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Monday, September 11, 2006

Bristol-Myers Ahead of Its Board Meeting: Will CEO Dolan Live or Die?

Bristol-Myers Squibb (BMY) shares have been actually going up ahead of the company’s board meeting tomorrow. There is probably one key issue that the street wants to know, and that is if CEO Peter Dolan will get to stay or get the axe. The company may be hamstrung from other efforts until it gets its investigations in order. While he has made many blunders and seen the stock go south since 2001, the main issue is how he handled the potential exclusivity for its blood thinner Plavix. The Department of Justice is investigating its offer of $40 million to Canada’s Apotex to stop them from introducing a generic, and it is supposedly under criminal antitrust activity because of the way it was handled.

If this was a small drug it would be of no consequence, but Plavix accounted for $3.8 Billion in annual sales. So if they bought of a competitor, the government via Medicare and Medicaid is probably shelling out a substantial amount more than they feel like they should be paying.

The only good news for the CEO is that a federal judge granted the company a preliminary injunction requested by Bristol-Myers in its attempt to block generic Plavix. That issue is set for court in January 2007.

In just the last 2 months, BMY shares went from showing a potentially significant buying signal on the charts to a neutral false break-out, to a broken stock. The decent news is that the $20.00 level wasn’t broken and the shares are now back over $23.00. Right now it is in the six-five pick-em class, so trying to use the chart to measure the expectations is not as clear as on other times.

The options trading activity is also not showing any significant expectation for tomorrow’s board meeting, but who knows. There are still a significant number of contracts in the open interest for the September options, and that in and of its own could add to a volatile name. With an event scheduled tomorrow and so many options contracts remaining in the open interest it would lead one to believe the bulk of these options are being held by speculators. That is furthermore more evident in looking at how the following month has such a significantly smaller number of contracts in the open interest for October, which has an October 20 expiration.

While Dolan should probably get the axe, it is just too difficult to predict based on the current information. The company commented at an investor presentation today that it 4 new products this year and there was a sudden spike earlier that may be indicative of analyst predictions.

Jon C. Ogg
September 11, 2006
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