Bristol-Myers Squibb Co. said Thursday it is the subject of a criminal antitrust probe over a pending deal with a generic drug maker involving its best-selling product, Plavix, and reported a 33 percent drop in second-quarter profit.
Separately, AstraZeneca PLC, said its profit grew 31 percent in the quarter on sales of drugs such as cholesterol cutter Crestor.
Bristol-Myers' shares fell nearly 8 percent after it announced the U.S. Department of Justice had launched an investigation into a settlement awaiting regulatory approval it reached with Apotex Inc. to keep a generic version of blood-thinner Plavix off the market until at least 2011.
Analysts said the Justice Department inquiry casts further doubt over the future of Bristol-Myers' best-selling drug just when the market is awaiting the outcome of an investigation by states' attorneys general into the same deal due Friday.
The states' attorneys general and Federal Trade Commission can reject deals that Bristol-Myers reaches with generic companies over patents as a result of an agreement reached with the company regarding earlier settlements.
Last March, Bristol-Myers and marketing partner Sanofi-Aventis SA agreed to pay Apotex at least $40 million in a deal under which the generic company ended its Plavix patent challenge. The agreement sparked numerous lawsuits that alleged consumers were being denied access to cheap generic drugs.
Sanofi-Aventis is also under investigation by the justice department.
The FTC is concerned about the increasing number of agreements like the one with Apotex that drug companies are making and is studying whether they mute competition. A criminal probe into the agreement is highly unusual, if not unprecedented, and is likely to prevent further arrangements, said patent lawyer Thomas Carey.
"No company wants to find itself on the wrong end of a criminal action. It is a political black eye," Carey said. "It could mean jail time" for executives.
The Justice Department wouldn't comment on whether it had conducted a similar probe, but antitrust lawyer David Balto says it has never happened before. Yet, he doesn't believe the investigation will halt arrangements like the one between Bristol-Myers, Sanofi-Aventis and Apotex. Balto said that agreement was unusual because the two drug makers maintained their monopoly for much longer than in similar deals.
Last month, Bristol-Myers and Sanofi-Aventis amended the deal to allow Apotex to market its product three months earlier than previously announced. Now analysts speculate that arrangement may collapse.
CreditSuisse analyst Catherine Arnold said she thinks the attorneys general will reject the deal, especially because of the justice department probe.
On a conference call, Bristol-Myers Chief Executive Peter Dolan said he didn't know the focus of the federal probe or whether it would impact the attorneys general inquiry. He said the company was cooperating with the investigation and reiterated that he believes the Plavix patent is valid.
Federal agents raided Bristol-Myers' Manhattan headquarters on Wednesday, and searched Dolan's office, The Wall Street Journal reported Thursday night, citing a person familiar with the situation. The agents also collected documents from the building.
Bristol Myers' spokesman Tony Plohoros declined to comment on the report. Department of Justice spokeswoman Donna Sellers said the department had no comment. Chistine Monaco, a spokeswoman for the FBI in New York, declined to comment on any bureau actions regarding the company.
The company's shares plunged $1.95, or 7.5 percent, to close at $24.04 on the New York Stock Exchange, while U.S. shares of Sanofi-Aventis dropped $2.84, or 5.7 percent, to finish at $47.16 on NYSE.
Bristol-Myers also said net income declined to $667 million, or 34 cents per share, from $1 billion, or 50 cents per share, in the second quarter a year ago, when results were boosted by one-time tax benefits.
Excluding discontinued operations, the company reported earnings of $991 million, or 50 cents per share, in the year-ago quarter. On that basis, analysts surveyed by Thomson Financial estimated earnings of 32 cents per share in the latest quarter.
Revenue slipped less than 1 percent to $4.87 billion from $4.89 billion last year. Analysts expected revenue of $4.76 billion.
Deutsche Bank analyst Barbara Ryan said Bristol-Myers reported a good quarter, with many of its newer products generating solid sales. Yet she said that won't matter if Bristol-Myers loses Plavix revenue because none of its newer drugs can compensate for the loss. Plavix sales rose 18 percent to $1.15 billion in the second quarter.
AstraZeneca said earnings rose to $1.6 billion from 1.22 billion in the year-ago quarter. Operating profit rose 24 percent to $2.13 billion, beating analysts' expectations of $2.06 billion.
Revenue rose to $6.63 billion from $6.13 billion a year earlier, with sales of the company's five key growth products up by 25 percent to $3.3 billion.
However, analysts' hopes that AstraZeneca would raise its full-year outlook for a second straight quarter were dashed. The drug maker said it now expects earnings to be at the high end of its previously flagged range of $3.60 to $3.90 per share.