), Plavix (1997), Excedrin (1998), Sustiva capsules (2001), Coumadin
Crystalline (2001), Abilify (2002), Reyataz (2004), Orencia (2005), EMSAM
transdermal (2006), SPRYCEL (2006), and ATRIPLA (2006).
Financial situation
2005 revenues were approximately $19 billion with profits of $3
billion, a -7.6% decrease and 25.6% increase, respectively.
(Source: CNN, Fortune 500 2006 rankings)
R&D expenditures in 2005 were $2.7 billion, up 10% from 2004;
this included $2.5 billion in payments for in-licensing and
development programs. For 1Q2006, $750 million was spent on
R&D, up 22% from the previous year.
Bristol-Myers Squibb is determined to be a leader in drug
development. Strategies include:
in-house development and collaboration
acquisition of smaller dynamic pharmaceutical companies
divestiture of non-core assets (May 2005 sale of Oncology Therapeutics
Network distribution business, and US and Canadian Consumer
Medicines business to Novartis).
Forecast I
Forecast for the future is cautiously optimistic:
New BMS blockbuster drugs may spearhead a turnaround. In the first half of
2003 two major drugs were approved: Abilify, an antipsychotic, and Reyataz, the
first once-daily protease inhibitor for the treatment of HIV/AIDS. In addition
limited clearance was given to Erbitux, the sidelined cancer drug licensed from
Imclone. Analysts at SunTrust Robinson Humphrey estimated that Erbitux sales
could peak at more than $700 million. The promising drugs signaled a potential
new beginning for the company. Morningstar projects an average revenue growth
rate of 3 percent through 2007.
 However, more generic challengers are entering the market
 There is the threat of increased competition from the large drug developers in
BMS’s core territories. (Merck, Norvartis, and Pfizer are core competition)
Forecast II
If 1Q 2006 is an indication of a trend, 2006 will be more
profitable for BMS: the company reported a 34% increase in
first-quarter profit to $714 million, helped by higher sales of
heart and blood-pressure drugs and, a $200 million gain from
selling off assets.
Revenues were up only 3% to $4.7 billion, (U.S. pharma revenues
rose 17% to $2.1 billion).
However, Erbitux sales were $413 million for the year up 58%.
Plavix, Abilify, and Reyataz sales were up 15%, 54% and 68%
respectively – definitely a bright spot for the company.
Corporate Communications at BMS
Robert T. Zito, SVP Corporate and
Business Communications and Chief
Communications Officer
Former EVP of Communications for the
Functions under Zito include brand
management, advertising, media,
employee communications, policy
communications, executive communications, creative services
and community affairs
A Brief History of Peter Dolan
Born: January 6, 1956, in Salem, Massachusetts.
Education: BA from Tufts University (1978), and MBA from
Dartmouth College (1980).
Worked at General Foods from 1983-1987. In 1988, began
working at Bristol-Myers as Vice-President of Marketing.
1995-1996: As president of the Mead Johnson Nutritional
Group, the company opened manufacturing facilities in four
countries and international sales climbed to 40 percent of the
corporation's revenue by 1996.
Was famous for setting “Big Hairy Audacious Goals” – like his
2001 promise to double BMS revenues within five years. He
would come to regret that statement, as 2002 sales totalled $18.1
billion, down 1% from 2000.
Named CEO in February 2001 and chairman in 2002.
A Brief History of Peter Dolan (cont.)
2001: Heeding calls from Wall Street, quickly jettisons auxiliary
businesses —selling Clairol, the number-one hair-color brand
and a longtime anchor product, for example — and re-focuses
on pharmaceuticals. Negotiates and invests heavily in a $2billion R&D and marketing deal with ImClone Systems
regarding the cancer drug Erbitux, which was subsequently
issued a “refusal to file” letter from the FDA . Investor outrage
over the fact that Dolan had invested in the partnership without
solid reassurance resulted in a write-down of $367 million —
most of Bristol's investment in ImClone.
Concern over BMS flagging analyst ratings and crumbling stock
Board of Directors and analysts express concern as to whether
Dolan’s meteoric rise up the corporate ladder had exposed him
to enough of the “character-building” experiences that season a
CEO and teach him to deal with adversity.
What is Plavix?
Anti-platelet medication approved by the U.S. Food and Drug
Administration to reduce the risk:
Heart attack
 Stroke
 Vascular death in patients with established peripheral arterial disease
When taken daily can help reduce risk of having a future heart
attack or stroke
Used by 48 million Americans
Marketed through a partnership with Bristol-Myers and SanofiAventis
Sanofi Aventis
Headquartered in Paris
World’s third largest Pharmaceutical (#1 in Europe)
35,000 member sales force
Sales = 27 billion euros
R&D = 4 billion euros
Has operations in more than 100 countries
Plavix and BMS Revenues
Bristol-Myers Squibb 2005 revenue was $19.2b. Plavix sales
represent about 30% of total revenues
U.S. sales of $3.8b in 2005, up 15% from 2004
Global sales of $5.9 billion
Second best selling drug in the world
$1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Founded in 1974
Largest Canadian-owned pharmaceutical company
Main business is making and selling generic pharmaceuticals
2005 sales of $740 million (Canadian)
Over 500 products
Wants to sell generic Plavix
Received FDA approval for generic Plavix in early 2006
Pharmaceutical Industry
Market Size
 Global pharmaceutical market in 2005 was $565 billion and is
growing at an estimated 7% per year
 Generic competition is the biggest threat to branded drug
 Between 2006 and 2010, at least 70 innovative brand-name drugs
are expected to go off patent in the United States
 19 of those are blockbusters (defined as a drug with annual sales
of more than $1 billion)
 Accounts for $45 billion (or roughly 8%) of the global market
Patent expiration
The following blockbuster drugs will go generic in the near
Major Potential Patent Expirations for Selected Brand Name Pharmaceuticals
Brand Name
Effexor XR
Bristol-Myers Squibb
Duodenal ulcers
Expiration Date
BMS Accounting scandal
3/10/2003 – company announces earning overstated by $2.5
Bristol-Myers admitted using “channel surfing” to inflate sales
Wholesales acquired almost $2 billion in excess inventories
Former CFO Frederick S. Schiff and former executive vice
president Richard J. Lane were indicted
Accounting Scandal
Net sales reduced by $1.4 billion for 2001, $678 million for 2000,
and $376 million for 1999
A total of $839 million was paid to shareholders harmed by
Bristol-Myers fraudulent conduct
Charges against the company are dropped pending two year
probationary period
Patent Protection Agreement
BMS negotiates with Apotex to keep generic Plavix out of the
market until June 1, 2011
Regulators (FTC and state attorneys general) refuse to sign-off
on agreement
July 2006 – investigation into the failed agreement
FBI searches Dolan’s New York office
Patent Protection Agreement Investigation
BMS allegedly agrees to pay (i.e. bribe) Apotex $40 million to
keep generic Plavix out of the market until 2011
Investigation also alleges BMS made unusual and anticompetitive concessions to Apotex and concealed the
concessions from federal regulators
Anti-competitive concession in agreement – Bristol-Myers agrees
not to sell its own generic version of Plavix for 6 months after
Apotex releases their generic
Generic Plavix
Because the agreement failed, Apotex introduces generic Plavix
in August 2006 and quickly gains 75% share of new
Generic priced 10 – 20% lower than brand-name Plavix
Court orders injunction to halt sales of generic Plavix until
patent protection case is heard in court
Court does not order a recall – supply of generic Plavix will
stretch well into 2007
Plavix Patent Trial
Trial to start January 2007
$400 million bond provided by BMS and Plavix partner SanofiAventis as security to Apotex if court rules against BMS
BMS Financial Impact
Earnings forecast lowered by 25%
EPS < dividend
Moody’s Investor Services downgraded Bristol-Myers debt to
“A2” from “A1”
Analysts expect dividend cut
Stock loses 60% of value during Dolan’s five year tenure
BMS Board Reacts
Dolan and BMS General Counsel Richard K. Willard fired on
James M. Cornelius, a Bristol-Myers director and former
executive at Guidant Corp., named interim CEO
Internal and external search for permanent CEO
Wall Street speculates that BMS may be acquired or taken over
Questions for discussion
What are the critical issues facing Bristol-Myers Squibb in this
Who are the key stakeholders in this case? How would a patent
case verdict for or against Bristol-Myers Squibb affect the
What messages does Zito need to communicate to the
stakeholder groups? How should he deliver his message to
Does Bristol-Myers Squibb need to retain an external firm to
help it craft an effective public response to Dolan’s firing or
the patent dispute?
Questions for discussion
What other actions (if any) should the board take in response
to the accounting and patent protection scandals?
What mistakes did Dolan make while negotiating with
Apotex? What else could he have done to protect the Plavix
Can corporate communication play a role in helping BristolMyers Squibb win the upcoming patent protection trial? What
can Zito and his team do?
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