Generic of popular Bristol clot drug hits market

By Lewis Krauskopf and Ransdell Pierson

NEW YORK (Reuters) - Canadian drugmaker Apotex Corp. on Tuesday launched a generic version of Bristol-Myers Squibb Co.'s

blockbuster Plavix anti-clotting medicine, threatening Bristol-Myers' earnings outlook and dividend.

Shares of Bristol-Myers closed down $1.56 or 6.9 percent to $21.21. The decline comes after a 4.4 percent drop on Friday, when a leading pharmacy benefit manager forecast generic Plavix sometime in 2006.

Bristol-Myers on Tuesday disclosed terms of an agreement reached with Apotex earlier this year that subjects the privately held Canadian company to a far smaller financial risk of launching its product than analysts had expected.

The generic is expected to quickly erode sales of Plavix, Bristol's biggest product with annual U.S. sales of about $4 billion. New York-based Bristol-Myers derives 30 percent of its profit from the drug, which it sells in the United States for French drugmaker Sanofi-Aventis

A.G. Edwards analyst Al Rauch said he expects Bristol-Myers to cut its dividend by as much as 50 percent "within the next quarter or two" as Plavix sales dry up -- a move he speculates could send shares as low as $11.

Bristol-Myers, already hurt by generic competition for its other medicines, will now likely see its 2006 profit fall about 23 percent, Rauch said. He expects profits to plunge another 36 percent in 2007, depressing its share price to the point that other drugmakers might be tempted to take over the company.

"In a year or so Bristol might be attractive again to investors; but first they may need to go through the Valley of Death to get to the other side," Rauch said.

Bristol-Myers spokesman Tony Plohoros declined to comment on whether the company would cut its annual dividend -- the highest in the industry with a yield of 4.9 percent -- or when it might do so. "We will evaluate 2006 (earnings) guidance and the dividend based on events as they unfold."

In a letter to employees, company chief executive Officer Peter Dolan said it was too early to assess how badly the generic would hurt Plavix sales. But he said "it is important to remember that we have a number of key growth products" that will support future company earnings.

Bristol-Myers and Sanofi can try to try to block Apotex's generic five business days after its launch, by seeking a preliminary injunction, but by then it might already be widely distributed to U.S. drug stores.

Apotex said it expects to be the lone seller of generic Plavix for six months; but analysts said there is a strong possibility that Bristol-Myers could soon launch its own authorized generic form of Plavix. In either case, the generics are expected to give consumers a cheaper alternative.

DAMAGES ARE LIMITED

Under the previous settlement reached among Apotex, Bristol-Myers and Sanofi-Aventis, Apotex would have delayed selling its generic until 2011. But a group of state attorneys general late last month rejected the deal.

Bristol-Myers, which has had to pay large penalties in recent years for aggressively blocking generic forms of its other drugs, is now facing a U.S. criminal antitrust probe of the Plavix settlement.

Bristol-Myers and Sanofi had sued Apotex, alleging patent infringement, but the court battle was delayed because of the now-doomed settlement. Analysts have predicted the case will now resume next year.

Generally, when a company launches a generic that is later found to have infringed patents on the branded product, the generic drug producer risks having to pay damages three times the amount of the branded product's lost sales.

However, according to terms of the deal made public on Tuesday, Bristol-Myers and Sanofi agreed to waive their right to seek triple damages. Instead, damages were limited to a range of 40 to 50 percent of Apotex's net sales from its generic. Bristol made its disclosures in its quarterly filing with regulators.

Analysts said the surprisingly favorable terms to Apotex suggest Sanofi and Bristol-Myers had little faith they would prevail in the patent battle.

"Both Apotex and BMS/Sanofi-Aventis made concessions as part of a negotiations process, having concluded it was in the best interest of the companies and their respective shareholders to pursue an overall settlement," Bristol-Myers' Plohoros said.

Bristol-Myers and Sanofi said they are evaluating their legal and commercial options as well as possible remedies under the agreement with Apotex.

Bristol-Myers shares have fallen about 8 percent so far this year, versus a 6.5 percent rise for the American Stock Exchange Pharmaceutical Index of large U.S. and European drugmakers.

Sanofi-Aventis shares slipped 0.4 percent in Paris.

(Additional reporting by Caroline Jacobs in Paris and Bill Berkrot in New York)

Source Reuters