Bristol-Myers Squibb (NYSE:BMY) announced today that CEO Peter Dolan will leave the position of chief executive officer, effective immediately. This announcement stems from the recommendation of a court-appointed monitor to the Board that Mr. Dolan and General Counsel Richard Willard be dismissed from the company because of their failed efforts to protect sales of the company's drug Plavix. This latest accusation is only one in a long string of corporate mishaps for Mr. Dolan and the company's management.
The troubles began in 2005 when the company became embroiled in an accounting scandal. Federal prosecutors were concerned that the company was engaging in an illegal practice known as "channel stuffing" by providing wholesalers with more product than they could sell in order to inflate the company's income and earnings. Since any federal indictments would have caused substancial damages to the company and its shareholders, the government settled the case by making the company promise to keep accurate records from then on and maintain the utmost corporate transparency. In addition, the company was assigned a court-appointed monitor, to make sure the company kept its records squeeky clean.
Meanwhile, investors were furious as the whole ordeal tarnished the company's image. However, it was the events that unfolded afterwards baffled investors and ultimately caused the removal of Peter Dolan as CEO. Recently, the company had been in negotiations to prevent the Canadian company Apotex from producing generic versions of its most popular drug - Plavix. Note that Plavix is the world's second most popular drug with sales of over $4 billion per year - it also accounts for 30% of BMY's revenues. The negotiation involved paying Apotex to halt production of the drug until 2011, when the drugs patents expire. However, BMY inexplicably abandoned its rights to triple damages should its patent prevail at trial. As a result (since Apotex faced no penalties), the market was instantly flooded with generic versions of Plavix. Analysts and investors were shocked and confused, while the company struggled with damage control. Now, federal antitrust prosecutors are investigating the sour deal while the court-appointed monitor recommended the removal of the officers responsible.
Shares of BYM moved higher by nearly 4% on the news today despite the fact that most of the damage had already been done. Now after the company's rollercoaster ride from $26 to $20 back to $24, there is speculation on the street that this may clear the way for a possible buyout. What happens as a result of the investigation remains to be seen; however, this is yet another example of just how illogical management can act.