Bristol-Myers Squibb is a global BioPharma company firmly focused on its Mission to discover, develop and deliver innovative medicines that help patients prevail over serious diseases.
Around the world their medicines help millions of people in their fight against cancer, cardiovascular disease, diabetes, hepatitis B, and psychiatric disorders.
The strategy is working. For the past three years, their total return for shareholders, including dividends, has been among the best in the industry. Bristol-Myers Squibb outperformed most mega pharma companies, diversified companies and pure biotech companies. Reflecting their long-standing commitment to deliver shareholder value, their company has paid dividends to stockholders for more than 300 consecutive quarters.
In addition, they have delivered nine products to patients in the past seven years. And there are more medicines on the way. We anticipate up to six additional regulatory approvals or submissions through 2012.
Bristol-Myers Squibb R&D organization is considered among the most productive in the industry. And the String of Pearls strategy of innovative alliances, partnerships and acquisitions further enhances their internal capabilities. Their full array of 10 pearls encompasses many of their key disease areas, including cancer, cardiovascular disease, immunology, neuroscience and virology.
Company history
Bristol Myers Squibb often referred to as BMS, is a pharmaceutical company, headquartered in New York City. The company was formed in 1989, following the merger its predecessors Bristol-Myers and the Squibb corporation. Squibb was founded in 1858 by Edward Robinson Squibb in Brooklyn, New York, while Bristol-Mayers was founded in 1887 by William McLaren Bristol and John Ripley Myers in Clinton, New Year.
Lamberto Andreotti became the company's CEO on May 4, 2010. former CEO James M.Cornelius remains chairman of the Board of Directors.
BMS's primary R&D sites are located in Princeton, New Jersey (formerly Squibb) and Wallingford, Connecticut (formerly Bristol-Mayers), with other sites in Hopewell and New Brunswick, New Jersey, and in Braine-I'Alleud, Belgium, and Tokyo.
In November 2009, Bristol-Myers Squibb announced that is was "splitting off" Mead Johnson Nutrition by offering BMY shareholders the opportunity to exchange their stock for shares in Mead Johnson. According to Bristol-Myers Squibb, this move is expected to further sharpen the company's focus on biopharmaceuticals.
In 2005, BMS was among 53 entities that contributed the maximum of $250,000 to the second inauguration of President George W.Bush.
BMS is a Fortune 500 Company (number 129 in 2007 list). Newsweek's 2009 Green Ranking recognized Bristol-Myers Squibb as 8th among 500 of the largest U.S. corporations. Also, BMS was included in the 2009 Dow Jones Sustainability North America Index of leading sustainability-driven companies.
In August 2009, BMS acquired the biotechnology firm Medarex as part of the company's "String of Pearls" strategy of alliances, partnership and acquisitions.
Causes for failure in Bristol-Myers Squibb:
Corporate Governance Functions including top management, Board of Directors and Audit Committees
Fraud Detection in Corporate Governance
Bristol-Myers Squibb's auditor had been missed the past five Board meetings of the company. The company's Board Chairman sent him on a two month ski vacation to Aspen for a reason that auditor needed to rest. The sixth Board meeting began and the auditor walk in late. The board is discussing a proposal from chairman.
Wall Street analysts have downgraded our stock from "buy" to "hold". The proposal to be voted on is about a plan to sell an abortion drug called ZT444 to women in certain developing Arab nations in the Middle-East. This plan has been expanded to include Israel. Bristol-Myers Squibb plan to sell ZT444 in these nations without any warning labels (and without doctor's prescription) "over the counter". The missing warning labels include that the drug may cause permanent infertility in five out of five thousand women. Also, ZT444 may cause death in one out of five thousand women. During the drug testing trials (to gain FDA approval) BMS conducted substantial scientific research. In fact, BMS tested ZT444 on adult female volunteers. These female volunteers remain anonymous known only to the Board's Chairman Asa Buchanan. Although no volunteer died during the trials, a young woman died mysteriously shortly after the testing ended. The woman's family and the country coroner were unaware she was involved in the drug testing trials. She was sixteen years old and had lied top BMS about her age. The country coroner will not be able to make causal connection necessary to permit the young woman's estate to sue BMS. At this point the company's auditor gesture to speak and the Chairman ignore him. The Chairman of the Board has asked him to present his opinion and recommendations on how to proceed. The Board members are fearful that the corporation may become insolvent. The auditor feel a strong sense of conflict about selling ZT444 without warning labels in Israel and also think that there may be a causal nexus between the woman's death and ZT444. The Chairman further beckons him to contact David Lieberman, a former business associate who is a high ranking foreign official in Israel. BMS needs his help to expedite and ease the marketing and sale of ZT444 there. Then the Chairman asks another board member, in auditor's presence, to use his" influence" with Rashid Amad, a well respected businessman known in powerful sects within Middle Eastern countries. The Chairman then concludes by saying that, if the sales of ZT444, especially outside the United States, are not as expected and corporate earnings drop in the next quarter; then, BMS must lay off half of our workforce.
Internal control and risk assessment
Bristol-Myers Squibb is a high-lighted channel stuffing. But channel stuffing is most likely when the company sells few products and has a relatively small number of customers, such as wholesalers. Thus, service industries may be susceptible to numerous revenue recognition schemes, but generally channel stuffing is not one of them. By, using knowledge of the company, its industry, and its operating environment, the person saddled with fraud risk management can start to focus efforts on those fraud schemes that are most probable. By incorporating the magnitude of the fraud scheme into the risk assessment, those involved with fraud risk management can further identify which potential frauds require greater attention. For example, inventory and its related accounting often are associated with a higher likelihood of fraud. However, if the company has minimal inventory because it uses just-in-time inventory management in the manufacturing processes and inventories are considered immaterial, antifraud efforts with regard to inventory-related frauds may been minimized.
Bristol-Myers Squibb(BMS) has agreed to pay an additional $ 300 million in restitution and undertake a series of corporate reforms as part of an agreement with the government to defer prosecution on a charge of conspiring to commit securities fraud for the company's failure to disclose its "channel-stuffing' activities in 2000 and 2001, U.S Attorney Christopher J. Christine announced.
A two count indictment was unsealed against Frederick S. Schiff, 57, of Manhattan, a former executive vice president at BMS and the chief financial officer at BMs, and Richard J. lane, 54, of Doylestown, a former executive vice president at BMS and president of its Worldwide Medicines Group. The indictment charges Schiff and Lane with conspiracy and securities fraud for allegedly planning and concealing the channel-stuffing scheme to meet aggressive internal sales and earnings targets and Wall Street consensus earnings estimates. The two are expected to make initial appearances before a U.S Magistrate Judge.
Separately, a criminal complaint filed in the district of New Jersey charges New Jersey based BMS with conspiring to commit securities fraud. As part of the Deferred Prosecution Agreement, BMS has agreed to accepts responsibility for its conduct, adopt internal compliance measures and cooperate with the ongoing criminal investigation. An independent consultant has been chosen to ensure the company's compliance with the agreement.
The case is being prosecuted by Assistant U.S Attorneys Robert M. Hanna and Joshua Drew. Throughout 2000 and 2001 BMS concealed from the investing public its persistent use of an earnings management technique commonly known as "channel-stuffing". BMS's channel stuffing consisted of enticing its wholesalers through use of financial incentives to buy and hold greater quantities of prescription drugs than was warranted by the demand for those products. By the end of 2001, BMS's channel stuffing resulted in nearly $2 billion in "excess inventory" at the wholesalers.
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Fraud detection
There are two fraud detection. First is; Cohen, Milstein, Hausfeld & Toll, P.L.L.C has filed a class action lawsuit on behalf of all persons who purchased the common stock of Bristol-Myers Squibb which happened between November 8, 1999 and April 19, 2000. the complaint charges Bristol-Myers with violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint alleges that defendants issued false and misleading statements relating to the development of its drug, VANLEV. Defendants began a campaign to herald VANLEV as the most effective drug for treating hypertension and, to allay any safety concerns, conditioned the market to believe that there were no serious side effects to the drug. However, the complaint further alleges that defendants knew but did not disclose that the results of the company conducted clinical trials of patients given VANLEV showed that a rare and very serious side effect, that is, a severe form of angioedema which is life threatening, had afflicted some patients in the trials. Defendants false and misleading statements regarding VANLEV resulted in artificially inflated stock prices during the Class Period.
The second fraud detection is downward accounting adjustments outside the financial sector was in connection with January 31, 2007 fourth quarter and year end earnings of Bristol-Myers Squibb. The company reported an overall net fourth quarter loss of$89 million. The loss included "an impairment charge of $275 million on the company's investments in auction rate securities." The company reported that it has a total of $811 million invested in auction rate securities (ARS), the underlying collateral for some of which "consists of sub-prime mortgages."
The company reported that as result of "multiple failed auction" and downgrades, the year end estimated market value of the ARS investments was $419 million. Although the ARS continue to pay interest, as a result of valuation models and " an analysis of other than temporary impairment charges, " the company recorded an impairment charge of $275 million, and an unrealized pre-tax loss of $142 million. The company noted that if the credit market deteriorates further, "the company may incur additional impairments."
Securities Commission reviews of filings and enforcement activities
The Securities and Exchange Commission complaint, filed in the United States District Court for the District of New Jersey, alleges that Bristol-Myers perpetrated a fraudulent earnings management scheme by, among other things, selling excessive amounts of pharmaceutical products to its wholesalers ahead of demand, improperly recognizing revenue to meet its internal sales and earnings targets and analysts earnings estimates.
In settling the Commission's action, Bristol-Myers agreed to an order requiring it to pay $150 million dollars and perform numerous remedial undertakings, including the appointment of an independent adviser to review and monitor its accounting practices, financial reporting and internal controls.
Stephen M. Cutler, Director of SEC's Division of Enforcement, said, Bristol-Myers earnings management scheme distorted the true performance of the company and its medicines business on a massive scale and caused significant harm to the company's shareholders. The company's conduct warrants a stiff civil sanction.
Timothy L. Warren, Associate Regional Director of the SEC's Midwest Regional Office, added, "For two years Bristol-Myers deceived the market into believing that it was meeting its financial projections and market expectation, when , in fact, the company was making its numbers primarily through channel stuffing and manipulative accounting devices. Severe sanctions are necessary to hold Bristol-Myers accountable for its violative conduct, and deter Bristol-Myers and other public companies from engaging in similar schemes."
Specifically, the Commission's complaint alleges among other things which are from the first quarter of 2000 through the fourth of 2001, Bristol-Myers engaged in a fraudulent scheme to inflate its sales and earnings in order to create the false appearance that the company had met or exceeded its internal sales and earnings targets and Walla Street analyst's earnings estimates. Other than that Bristol-Myers inflated its results primarily by stuffing its distribution channels with excess inventory near the end of every quarter in amounts sufficient to meet its targets by making pharmaceutical sales to its wholesalers ahead of demand and improperly recognizing $1.5 billion in revenue from such pharmaceutical sales or its two biggest wholesalers. In connection with the $105 billion revenue, Bristol-Myers covered these wholesalers carrying costs and guaranteed them a return on investment until they sold the products. When Bristol-Myers recognized the $1.5Billion in revenue upon shipment, it did so contrary to generally accepted accounting principles. In addition, as result of its channel stuffing, Bristol-Myers materially understand its accruals for rebates due to Medicaid and certain of its prime vendors, customers of its wholesalers that purchased large quantities of pharmaceutical products from those wholesalers.
BMS failed to disclose and made false and misleading statement to the investing public regarding the use of financial incentives to the wholesalers to generate sales in excess of demand; the use of sales in excess of demand to hit budget targets; the level of excess inventory at the wholesalers; the amount that excess inventory increased each quarter in 2000 and 2001. As a result, investors were misled regarding BMS's true sales earnings, and did not have an accurate picture of the health of the company's business operations.
In exchange for an agreement by the Department of Justice to defer prosecution, BMS required to accept and acknowledge responsibility for its conduct, as reflected in the factual statement accompanying the agreement; appoint a current member of the Board of Directors, James Robinson III, as the Non-Executive Chairman of the board, to ensure BMS emphasizes openness, accountability and integrity in corporate governance; cooperate fully with the U.S. Attorney's Office in its ongoing investigation; pay $300 million in additional restitution to shareholders; adopt internal controls and other remedial measures designed to prevent and deter potential violations of the federal securities laws; and engage an independent monitor, former U.S Attorney and Federal Judge Frederick B.Lacey, as agreed upon by the Department of Justice and BMS, who will monitor BMS's ongoing remediation efforts and report to the Department on a regular basis.
There were two-count Indictment against Schiff and Lane alleges that they and other co-conspirators at BMS supervised and perpetuated the channel-stuffing scheme. The two executives and their co-conspirators allegedly instructed BMS finance and operations staff to create packages of financial incentives for drug wholesalers to buy products beyond prescription demand to artificially inflate sales and earnings; signed 10-Q and 10-K forms filed with the Securities and Exchange Commission with omissions of material; fact and misleading information regarding sales and earnings performance at BMS; gave consistently misleading information about earnings and inventory in press releases and conference calls with Wall Street analysts; and employed accounting and bookkeeping gimmicks to mask the increasing rise in drug inventory levels with wholesalers.
Throughout the period described in the Indictment, Schiff, Lane and BMS failed to disclose to Wall Street investors how the channel stuffing was artificially inflating the company's sales and earnings numbers. As the scheme unfolded, Schiff and Lane were adamant and demanding of finance and operations staff that they do what ever it took to reach earnings estimates.
Christie credited the FBI, under the direction of Special Agent in Charge Leslie Wiser, Jr, in Newark, and the U.S. Postal Inspection Service, under the director of Postal Inspector in Charge Thomas C. Van de Merlen. The investigation was conducted under the auspices of President Bush's Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption at U.S. corporations and led by Deputy Attorney General James B. Comey.
Bristol-Myers has agreed, without admitting or denying the allegations in the commission's complaint, to the following relief such as a permanent injunction against future violations of certain antifraud, reporting, books and records and internal controls provisions of the federal securities laws; disgorgement of $1; a civil penalty of $100 million; an additional $50 million payment into a fund for the benefit of shareholders; various remedial undertakings, including the appointment of an independent adviser to review, assess and monitor Bristol-Myers accounting practices, financial reporting and disclosure processes and internal control systems.
