Monday, the Department of Justice announced that Andrew Bodnar, a former senior executive of Bristol-Myers Squibb Co. (BMY) pleaded guilty for his role in the company's dishonest dealings relating to a patent deal involving the popular blood-thinning drug Plavix.

Plavix, a blood thinner is manufactured by Paris-based Sanofi-Aventis SA (SNY) and marketed by New York-based Bristol-Myers Squibb. In 2002, Apotex, a Canadian private firm, challenged Plavix's patent, which expires in 2011, arguing that the patent was not valid. The case, which was pending in court, was set to go to trial in June 2006.

Following the FDA approval for Apotex's generic Plavix in January 2006, Bristol-Myers and Sanofi-Aventis entered into negotiations with Apotex to settle the patent dispute.

Under a settlement reached in March 2006, Apotex was granted exclusive rights by Bristol-Myers and Sanofi-Aventis for generic Plavix for a six-month period that was to commence in September 2011. Bristol and Sanofi-Aventis had also agreed to pay Apotex a reported $40 million to end the patent challenge.

Bristol-Myers is required to have any patent-settlement agreement reviewed in advance by the Federal Trade Commission, or FTC, as per a previous settlement reached with federal authorities over a separate investigation. The FTC warned Bristol-Myers that it would not approve a settlement of the Plavix litigation if the company agreed not to launch its own generic version of Plavix that would compete against Apotex's generic version of the drug.

In order to compete with generic drug firms, brand-name drug makers launch generics, usually at the same time the first independent generic enters the market. These drugs are known as authorized generics.

In May 2006, Bodnar, an adviser to Bristol-Myers' then CEO Peter Dolan, who was negotiating with Apotex, reassured Apotex that Bristol-Myers would not launch a generic version of Plavix if Apotex agreed to a settlement. Bristol-Myers did not inform the FTC of this 'side agreement' it had made with Apotex.

However, as negotiations failed to make a meaningful headway, Apotex launched the generic version of Plavix on August 8, 2006, confident of overturning its patent. Following the entry of generic version, the sales of Plavix took a beating.

On August 14, 2006 Bristol-Myers and its partner Sanofi-Aventis filed a suit seeking to immediately block the sale of Apotex's generic equivalent to Plavix, and requested a recall of the drug that had already been shipped.

The United States District Court for the Southern District of New York issued a preliminary injunction on August 31, 2006, ordering Apotex to halt its sales of the generic version of Plavix. In early December 2006, the United States Court of Appeals for the Federal Circuit upheld the August 31, 2006 preliminary injunction, thus preventing Apotex from selling a generic version in the U.S., until the drug's patent expired.

Despite a favorable ruling for Bristol Myers, the damage was already done to Plavix because of the launch of the generic version of the drug. According to IMS Health, global Plavix sales declined to $5.8 billion in 2006 from $5.9 billion in 2005. Plavix, which was the world's second best-selling branded prescription drug after Pfizer Inc.'s (PFE) Lipitor was pushed down in rank to the fourth place that year.

However, the sales of the drug have recovered and Plavix logged in sales of $7.3 billion in 2007 and $8.3 billion in 2008 and has regained its title as the world's second most prescribed drug in the world.

Bristol-Myers' secret deal with Apotex, agreeing not to launch an authorized generic came to light in July 2006 when the FBI agents raided Bristol-Myers' Park Avenue headquarters, seeking evidence of the side-agreement. The Department of Justice opened a probe into the clandestine deal and Dolan was forced out from his executive position in September 2006.

In May 2007, Bristol-Myers pleaded guilty to two counts of making false statements to the FTC, related to its botched Plavix settlement negotiations with Apotex and agreed to pay an aggregate statutory maximum fine of $1 million.

Last month, Bristol-Myers agreed to pay $2.1 million for failing to inform the FTC of the agreements reached with Apotex to delay the entry of a generic version of Plavix. Bristol-Myers failed to disclose the FTC that as part of a patent settlement, Apotex agreed not to launch its generic version of Plavix for several years.

The Department of Justice said that the illegal actions of Bristol-Myers and its executive threatened to reduce competition that could have lowered the cost of blood-thinning drugs sold to heart attack, stroke and other patients.

Scott Hammond, Acting Assistant Attorney General in charge of the Department's Antitrust Division said, The prosecutions of Bristol-Myers and its former senior executive, Andrew Bodnar, should send a strong message to the pharmaceutical community that attempts to undermine the federal government's critical role of ensuring Americans have access to life-saving drugs, like Plavix, at the most competitive prices will not be tolerated. Those who attempt to mislead the federal government or undermine the integrity of its functions should expect to face criminal prosecution.

Bristol-Myers has been pulled up for cutting illegal noncompete deals in the past also.

In 2003, Bristol-Myers was charged by the FTC for involving in a series of similar anticompetitive acts to obstruct the entry of low-price generic version of three of its products namely two anti-cancer drugs, Taxol and Platinol, and the anti-anxiety agent BuSpar.

BMY closed Monday's trade at $20.51, up 1.69% on a volume of 15.62 million shares.

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