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Contributors: Douglas McIntyre Jon C. Ogg

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Thursday, July 27, 2006

Bristol-Myers Back in the Doldrums

Bristol-Myers Squibb (BMY) pulled a classic move today. They killed their chart. If the $24 handle does not hold, then there is another support level around $23.10 and then again at $21.75-ish. Unfortunately BMY has been a tightly traded stock in a $21+ to $26 trading band for most of the last two-years. BMY used to trade over $50 in 2001 and 2002. So for now it just looks like more of the same.

Drug and healthcare companies have actually finally come back in favor as the poor fundamentals seem to have gotten as bad as they could have gotten. Many have been rewarded for good news, and Pfizer (PFE) and Merck (MRK) proved that for you last week.

The earnings out of BMY fell from $0.50 last year down to $0.34 EPS (and $0.35 outside of items) this year for Q2. Revenues were Down 2% year-over-year, but the street was under both of these numbers. The company didn't do as poorly as the street was expecting, but here was the bomb: its settlement with Apotex over generic Plavix is at risk from the FTC and a criminal probe is being conducted.

Bristol-Myers Squibb and Sanofi-Aventis (SNY) reached an agreement earlier this year with Canadian drugmaker Apotex to ward off generic competition for Plavix until 2011. Apotex had sued to have the Plavix patent invalidated so it could sell a generic version of the drug. This deal is now being reviewed by the Federal Trade Commission and by state attorneys general and there is a large risk that the FTC may not approve the settlement. The potentially more-damaging aspect is that the antitrust division of the Department of Justice is conducting a criminal investigation of the Apotex litigation.

Plavix sales for 2005 were in the $5 Billion vicinity between the BMY and SNY. You can see why they are concerned over this today. Unfortunately, now that the company is back in the $24 area it looks like they are just back in the longer-term range until this issue is resolved.

Jon C. Ogg
July 27, 2006

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