- The Washington Times - Friday, July 12, 2002

NEW YORK (AP) The Securities and Exchange Commission is investigating Bristol-Myers Squibb Co. to determine whether the drug giant improperly inflated its revenue last year by as much as $1 billion through sales incentives to wholesalers, a company official said yesterday. Its shares fell 4.5 percent.
Bristol-Myers spokesman Bonnie Jacobs said the company is cooperating with the investigation.
The probe started in April, when Bristol-Myers announced that the inventory glut caused by incentives would slash this year's earnings up to 50 percent. Bristol-Myers said the SEC hasn't told the drug company that it acted improperly in addressing the inventory situation. The SEC didn't return calls for comment.
The investigation comes as the government probes the accounting practices of a number of companies including Enron and WorldCom, and investors have become increasingly suspicious of corporate financial reports. Earlier this week, Merck & Co. had to pull an initial public offering to spin off one of its units because of concerns over its accounting.
In trading on the New York Stock Exchange, Bristol-Myers shares fell $1.04 to close at $22.11 yesterday.
The probe centers on whether it was appropriate for the company to offer wholesalers generous incentives to buy drugs last year to help the company meet earnings projections.
Offering incentives to wholesalers is common practice in the industry, but Bristol-Myers' program was considered aggressive. Pharmaceutical companies often hint at price increases allowing wholesalers time to stock up on products. This way, drug companies' sales increase and so do wholesalers' margins.
"Programs of this magnitude are simply not usual," Barbara Ryan, a managing director at Deutsche Bank, said of Bristol-Myers actions.
She is outraged that Bristol-Myers didn't disclose the inventory glut until April when analysts had suspected it last year. But she said the problem is not on a par with accusations about Enron or WorldCom.
"There were not off-balance-sheet financing going on here. This is something that, when the inventory is written down, the problem will be over," she said. "The investigation is not a good thing. In this environment, I guess the SEC felt they need to look into it."
She said Bristol-Myers' failure to disclose the inventory problem earlier continues to linger because it is one of various missteps by management. The company's former president of the drug division, Richard Lane, and former Chief Financial Officer Fred Schiff left because of the glut.
The SEC investigation puts more pressure on Bristol-Myers Chief Executive Officer Peter Dolan, who is already under scrutiny for a series of risky moves to help bolster sales that have been hurt by generic competition.
"I don't understand why Dolan still has a job," Mrs. Ryan said.
She said Bristol-Myers will resist restating last year's earnings because Mr. Dolan's $1.3 million bonus was dependent on the company's performance.
"Investors are voting on Dolan's performance with their feet."
Last year, Bristol-Myers overpaid to buy DuPont's drug business for $7.8 billion, analysts said. Now its $2 billion stake in ImClone Systems is in danger after regulators rejected an application for the company's cancer drug, Erbitux.

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