Bristol Interim CEO Pick Fuels Acquisition Rumors, Complicating Search

Bristol-Myers Squibb's search for a new CEO may be complicated by the widespread belief that the company is an acquisition target.

Bristol's Board of Directors announced the termination of CEO Peter Dolan and General Counsel Richard Willard Sept. 12, effective immediately.

The management changes come on the heels of a failed settlement agreement with generic drug manufacturer Apotex over Bristol's blockbuster antithrombotic Plavix that prompted an investigation by the Department of Justice - and reportedly an FBI raid on Dolan's office (¹ , p. 3).

The board appointed Director James Cornelius interim CEO and VP and Corporate Secretary Sandra Leung interim general counsel. Cornelius told the board that he is not a candidate for the permanent position.

The selection of Cornelius, who joined Bristol's board in 2005, immediately added fuel to acquisition rumors; Cornelius, who served as interim CEO of Guidant in 2005 and early 2006, was responsible for negotiating Boston Scientific's acquisition of the device firm.

During a Sept. 12 media call announcing Dolan's termination, Chairman James Robinson gave further credence to the acquisition buzz, stating that the board "will deal with any bona fide proposals that anybody wants to make."

A new round of rumors was set off by a Sept. 15 Newark Star-Ledger article reporting that Schering-Plough is considering seeking a merger with Bristol, offering CEO and turnaround specialist Fred Hassan a chance to lead the combined entity, which has increased the uncertainty of Bristol's future.

The acquisition discussions may make it difficult for Bristol to attract strong CEO candidates, particularly from outside, because the board will have to convince them that they will have an adequate opportunity to establish a new direction for the company.

Robinson, who will chair the search committee, said both internal and external candidates will be considered. The company has employed executive recruitment firm Egon Zehnder International to assist in the search.

The review committee consists of the chairs of the board committees: Retired AT&T CEO Robert Allen (governance), Lockheed Martin CEO Vance Coffman (audit), Harvard Medical School Professor of Medicine Laurie Glimcher (scientific advisory), and Textron Inc. CEO Lewis Campbell (compensation and management development).

While the committee will review internal candidates, no one from Bristol's senior management jumps out as a clear successor to Dolan. Among others, Bristol's senior management team includes Worldwide Pharmaceuticals President Lamberto Andreotti, CFO Andrew Bonfield, U.S. Pharmaceuticals President Anthony Hooper and Pharmaceutical Research Institute President Elliott Sigal.

Given Bristol's recent spate of legal problems - the Plavix investigation follows a 2005 settlement with the Securities & Exchance Commission over alleged channel stuffing - the board may be inclined to select an external candidate to signal to investors their desire to take the company in a different direction.

Pfizer's board took a somewhat similar approach in appointing relative newcomer Jeffrey Kindler to succeed Hank McKinnell as CEO, rather than choosing one of McKinnell's long-time deputies (² (Also see "Pfizer Set For “Fundamental And Sustained” Change Under New CEO Kindler" - Pink Sheet, 7 Aug, 2006.), p. 3).

One of the individuals passed over in Pfizer's selection of Kindler as CEO, Human Health President Karen Katen, is one potential candidate to take over at Bristol; while Katen lacks chief executive experience, she did oversee Pfizer's largest business unit, a division larger than most pharma companies.

If the board is interested in Katen's services, they will have to wait; she has agreed to put her personal plans on hold until early next year at Kindler's request (³ (Also see "“One Pfizer” Restructuring Initiative Divides R&D And Sales Operations" - Pink Sheet, 21 Aug, 2006.), p. 3).

Former Abbott Chief Operating Officer Jeffrey Leiden is another possibility. Leiden left Abbott in March after a five-year run heading the firm's drug division (⁴ (Also see "Abbott COO Succession: Leiden Leaves, Gonzalez Takes Over Pharma Group" - Pink Sheet, 27 Mar, 2006.), p. 12).

Another potential successor to Dolan is Johnson & Johnson Chairman and Worldwide Medicines & Nutritionals head Christine Poon. Prior to joining J&J in 2000, Poon worked for Bristol for 15 years, most recently serving as president for international medicines.

Other Bristol alum possibilities include former Exec VP/President-Americas Donald Hayden, who left the company in 2005 after 24 years to pursue his goal of becoming CEO of a health care company.

Regardless of who is chosen, Bristol is "going to move in a very expeditious fashion of finding a full-time CEO," Cornelius, who spent 28 years at Lilly before moving to Guidant as part of the device firm's spin-off, said during the conference call.

The plan to quickly find a permanent successor corresponds with one of the firm's three priorities under the interim management: stabilizing the company.

However, Bristol's "priority number one is Plavix, Plavix, Plavix," Robinson said. "We intend to vigorously defend our patent rights and are very pleased with the extensive" preliminary injunction granted by the court.

The final priority "is to support the growth drivers and the R&D that relates to that," Robinson said.

Dolan's termination follows the advice of the company's federal monitor, former Federal Judge Frederick Lacey. Lacey began serving as an independent advisor to Bristol in 2003, and he was kept on as part of the settlement with the SEC (⁵ , p. 17).

During a Sept. 11 board meeting, Lacey recommended that the board terminate both Dolan and Willard. Bristol reported that the recommendation "followed an inquiry by the Monitor and the U.S. Attorney into issues related to corporate governance in connection with the negotiation of a settlement agreement of the pending Plavix patent litigation with Apotex."

Robinson maintained that Lacey's recommendation was "not the driver" of the management change. While Lacey's advice "was an important consideration...there are a whole host of factors that go into making business judgements," he said.

As part of the SEC settlement, Bristol reached a deferred prosecution agreement with the New Jersey U.S. Attorney's office, under which it has two years to comply with all the terms or face prosecution.

Robinson acknowledged that under the agreement, "we would have to follow the recommendation" by the monitor, although it could be appealed by the board.

Also as part of the agreement, Bristol separated Dolan's CEO and chairman duties, appointing Robinson non-exec chairman. This clause may explain why he was not chosen to serve as interim CEO.

Robinson said that Dolan was not fired "for cause" and that "the details of any severance agreement will be in accordance with company policy."

While recommending Dolan's release, Lacey concluded that Bristol's actions did not violate the deferred prosecution agreement. Bristol noted that "the U.S. Attorney for New Jersey, Christopher J. Christie, also attended a portion of the board meeting" where Lacey advocated the management changes.

Bristol said, however, that Lacey's "inquiry did not involve any matters that are the subject of the ongoing investigation by the Antitrust Division of the Department of Justice into the Plavix settlement agreement." No findings have yet been released.

During the meeting, board members also heard an update from outside counsel, former U.S. Attorney Mary Jo White (Debevoise & Plimpton), on Bristol's internal investigation into the Plavix matter.

According to Robinson, based on the internal investigation thus far, "they have found no reason to believe that there was anything unlawful done by anybody at Bristol-Myers Squibb." Robinson noted that former Federal Bureau of Investigation Director Louis Freeh, a board member, has been retained to monitor its legal initiatives related to the investigation.

When asked what the company should have done differently in terms of the Plavix settlement, Robinson said: "In hindsight, maybe we shouldn't have negotiated in the first place because we were negotiating in good faith. [I'm] not sure that was reciprocated."

The management change also created a void in the leadership of the Pharmaceutical Research & Manufacturers of America, where Dolan was chairman. Vice Chairman and Amgen CEO Kevin Sharer has been chosen to replace Dolan as head of the trade group.

- Kathryn Phelps