Bristol-Myers Squibb Drama Symptomatic of Greater Industry Ills

The lesson to be learned from this week's news of ousted Bristol-Myers Squibb CEO Peter Dolan may have less to do with missteps at the drug company than the health of the pharmaceutical industry, and should serve as a wake-up call to drugmakers too dependent on single blockbusters.

That's the opinion of long-time industry expert Gil Bashe, executive vice president and head of the healthcare group at Makovsky & Company in New York. Bristol-Myers announced on Tuesday that the Board of Directors asked Dolan to leave.

Dolan served as CEO of Bristol-Myers for five years. During that time, the company weathered an accounting scandal, questionable business deals and plummeting stock prices. However, the final straw for the board may be the unexpected timing of a generic competitor to its patented blood thinner Plavix--a drug it co-markets with Sanofi-Aventis and which generates $3.1 billion a year in sales. The matter is in litigation.

"Large infrastructures are dependent on billion-dollar drugs, and as patents expire for the biggest blockbusters, [the current] pipelines can no longer support those structures," says Bashe.



With blockbuster drugs such as Pfizer's Lipitor and Zoloft also approaching the end of their patent protection, it could translate into a slowdown in spending on DTC pharmaceutical advertising. While DTC spending was up 2 percent in July versus the prior year, the year-to-date spending is lagging from last year's average increase of 8 percent.

Pharmaceutical companies have built blockbusters out of drugs addressing quality-of-life issues--with an array of drugs for erectile dysfunction, allergies and insomnia--and conditions such as depression, cholesterol, and high blood pressure. But big pharma's next focus areas--such as cancer, Alzheimer's, Parkinson's and other degenerative diseases--are more complicated and will take longer to develop, Bashe says. The real issue for Bristol-Myers, he adds, is that its pipeline is not robust enough.

Ironically, the patent life of Plavix is unknown, as the expiration date is being litigated. Still, Goldman Sachs analyst James Kelly estimates that in 2010, when Plavix is expected to come off patent, it will still represent 25 percent of Bristol-Myers' gross profit.

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