Markets

BMS Settles Plavix Allegations for Pennies; Ex-CEO Dolan Vindicated (Slightly)

By Jim Edwards

Updated on: March 20, 2011 / 2:34 PM EDT / MoneyWatch

Bristol-Myers Squibb will pay $2.1 million to settle FTC allegations it made false statements regarding its deal over bloodthinner Plavix with Apotex, according to the WSJ.

The news means that BMS has settled all its regulatory troubles over Plavix with the FTC and the states for a total of just $4.2 million. That's a sum so small it's a mere rounding error in BMS's economics.

It also begs the question, was the exit of former CEO Peter Dolan more about bad timing than bad actions? Dolan resigned in 2006 after a deal he struck with generics company Apotex to keep generic Plavix off the market backfired.

Pharma companies attempt to strike these deals all the time; Dolan's maneuvering was not unusual. Since 2005, the courts have allowed such deals.

That was the context when Dolan offered to pay Apotex not to produce generic Plavix. The Plavix patent officially expires in 2011. Apotex was willing to take the risk in 2006 that the patent could be declared defective in a legal challenge, and threatened to start producing cheap pills that would wipe out BMS's Plavix business.

But Dolan's deal contained a loophole: If the authorities frowned upon the deal, Apotex would begin Plavix production and BMS would have to wait five days before suing Apotex to stop it. The feds did indeed not like the deal, and in that five days, Apotex flooded the market with months' of supply.

BMS later got an injunction to stop the production, and the next year a court declared BMS's patent valid.

But Dolan was blamed for allowing the five-day window in the deal, which may have cost BMS more than $1 billion in sales.

Here's the timeline:

Dolan strikes deal with Apotex: BMS will pay Apotex not to bring a generic to market. If regulators nix the deal, Apotex will be given a five-day window in which it will be allowed to produce Plavix. After those five days, BMS can sue Apotex to stop production.
Aug.8 2006: Apotex floods market with generic Plavix for five days. BMS then obtains an injunction stopping production.
Aug. 31, 2006: Court ruling suggests -- but doesn't guarantee -- Plavix patent is valid.
Sept. 12, 2008: Dolan ousted.
June 2007: Court says Plavix patent is valid.
Nov. 17, 2011: Plavix patent expires.

When all this happened, Dolan was already under a cloud because of his decision to acquire a stake in ImClone. That company then experienced delays getting cancer drug Erbitux to market. And BMS had been at the center of a channel-stuffing scandal on his watch, in which the company was accused of inflating its quarterly numbers by sending unsold inventory to wholesalers.

Fast-forward to today: The Plavix litigation cost BMS laundry quarters and the ImClone deal resulted in a ton of revenues from Erbitux plus a $1 billion cash payment when Eli Lilly acquired ImClone outright.
Dolan's key error seems to have been striking a deal that he believed would keep Plavix off the market. He was forced to resign for being unlucky. Which is ironic, because the channel-stuffing scandal was to do with bad intent, not bad luck. Had BMS forced him to resign after that, maybe the incoming CEO would not have struck the Apotex-loophole deal ... and somewhere in a parallel universe BMS shareholders are slightly richer than they are today.