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BMS CEO Leaves
  Bristol-Myers Ousts CEO Dolan,
Names Cornelius Interim Successor
Wall St Jnl
September 12, 2006 9:57 a.m.
Directors at Bristol-Myers Squibb Co. announced Tuesday that Chief Executive Peter Dolan will leave the company. Board member James Cornelius was appointed interim chief executive of the drug maker.
Mr. Cornelius has been a director on Bristol's board since January 2005 and has served as chairman emeritus of medical-device maker Guidant Corp. since 2000.
Bristol-Myers's general counsel Richard Willard will also leave the company. Sandra Leung, vice president and corporate secretary, was appointed as acting general counsel. Both executive changes are effective immediately.
The board had faced pressure to fire Messrs. Dolan and Willard after a federal monitor overseeing the New York company urged their dismissal last night.
The board had little choice but to accept a monitor's recommendation when directors met today to determine the fate of Messrs. Dolan and Willard. The company is operating under the terms of a deferred-prosecution agreement reached with the U.S. Attorney in New Jersey last year following a 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. If the board refuses to fire Mr. Dolan, the company could face charges in connection with the probe.
The Bristol-Myers monitor, former federal Judge Frederick B. Lacey, recommended to a special session of the company's board late yesterday 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 last year in the settlement agreement.
Mr. Lacey made his recommendation after finding Bristol-Myers's actions in pursuing a pact to delay generic competition to the company's best-selling drug, the blockbuster blood-thinner Plavix, violated the terms of the deferred-prosecution agreement, the person said. It wasn't clear what specific actions Mr. Lacey was concerned about, but companies under such agreements are broadly expected to be on their best behavior. The Plavix deal unraveled after the Justice Department's antitrust unit opened a criminal probe into it and the Federal Bureau of Investigation raided Mr. Dolan's office in July.
Mr. Dolan's removal marks the third ouster of a chief executive of a big U.S. drug company in the past 16 months, underscoring the difficulties facing an industry reeling from an unprecedented number of patent expirations, increasing litigation costs and heightened competition from nimble generic-drug makers. Though still highly profitable, branded-drug makers also face financial pressure from pharmacy-benefit managers, who use their negotiating power and quick access to new generic pills to leverage lower drug prices.
Merck & Co., Whitehouse Station, N.J., last year pushed then-CEO Raymond Gilmartin into early retirement after withdrawing the painkiller Vioxx from the market in 2004. Pfizer Inc., the world's biggest drug maker, ousted Henry McKinnell in late July, replacing him with a former lawyer. As at Bristol-Myers, the stocks of both companies have been battered in the past two years.
Under the terms of its deferred-prosecution agreement, by which it avoided charges of conspiracy to commit securities fraud, Bristol-Myers was supposed to stay out of trouble for two years to avoid an indictment. The agreement, which gave Mr. Lacey unusually broad oversight powers, also forced Mr. Dolan to surrender his chairman title to a senior member of the Bristol-Myers board, James B. Robinson III.
Mr. Lacey, who was appointed to monitor the drug maker for two years through next April, has been attending all the company's board meetings and filing regular reports to Mr. Christie. As part of the agreement, he was given free reign to recommend changes at the company to keep it within bounds.
Mr. Dolan's handling of Plavix already had put him on shaky ground with the board. After learning that the company's Plavix cash-cow was under threat from generic competition, he negotiated a deal that would have paid Canada's Apotex Inc. tens of millions of dollars to delay its introduction of a copycat drug. That pact, 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 a 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 has suggested that Apotex fabricated the allegation to torpedo the settlement.
In the meantime, Apotex used binding concessions it obtained during the negotiations to launch a knockoff version on Aug. 8, after the deal was rejected by regulators. The generic version quickly conquered 75% of the market, costing Bristol-Myers as much as $600 million in lost sales. The court overseeing the patent case ordered Apotex to stop selling the generic version on Aug. 31, but didn't force it to recall the product already in the distribution channel.
Bristol-Myers pursued the deal with Apotex even though U.S. regulators have been hostile to such agreements on the grounds that they hurt consumers by keeping lower cost versions of life-saving drugs off the market. The Federal Trade Commission has criticized similar deals and has fought one of them all the way to the U.S. Supreme Court.
The Bristol-Myers board already planned to discuss Mr. Dolan's future at its regularly scheduled meeting today, even before Mr. Lacey convened a special session yesterday. 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.
Nine board members attended last night's special session, according to a person familiar with the matter. No one from management was there, though two lawyers, Mary Jo White and Kenneth Conboy, were on hand to advise the board. After Mr. Lacey briefed board members and issued his recommendation, Mr. Christie spoke to the board and signaled he supported Mr. Lacey's recommendation. The recommendation to fire the two executives "was made from a corporate-governance perspective in the handling of the patent issue over Plavix," the person familiar with the matter said, declining to provide further details.
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