Bristol-Myers warns high inventories to hit profit

Bristol-Myers Squibb, the top maker of cancer drugs, said on Monday that US wholesale inventories of its medicines are too high and reducing them will hurt future earnings.

In a US Securities and Exchange Commission filing, the New York-based company also said it may need to take an impairment charge for its investment in ImClone Systems, depending on the biotechnology company's future market value and the regulatory status of Erbitux, the novel cancer drug the two companies are developing.

Bristol-Myers, which also makes blockbuster products like the cholesterol-lowering pill Pravachol, said it believes US wholesaler inventories of its drugs rose last year by about four weeks of sales due mainly to sales incentives it offered to wholesalers.

The company said it is developing a plan to reduce inventory levels and expects the drawdown to hurt future results. Further details will not be released until later this month.

Wall Street analysts on average expect the company to earn 56 UScents a share in the first quarter and $US2.28 a share for full-year 2002, according to Thomson Financial/First Call.

"I assume it's not going to be a significant shortfall. Otherwise they would have issued a press release rather than mentioning it in the 10-K," said Richard Lawrence, an analyst at Parker/Hunter.

The company's shares, which fell 9 UScents to close at $US40.40 on the New York Stock Exchange, were halted after hours. The stock - hit by events like the fumbled Erbitux application, expiring patents and last month's announcement of disappointing trial results for a key experimental heart-failure drug - is down about 31 per cent from a year ago.

IMCLONE INVESTMENT VALUE DROPS

In November 2001, Bristol purchased 14.4 million shares of ImClone for $US70 per share, or just over $US1 million, giving it a 19.9-percent stake in the biotech company. The companies agreed to co-develop Erbitux, with Bristol making a series of payments totaling $US1 billion of which $US200 million was paid in 2001.

On December 28, the FDA rejected ImClone's application for the drug as a treatment for colon cancer, citing inadequate data, and ImClone and Bristol are now working to come up with the necessary clinical data.

On March 5, the agreement with ImClone was revised to reduce Bristol's total payments to $US900 million. Bristol said it paid ImClone $US140 million in the first quarter of 2002, will pay $US60 million in March 2003 and an aggregate of $US500 million when two milestones are reached. Once the drug is approved, Bristol will also pay ImClone 39 percent of North American product revenues.

In its filing, Bristol explained that of the $US1.207 million so far paid - $US1.007 million for equity and a $US200 million milestone payment - $US735 million was expensed as acquired in-process research and development and the remaining $US472 million was recorded as an equity investment. Another $US9 million was recorded for acquisition costs, resulting in a carrying value of $481 million as of December 31.

On a per-share basis, the carrying value of the ImClone investment and the closing market value of ImClone shares as of Dec 31, were $US33.40 and $US46.46, respectively.

Given the FDA's rejection of ImClone's initial application for Erbitux and ImClone's share price, which now stands at $US25.05, Bristol-Myers said it is possible that it could take a charge for impairment of the investment in future periods.

Separately on Monday, generic drug maker Watson Pharmaceuticals said it would receive a $US32 million payment from Bristol-Myers, as well as a non-exclusive license to sell a generic version of Bristol's anti-anxiety drug BuSpar, in a settlement of claims that the introduction of generic versions of the drug was unfairly delayed.