Having fired its chief executive, Bristol-Myers Squibb Co. ignited speculation that the drug maker could be opening the door to a takeover by selecting an interim successor who sold off the last company he led.
Bristol-Myers's board named one of its members, James M. Cornelius, as interim chief executive officer yesterday after firing CEO Peter R. Dolan and General Counsel Richard Willard following the recommendation of a federally appointed outside monitor.
In his last job, Mr. Cornelius oversaw the sale of medical-device maker Guidant Corp. -- where he also served as interim chief executive -- to Boston Scientific Corp. for $27 billion earlier this year. During those sale negotiations, Mr. Cornelius successfully played Boston Scientific off Johnson & Johnson to get a better price for Guidant shareholders despite a scandal affecting the company's heart defibrillators.
Investors have long speculated about a takeover of Bristol-Myers, which is considered to have one of the best research pipelines in the pharmaceutical industry but is struggling to maintain profits from its blockbuster drugs. The choice of Mr. Cornelius, 62 years old, gives such a scenario more credence, analysts say.
"We believe, given Cornelius's background, that the market will continue to raise the possibility of Bristol as a takeover candidate," said Chris Schott, an analyst with Bank of America, in a research note he sent to clients yesterday.
Exasperated by the repeated missteps that occurred under Mr. Dolan's watch, some shareholders have been urging the board to sell the company. Last month, Dan Flaherty, a longtime shareholder and former Bristol-Myers executive, wrote a letter to Chairman James D. Robinson III, copied to eight other directors, in which he called a sale of Bristol-Myers "a no-brainer."
In a conference call with reporters, Mr. Robinson said the board would "deal with any bona fide proposals that anyone wants to make" with proper consideration, but he declined to comment further on takeover speculation.
In firing Messrs. Dolan and Willard, the Bristol-Myers board gave in to the demands of Frederick B. Lacey, a former federal judge who has been overseeing the company since last year at the behest of the U.S. attorney for New Jersey, Christopher Christie. Mr. Lacey concluded that the two executives had failed to adequately apprise the board of actions they took to try to delay the launch of a generic version of the company's best-selling drug, the blood thinner Plavix.
Bristol-Myers didn't technically violate the terms of the deferred-prosecution agreement that Bristol-Myers reached with Mr. Christie last year after his three-year investigation into a previous financial scandal at the company. But "there were serious issues of concern" about the way top executives communicated with the board during the Plavix negotiations, said a person familiar with the situation.
Because Bristol-Myers was operating under the constraints of the deferred-prosecution agreement and a consent decree from the Federal Trade Commission, Messrs. Dolan and Willard should have consulted with the board every step of the way when they sought to negotiate a deal with Canada's Apotex Inc., the maker of generic Plavix, the person familiar with the situation said. Instead, they kept the board only vaguely informed, said this person, who attended a meeting of Mr. Lacey with directors late Monday.
The deal with Apotex, intended to settle patent litigation between the companies and to push back the introduction of generic Plavix to 2011, unraveled in late July when the Justice Department's antitrust division opened an investigation into it and state attorneys general rejected it.
In particular, Messrs. Dolan and Willard should have checked in with board members before letting Andrew Bodnar, one of Mr. Dolan's lieutenants, travel on his own to Toronto twice in May for one-on-one negotiations with Apotex Chief Executive Barry Sherman, said the person familiar with the matter. Those trips were approved by the two executives, but the board only learned of them later.
"There was a failure by some folks to fully appreciate the downside risks from a legal and business perspective" of the Bodnar trips and other actions taken during the talks with Apotex, the person said.
Mr. Lacey is working on a report summarizing his review of the Apotex negotiations and may make further corporate-governance recommendations to the board as he compiles it.
On the conference call, Mr. Robinson declined to go into the details of why the monitor recommended that Messrs. Dolan and Willard be dismissed. He said Mr. Lacey's recommendation had been a factor in Mr. Dolan's firing but "not the driver" because the board had already been considering removing him. "Any CEO is held accountable for both the successes and the failures," Mr. Robinson said.
Apotex launched its cheaper, generic version of Plavix on Aug. 8 by exploiting concessions it wrung from Bristol-Myers during their negotiations. Although the federal court in New York overseeing the patent case between the companies ordered Apotex to halt its sales of the generic version on Aug. 31, it didn't force it to recall the product it had already shipped. Bristol-Myers has said the sales it has lost to the generic could approach $600 million.
Mr. Robinson said he would lead a committee that will search for a permanent successor to Mr. Dolan. In accepting his interim assignment, Mr. Cornelius told the board that he didn't want to be considered a candidate for the permanent job, Mr. Robinson said. Bristol-Myers has picked Egon Zehnder International as its recruiter for the search.
Mr. Cornelius joined the Bristol-Myers board last year. He was chairman and chief executive of Guidant from September 2004 through April 2006, during which time he oversaw the sale of Guidant to Boston Scientific after the prolonged bidding war involving J&J. Before joining Guidant, Mr. Cornelius spent 28 years at Eli Lilly & Co.
Mr. Robinson said Mr. Cornelius planned to make no change to Bristol-Myers's strategy of focusing on 10 specialty-disease areas, which Mr. Dolan instituted early in his tenure. He said the company would first and foremost focus on continuing to protect the Plavix franchise, which brings nearly $4 billion in revenue a year to Bristol-Myers. The Plavix patent case goes to trial in January.
Though he was dismissed, Mr. Dolan wasn't fired for cause, Mr. Robinson said. That means Mr. Dolan, who holds 425,000 shares of restricted stock valued at $10.2 million and 3.1 million stock options, will likely be given a severance package and a pension, said Brian Foley, a compensation consultant in White Plains, N.Y. Mr. Robinson said the package hadn't yet been negotiated.
Bristol-Myers shares were up 4%, or 93 cents, at $24.32 in 4 p.m. New York Stock Exchange composite trading.
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