By Brooke A. Masters
Washington Post Staff Writer
Wednesday, September 13, 2006
NEW YORK, Sept. 12 -- Drugmaker Bristol-Myers Squibb Co. pushed out its chief executive, Peter R. Dolan, on Tuesday at the urging of a federal monitor who was looking into how top management dealt with generic competition for Plavix, its top-selling heart drug.
Bristol's board announced the departure of Dolan, its chief executive since 2001, and general counsel Richard K. Willard one day after the company's independent directors met with the monitor, Frederick B. Lacey, and Christopher J. Christie, the U.S. attorney for New Jersey.
The New York firm has been operating since last year under a deferred prosecution agreement with Christie that resolved an earlier, unrelated accounting scandal by requiring it to stay out of trouble for two years and allowing Lacey, a former judge, to call for management changes, as he did Monday night.
Bristol Chairman James D. Robinson III said in a conference call that the board unanimously agreed that Dolan had to go. Neither he, Lacey nor Christie would describe specifically what concerned Lacey enough to recommend Dolan's termination.
Although Bristol could have tried to negotiate to keep Dolan, the board chose not to because the Plavix situation and other "failures have caused a loss of confidence," Robinson said. "It was time for a change."
The board temporarily replaced Dolan with James M. Cornelius, a Bristol director and a former chief executive of medical-equipment manufacturer Guidant Corp., where he served in a similar capacity after a scandal there in 2004.
Dolan's ouster is one of the highest-profile management changes at a company operating under a deferred prosecution agreement. Prosecutors often seek new management as part of such settlements -- Bristol named an independent chairman as part of its initial deal -- but subsequent changes are far less common.
Christie's spokesman, Michael Drewniak, said that the U.S. attorney "was fully supportive of Judge Lacey's recommendations" for management change but noted that "there was no finding of a violation of the [agreement] or criminal wrongdoing."
The Plavix issue arose earlier this year after Bristol attempted to strike a deal with Apotex Inc. to keep its competing generic version of the blood-thinning drug off the market until 2011. State attorneys general rejected the deal as anti-competitive, and the Justice Department has opened an antitrust investigation separate from Christie's probe.
Apotex put its product on sale this summer, and it quickly captured 75 percent of the market; Bristol sued for patent infringement and won a preliminary injunction halting further production, but the judge declined to recall the generic medicine already on the market. The case is to be heard in January.
Robinson, Bristol's chairman, said the firm's outside counsel had assured the board Monday night that it had "no reason to believe there was anything unlawful done by anyone at Bristol-Myers Squibb" in connection with the Apotex agreement.
The Plavix dispute is not related to the accounting problems that first got Bristol in trouble. In that case, Bristol was accused of pushing an excess amount of its products on its distributors, a process known as "channel-stuffing." The firm paid $300 million in restitution and agreed to two years of monitoring by Lacey, who has attended board meetings and made quarterly reports to Christie.
Lacey declined via e-mail to comment on his work as monitor. His intervention at Bristol comes as deferred prosecution agreements are becoming far more common.
Once a tool aimed primarily at keeping individual offenders on the straight and narrow, these agreements are now being used to resolve corporate cases in which government investigators think they have found serious wrongdoing but worry that a criminal indictment could put a large public company out of business.
Last month, the brokerage arm of insurance giant Prudential Financial Inc. signed a deferred prosecution agreement to resolve allegations that brokers in its Boston office helped big investors evade rules against short-term trading of mutual funds. Computer Associates International Inc., now known as CA, entered into a similar deal after its top executives were accused of criminal accounting fraud.
"The law on the books is so wooden. Prosecutors had a choice between prosecuting [entire corporations] for the sins of their employees and companies getting off scot-free," said Fordham University law professor Daniel Richman. Deferred prosecutions "really have created a third choice," he said.
Legal analysts said the leadership change at Bristol shows that prosecutors are serious about keeping the pressure on companies that have engaged in wrongdoing. "I see it as encouraging that we have monitors who are doing what they are supposed to do, which is rolling heads," said James D. Cox, a law professor at Duke University.
Although some analysts raised concern that federal prosecutors were getting involved in corporate governance, Samuel W. Buell, a law professor at Washington University in St. Louis, pointed out that when corporations are convicted of crimes -- as opposed to entering into a deferred prosecution agreement -- probation and monitoring are almost always part of the resulting sentence.
Robinson said Bristol's board had not discussed a severance package for Dolan, whose departure he described as "involuntary."
Cornelius, a former Eli Lilly & Co. executive who helped Guidant through a regulatory inquiry into malfunctioning heart defillibrators and a bumpy merger with Boston Scientific Corp., was upbeat on the conference call with reporters. "Our financial strength here at Bristol-Myers Squibb is outstanding," he said. "The new product pipeline is one of the best in the future that I've ever seen."
The stock market greeted the leadership change with enthusiasm. Bristol-Myers shares, which have lost more than half their value during Dolan's five-year tenure, closed at $24.32, up 93 cents, or nearly 4 percent.