Monday, July 31, 2006

Colour on BMY's Plavix news

Several firms are commenting on Bristol-Myers Squibb (NYSE:BMY) as after the market close on Friday, Maryland Assistant Attorney General Meredyth Andrus announced on behalf of the state attorneys general with whom Bristol had entered into a consent order in 2003, that the AGs "object to and will not approve" the proposed settlement of the Plavix patent litigation. The state AGs did not disclose the basis for their rejection.

* JP Morgan notes the companies - Bristol, sanofi and Apotex - can either return to court to litigate the patent dispute, or they can draft a new proposed settlement agreement for review by the FTC and the state AGs. It would be a violation of both the FTC and state consent orders for Bristol to go forward with a settlement without approval of the antitrust enforcement authorities, and the company would undoubtedly face severe legal penalties were they to attempt such a maneuver.

The likelihood of the FTC and state AGs approving a settlement agreement containing more than a nominal ($2 million) reverse payment appears very low.

If the parties decide not to continue negotiating a settlement, two big questions arise: 1) when in Judge Stein's apparently now very busy calendar will the trial be re-docketed, and 2) will Apotex launch at risk? Firm understands that the schedule of Judge Stein, to whom the Plavix case was assigned, has become fairly tight through the fall, it could easily be six months to a year before a decision is available, followed by the inevitable appeal. The significance of this timing could be lowered considerably if Apotex decides to launch generic clopidogrel at risk. The company apparently began producing an inventory of generic product and was approaching distributors about carrying it when the proposed settlement was announced. Whether this was a bluff remains to be seen.

Launching at risk would be a "bet-the-company" endeavor for Apotex, but the firm has a reputation for aggressiveness. Such a move would gut Bristol's Plavix revenues, and there would be little the company could do about it in the short term.

* Morgan Stanley (who was one of the few to voice skepticism on the proposed settlement early on) notes they believe that the most viable option for BMY is to abandon the settlement and to instead go back to court to try the Plavix case. Given this scenario, a trial date would still need to be set which may take up to a year. Assuming BMY loses the case and taking into consideration the time involved in completing such trials, the earliest we could see a generic Plavix would be 2009. This is 2 years before the Plavix patent expires and according to firm'scalculations, the resulting impact from an NPV basis would be around $1.00- $1.25, corresponding to a share value between $22-$24.

* Banc of America notes that although they view an 'at risk' launch as a low probability event, particularly ahead of a district court decision, they would note that this scenario would be downside to their estimates. Firm estimates that the NPV different between a Plavix patent win or loss as less than $1, assuming no generic competition until the completion of the appellate process. However, with US Plavix sales representing over 20% of BMY's current EPS, NT generic competition would represent $1-2 of downside to firm's $24 price target.

Believes Bristol has pushed out potential generic competition on Plavix by roughly one year through this settlement process. They are maintaining their $24 price target. Rating stays at Neutral.

Notablecalls: I expect BMY to get hit following the news. Considering the pressure the stock experienced following the DOJ news last week I think the downside is already somewhat muted. I'd be an opportunistic buyer around $22.5 level. Note that most firms see $1-$2 risk to their tgts. Just a bounce play. BMY's becoming a mess. Don't want to overstay my welcome.

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