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Bristol-Myers Squibb

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					Bristol-Myers Squibb
PATENTS, PROFITS, AND PUBLIC SCRUTINY
Agenda
   Overview of case issues
   Bristol-Myers brief history and general information
   Financials
   Forecast
   Peter Dolan bio
   Plavix information
   Apotex
   Pharmaceutical industry
   Generic competition
Agenda
   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
    declares:
       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 Money.com, 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.

Source: http://www.contractpharma.com/articles/2006/07/bristol-myers-squibb.php
Corporate Communications at BMS

   Robert T. Zito, SVP Corporate and
    Business Communications and Chief
    Communications Officer
   Former EVP of Communications for the
    NYSE
   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 $2-
    billion 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
    price
   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 Sanofi-
    Aventis
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
                                     Revenue

           $3,500
           $3,000
           $2,500
           $2,000
           $1,500
           $1,000
            $500
             $-
                    1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Apotex

   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

Competition
 Generic competition is the biggest threat to branded drug
  makers
 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
    future

Major Potential Patent Expirations for Selected Brand Name Pharmaceuticals
Brand Name         Company                Indication        Sales              Expiration Date
Zocor              Merck                  Hyperlipidemia                 4.4              Jun-06
Prevacid           TAP                    Duodenal ulcers                3.8              Nov-09
Zoloft             Pfizer                 Depression                     3.1              Jun-06
Effexor XR         Wyeth                  Depression                     2.6              Jun-08
Norvasc            Pfizer                 Hypertension                   2.6              Sep-07
Risperdal          Janssen                Schizophrenia                  2.3              Dec-07
Fosamax            Merck                  Osteroporosis                    2              Feb-08
Pravachol          Bristol-Myers Squibb   Hyperlipidemia                 1.7              Apr-06
Ambien             Sanofi-Aventis         Insomnia                       1.6              Apr-07
Zyrtec             Pfizer                 Allergies                      1.4              Dec-07
BMS Accounting scandal
   3/10/2003 – company announces earning overstated by $2.5
    billion
   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 anti-
    competitive 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 prescriptions
   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 Sanofi-
    Aventis 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
    9/12/2006
   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
    case?
   Who are the key stakeholders in this case? How would a
    patent case verdict for or against Bristol-Myers Squibb affect
    the stakeholders?
   What messages does Zito need to communicate to the
    stakeholder groups? How should he deliver his message to
    them?
   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 patent?
   Can corporate communication play a role in helping Bristol-
    Myers Squibb win the upcoming patent protection trial? What
    can Zito and his team do?