1. THE BRISTOL­MYERS SQUIBB ACCOUNTING SCANDAL
Prepared For:
Jennifer Johnson
Prepared By: Group 1
Joseph Gallego
Melissa Le
Linda Liu
Ben Livni
NOVEMBER 25, 2013
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2. TABLE OF CONTENTS
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION
The Beginning
The Great Merger of 1989
Early 2000’s
VIOLATIONS COMMITTED
Antitrust Violation
Violating the Revenue Recognition Principle
Channel Stuffing
Cookie Jar Accounting
Failure to Disclose
MOTIVATING FACTORS AND LEGAL ALTERNATIVES
Antitrust Violation
Violating the Revenue Recognition Principle
Channel Stuffing
Cookie Jar Accounting
Failure to Disclose
SANCTIONS AND REPERCUSSIONS
Settlement Agreement
Permanent Injunction against Future Violations
$150 Million Fine
Independent Advisor
Restatement of Financial Statements
Deferred Prosecution Agreement
$689 Million Payment
CEO Resigns & Executives Indicted
EFFECTS ON STOCKHOLDERS
2

3. Financial Growth for Future Generations
Lawsuit Repercussions
Channel Stuffing Repercussions
Distributor Costs
Stock Prices, Stock Holders, and Stockholder Earnings
Management and Internal Controls Changes
RECOVERY AND CURRENT STANDING
Recovery
(BMY: Key Stock Statistics for Bristol­Myers Squibb from 2011 to 2013, 2013)
Current Standing
REFERENCE PAGE
3

4. EXECUTIVE SUMMARY
This report provides an in­depth analysis of the Security of Exchange Commission’s (SEC)
investigation of Bristol­Myers Squibb’s (BMS) revenue recognition accounting fraud and
antitrust laws violation committed from 1999 to 2002. The investigation was conducted due to
irregular revenue fluctuations within BMS’ quarterly reports that had been the result from years
of channel stuffing and other illegal practices not approved under the Generally Accepted
Accounting Principles (GAAP). Shareholders depend on a publicly traded company’s financial
statements to create an informed financial decision. When BMS illegally inflates company
earnings by improperly recognizes their revenues, they jeopardize the reliability and integrity of
their financial statements to potential investors. The SEC discovered this to be true for BMS’
financial statements.
As one of the largest pharmaceutical corporations in the United States, Bristol­Myers Squibb
committed several unlawful violations.
● Following the expiration of some of its most profitable patents, BMS manipulated the
Hatch Waxman Act of 1984 to illegally continue their exclusivity on the drugs. In 2002,
29 attorney generals filed an antitrust lawsuit against Bristol­Myers and in effect, sales
plunged.
● From 2000­2002, the company practiced channel stuffing ­ an accounting violation that
overstates a company’s revenues by “dumping” excess inventory to distributors. By
illegally inflating their revenue, BMS was able improve their public image by meeting
wall­street projections.
● When channel stuffing sales did not meet analyst projections and stakeholder expectation,
they used cookie jar accounting, an accounting practice in which a company uses
generous reserves from goods years against losses that might be incurred in bad years.
● Bristol Myers improperly recognized $1.5 billion dollars of revenue from channel
stuffing and failed to disclose pertinent information such as artificially inflating its results
through channel stuffing, that build­up in consumer inventory posed a risk to
Bristol­Myers future earnings, and that the company was using cookie jar reserves to
further inflate financial statements.
Bristol­Myers Squibb never admitted to nor denied the allegations and agreed to a settlement
with the SEC subject to a two­year deferred prosecution with the Justice Department. The
settlement agreement comprised of a permanent injunction against future violations, a $150
million fine, and an assignment of an independent advisor. Additionally, the company was
required to restate its 1999­2001 financial statements. The Deferred Prosecution Agreement
4

5. stated that if the company conducted itself lawfully for two years, it would be able to avoid
criminal indictment. Under the agreement, BMS paid a total of $689 million, its CEO resigned,
and two other executives were indicted.
The Bristol­Myers Squibb accounting scandal repercussions included a delay in financial growth,
a severe decrease in stock price from $51 to $21, and a change in management and internal
controls. Consequently, the company received negative publicity, which resulted in a significant
loss in stakeholder confidence and shareholder earnings. Although all of the officers involved in
the accounting scandal withdrew by 2011, recovery remains stagnant as the company faces
ongoing lawsuits from its early monopolistic behavior. Granted that the SEC imposed large
fines, established independent internal control systems, and filed multiple injunctions for future
violations, if BMS had taken a full disclosure approach and noted their use of channel stuffing,
the method of which they recognized their revenue and possible negative side effects from such
behaviors, the penalties from the SEC would not have been as severe.
5

6. INTRODUCTION
As one of the world’s top ten leading pharmaceutical companies, Bristol­Myers Squibb is ranked
ninth with sales of $17.6 billion dollars as of May 2013 (BMY, 2013a; Top 15 Pharma, 2013b).
Their normal business operations include the discovery, development, licensing, manufacturing,
marketing, distribution, and sale of biopharmaceutical products on a global dynamic. Its products
are sold worldwide, primarily to wholesalers, retail pharmacies, hospitals, and government
entities (Herper, 2002). Bristol Myers specializes in vital areas including Cardiovascular,
Hepatitis, HIV, type II Diabetes, and Neuroscience such as Alzheimer's disease, Schizophrenia
and Depression (BMS Company, 2013b).
The Beginning
Prior to becoming the pharmaceutical juggernaut we know today, BMS has been comprised of
numerous partnerships and acquisitions, none larger than the great merger of 1989. The
companies’ formation stems from less than normal means. In 1858, Edward R. Squibb founded
E.R. Squibb M.D., a pharmaceutical company in Brooklyn, New York, while, two decades later,
William McLaren Bristol and John Ripley Myers purchased a struggling drug­manufacturing
firm in Clinton, New York (Blake, 2013). The two companies existed simultaneously with no
collaboration between one another for over a century. Immediately, both companies raced down
separate paths each putting their unique trademark on the pharmaceutical world. By 1903,
Bristol­Myers created their first best­selling drug (BMS Company, 2013a). Twenty years later
gross profit topped $1 million, and their products were sold in 26 countries around the world.
Bristol­Myers continued its innovation and by 1943 was at the forefront of penicillin production,
becoming a key supplier to the armed forces during World War II (Blake, 2013). Meanwhile,
E.R. Squibb M.D. was a significant contributor in the antibiotic age and in 1955 received one of
the most respected science prizes in the world (BMS Company, 2013a) Both companies
developed their own individual niches. Bristol­Myers began acquiring and developing smaller
research companies, a strategy that became a key component of their business. E.R. Squibb M.D.
fixated on cancer research, discovering and developing a key drug for leukemia and advanced
ovarian cancer. In the following years, Bristol­Myers also focused its research and development
on cancer research and began making impactful discoveries (Blake, 2013).
The Great Merger of 1989
In 1989, Bristol­Myers merged with E.R. Squibb M.D., creating the global leader in healthcare
that we know today. Following the merger BMS propelled into the top 20 list of pharmaceutical
companies worldwide. By 1995, the company had over 60 product lines with more than $50
million in annual sales worldwide. The new company immediately began leading the
6

7. pharmaceutical world in advanced HIV/AIDS research. In 1998, President Bill Clinton awarded
the company the National Medal of Technology, America's highest honor for technological
innovation (Blake, 2013). Reaching its peak in 1999, the FDA granted clearance to market
EXCEDRIN® Migraine for the relief of migraine headache pain and associated symptoms.
Excedrin became the first migraine headache medication available to consumers without a
prescription (BMS Company, 2013a).
Early 2000’s
Following its peak in the late 1990’s, Bristol­Myers Squibb encountered a string of unfortunate
events in the early 2000’s. This report explains Bristol­Myers Squibb’s antitrust lawsuit and
revenue recognition principle violations, motivation and legal alternatives, legal repercussions,
and stakeholders’ ramification.
● Bristol­Myers Squibb violated antitrust laws by manipulating the Hatch Waxman Act of
1984 to unlawfully hold exclusive drug patents. Subsequently, BMS engaged in a
fraudulent earnings management scheme in violation of the revenue recognition
principle. Specifically, the company used channel stuffing, cookie jar accounting, and
improper recognition of revenue.
● Given the opportunity to generate an extra billion dollars in revenue, Bristol­Myers
Squibb formed an illegal monopoly on their top selling drug. After being charged with an
antitrust lawsuit, market price of BMS stocks dropped rapidly. In order to gain consumer
confidence, the company felt an obligation to meet Wall Street earnings expectations by
overstating revenue through channel stuffing, cookie jar accounting, and improper
revenue recognition.
● Bristol­Myers Squibb never admitted to nor denied the allegations and agreed to a
settlement with the SEC and a two­year deferred prosecution with the Justice
Department. The settlement agreement comprised of a permanent injunction against
future violations, a $150 million fine, and an assignment of an independent advisor.
Additionally, the company was required to restate its 1999­2001 financial statements.
The Deferred Prosecution Agreement stated that if the company conducted itself lawfully
for two years, it would be able to avoid criminal indictment. Under the agreement, BMS
paid a total of $689 million, its CEO resigned, and two other executives were indicted.
● The Bristol­Myers Squibb accounting scandal had adverse effects to the company’s
stakeholders. Subsequently, the popularized accounting scandal caused a decline in
Bristol­Myers Squibb’s financial growth for future generations, an increase in distributor
costs, a decrease in stock prices and stockholder earnings, and a change in management
and internal controls.
7

8. VIOLATIONS COMMITTED
Bristol Myers Squibb violated antitrust laws by manipulating the Hatch Waxman Act of 1984 to
unlawfully hold exclusive drug patents. Subsequently, BMS engaged in a fraudulent earnings
management scheme in violation of the Revenue Recognition Principle. Specifically, the
company used channel stuffing, cookie jar accounting, and improper recognition of revenue.
Antitrust Violation
Antitrust laws prohibit the creation of monopolies and monopoly abuse of power. Also known as
“competition laws,” they are statutes developed by the U.S. government to protect consumers
and businesses from predatory business practices by ensuring that fair competition exists in an
open market economy (Investopedia, 2013).
On the evening of June 4, 2002, twenty­nine states and the District of Columbia filed a lawsuit
against Bristol­Myers Squibb alleging that the pharmaceutical company maintained a monopoly
by illegally obtaining patents and registering them with the FDA (“Bristol Hit”, 2002). BMS
dishonestly took advantage of the Hatch Waxman Act of 1984. The act grants a 30­month patent
extension to drug companies that file a lawsuit against generic manufacturers challenging their
patent. When the patent to the drugs expired, Bristol­Myers filed phony lawsuits as a means to
extend their exclusivity on selling the drugs. BMS illegally prolonged their patents through the
duration of the lawsuits (Federal Trade Commission, 2013).
Violating the Revenue Recognition Principle
Under generally accepted accounting principles (GAAP), revenue recognition principles
determine specific conditions under which income becomes realized as revenue (Investopedia,
2013). On August 4, 2004, the Securities and Exchange Commission filed a civil action against
Bristol­Myers Squibb alleging that the company violated revenue recognition principle by using
channel stuffing, cookie jar accounting, and improper revenue recognition (U.S. Securities and
Exchange Commission, 2004a).
Channel Stuffing
Channel Stuffing is the business practice in which a company inflates its sales figures by forcing
more products to a consumer through a distribution channel than the channel is capable of selling
(Investopedia, 2013).
From the first quarter of 2000 to the fourth quarter of 2001, Bristol­Myers Squibb engaged in
channel stuffing. The company stuffed its two largest wholesaler’s distribution channel with
excess inventory near the end of every quarter (U.S. Securities and Exchange Commission,
2004a).
8

9.
Cookie Jar Accounting
Cookie Jar Accounting is an accounting practice in which a company uses generous reserves
from goods years against losses that might be incurred in bad years (Investopedia, 2013).
Bristol­Myers Squibb used cookie jar accounting from 2000 to 2001 to curb current year losses
against prior period profits and further inflate revenues (U.S. Securities and Exchange
Commission, 2004a). They unlawfully matched current losses against prior period revenues.
Failure to Disclose
Failing to disclose imperative information and dishonestly recognizing revenue not only
tarnishes a company’s reputation with its investors but also criminally violates revenue
recognition principles. BMS improperly recognized $1.5 billion dollars of revenue from sales
generated from channel stuffing. Additionally, the company failed to disclose that it was
artificially inflating its results through channel stuffing, that build­up in consumer inventory
posed a risk to Bristol­Myers future earnings, and that the company was using cookie jar reserves
to curb current year losses (U.S. Securities and Exchange Commission, 2004a). If BMS had
taken a full disclosure approach and noted their use of channel stuffing, the method of which
they recognized its’ revenue, and possible negative side effects from such behaviors, the
penalties from the SEC would not have been as severe.
9

10. MOTIVATING FACTORS AND LEGAL ALTERNATIVES
Given the opportunity to generate an extra billion dollars in revenue, Bristol­Myers Squibb
formed an illegal monopoly on their top selling drug. After being charged with an antitrust
lawsuit, market price of BMS stocks dropped rapidly. In order to gain consumer confidence, the
company felt an obligation to meet Wall Street earnings expectations by overstating revenue
through channel stuffing, cookie jar accounting, and failure to disclose.
Antitrust Violation
Following the expiration of Bristol­Myers’ five year patent on Taxol, the market flooded with
generic competition. Fearing a large reduction in sales, BMS took advantage of the
Hatch­Waxman Act of 1984, which allowed them to illegally restrict their competition from
generic production of the drug and generate over $1 billion in revenue (FTC, 2003).
Bristol­Myers Squibb should not have taken advantage of the Hatch­Waxman Act of 1984 by
filing phony lawsuits against generic manufacturers and illegally extending their patent.
Violating the Revenue Recognition Principle
Channel Stuffing
Bristol­Myers Squibb participated in channel stuffing to generate an extra $1.5 billion in revenue
(US SEC, 2004a). After the antitrust violation was made public, the market price of BMS stocks
dropped rapidly­­ losing more than 50% of its value in a period of four months­­ indicating that
investors had little confidence in the future of BMS. In order to win back investors and restore
stakeholder confidence, the company felt the obligation to meet Wall Street earnings
expectations. However, in doing so, Bristol­Myers Squibb should not have distributed excessive
amounts of inventory to boost sales revenue. Furthermore, they should not have recognized false
revenue due to the buyback clause in the sale agreement. After distributing excess amounts of
inventory, BMS failed to comply with SFAS No. 48 when recognizing sales revenue obtained
through channel stuffing. Under the Statement of Financial Accounting Standards (SFAS) No.
48, paragraphs 6 and 8 state if a company sells its product while giving the buyer the right to
return the product, revenue from the sales transaction can only be recognized at the time of sale
if the amount of future returns can be reasonably estimated (1981). According to the SEC Staff
Accounting Bulletin (SAB) No. 101, channel stuffing may affect one’s ability to make reliable
and reasonable estimates of product returns (US SEC, 1999).
Cookie Jar Accounting
In addition to channel stuffing, Bristol­Myers also used cookie jar accounting to give their
revenue a further boost where channel stuffing did not alone did not meet analyst expectations.
Through cookie jar accounting, the company was able to match current year losses against prior
period revenues, adding a total of $223 million into operating income. Nonetheless,
Bristol­Myers Squibb should not have partaken in cookie jar accounting. Under poor
management, Bristol­Myers Squibb’s corporate controller inflated existing reserves, created
inappropriate “corporate contingency” reserves, and “approved the improper reversal of portions
10

11. of such reserves into operating income” (US SEC, 2004b, par. 61). In result, Bristol­Myers
inappropriately forged $104 million of divestiture reserves and reversed $66 million of such
reserves into income. In 2001, the company forged $115 million of divestiture reserves and
reversed $157 million into income (US SEC, 2004b).
Failure to Disclose
Bristol­Myers Squibb failed to disclose the fact that they participated in the act of channel
stuffing and cookie jar accounting in order to deceive the public in regards to its current financial
standing. In accordance with GAAP, however, the company should have fully disclosed what
their acts of channel stuffing and cookie jar accounting in their notes to financial statements­­
doing so would have significantly decreased the charge and settlement fee.
11

12. SANCTIONS AND REPERCUSSIONS
Bristol­Myers Squibb never admitted to nor denied the allegations and agreed to a settlement
with the SEC and a two­year deferred prosecution with the Justice Department. The settlement
agreement comprised of a permanent injunction against future violations, a $150 million fine,
and an assignment of an independent advisor (US SEC, 2004a). Additionally, the company was
required to restate its 1999­2001 financial statements. The Deferred Prosecution Agreement
(DPA) stated that if the company conducted itself lawfully for two years, it would be able to
avoid criminal indictment (Mumma, 2005). Under the agreement, BMS paid a total of $689
million, its CEO resigned, and two other executives were indicted (House Judiciary Committee,
2006).
Settlement Agreement
Permanent Injunction against Future Violations
An injunction is a court order, which requires an entity to perform or refrain from performing
specific acts (West’s Encyclopedia, 2008). Bristol­Myers Squibb’s injunction specifies that the
company may never violate any federal antifraud, reporting, and provision laws again. Although
this may seem substantial, the Commission is merely banning the company from doing illegal
acts that the law already forbids. Additionally, the SEC has a record of not being firm with
companies that violate injunctions (Wyatt, 2011). Some have even questioned whether SEC
injunctions against future violations have any meaning at all (Koehler, 2011).
$150 Million Fine
Bristol­Myers Squibb paid a $150 million fine consisting of a $100 million civil penalty an
additional $50 million that went to a fund to benefits shareholders harmed by the company’s
actions. The $150 million was one the largest SEC penalties at the time against a company that
intended to continue to operate post­allegations (Gordon, 2004).
Independent Advisor
BMS was assigned an independent advisor to oversee the company’s continual compliance with
the settlement terms (Mumma, 2005). The assigned advisor, highly respected former federal
judge Frederick B. Lacey, rigorously reviewed, assessed, and monitored the company’s
accounting practices and internal control systems until 2007 when the Deferred Prosecution
Agreement ended. At the time, independent federal advisors were becoming more common for
companies involved with corporate crime. As an independent advisor, Lacey set a new standard
for the role. He monitored BMS’ every activity and had power over essentially every part of the
company’s operation (Saul, 2005). Bristol­Myers Squibb was forced to adopt all
recommendations made by Lacey unless they formally objected, and the US Attorney’s Office
12

13. agreed that the recommendation was not required (House Judiciary Committee, 2006). In light of
seeing how effective Lacey was with BMS, the Justice Department admitted that it wants to
improve enforcement of DPA’s (Saul, 2005).
Restatement of Financial Statements
Bristol­Myers Squibb restated its 1999 to 2001 financial statements correcting what it described
as “errors and inappropriate accounting” (Abelson, 2003, par. 1) The reinstatement reduced
earnings from continuing operations by $900 million and reduced revenues by $2.5 billion. The
loss in revenues caused their stocks to drop 61 cents per share (Abelson, 2002).
Deferred Prosecution Agreement
$689 Million Payment
Bristol­Myers Squibb paid a total of $689 million consisting of several fragments. First, the
company paid a $300 million fine to the Justice Department for the accounting fraud. They also
paid a separate $300 million settlement in compensation for present and former BMS
shareholders in connection with lawsuits and an additional $89 million to other shareholders who
requested to be excluded from the previous litigation settlement (House Judiciary Committee,
2006).
CEO Resigns & Executives Indicted
In 2005, Chief Executive Officer Peter Dolan became the only CEO to ever be able to keep his
job following an accounting scandal by explaining to the board why he was not directly
responsible for the fraud and shifting the blame onto Chief Financial Officer Fred Schiff and
former Worldwide Medicines unit president Richard Lane (Law Professors Blog, 2005).
However, during the deferred prosecution, Dolan felt pressure from Federal Advisor Lacey, who
urged the board to fire Dolan, and resigned (Reeves, 2006). Schiff and Lane were indicted for
federal securities violations (Law Professors Blog, 2005). Schiff paid $225,000 while Land paid
$175,000. Furthermore, neither was allowed to become an officer of a public company for two
years (Graybow, 2010).
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14. EFFECTS ON STOCKHOLDERS
The Bristol­Myers Squibb accounting scandal, monopolistic accusations, and lawsuits have
resulted in multiple long­term and short­term adverse effects on the company’s stakeholders.
Subsequently, the popularized accounting scandal caused a decline in Bristol Myers Squibb’s
financial growth for future generations, an increase in distributor costs, a decrease in stock prices
and stockholder earnings, and a change in management and internal controls.
Financial Growth for Future Generations
Lawsuit Repercussions
Before the SEC exposed BMS’ channel stuffing scandal, BMS had been increasing their
revenues by monopolizing Taxol (Paclitaxel) using an invalid patent. Under the Hatch­Waxman
Act of 1984, BMS was granted a two and a half year extension for their monopoly, which
increased BMS’ revenues, by over $1 billion (FTC, 2003). As an effect, the company was able to
meet wall­street projections and attract investors. The extra income was distributed directly
among company officials and company shareholders through a gradual increase in BMS’ stock
prices from 1996 to 1998, which is shown in Figure 1.
Figure 1: BMS’ Stock Prices from 1996 to 1998
(BMY: Key Stock Statistics for Bristol­Myers Squibb from 1996­1998, 2013)
The investigation conducted by the SEC caused BMS to settle the antitrust lawsuit with a $100
million payment. The press release of BMS’ illegal competitive behavior led to a significant
decrease in investor and creditor confidence. In the long run, this has made it difficult for BMS
to acquire public funds, as well as delayed BMS growth and future projects. The impact of the
antitrust lawsuit and lack of recovery on stock price is shown on Figure 2.
14

15.
Figure 2: BMS’ Stock Prices from 2001­2003
(BMY: Key Stock Statistics for Bristol­Myers Squibb from 2001­2003, 2013)
Overall, the main stakeholders negatively affected by the lawsuit were the shareholders,
employees, and executives who were compensated with shares of Bristol­Myers Squibb. The
stock increase in figure 1 attracted more investors and increased BMS’ stock volume. (BMY:
2001­2003, 2013). These investors faced the negative impacts four years later.
Channel Stuffing Repercussions
BMS’ real revenues were suffering from previous years’ channel stuffing in order to meet sales
set by officers (US SEC, 2004c). In response, the company continued channel stuffing to hide the
decline, but this resulted in more revenue decline. As a result, in 2001, BMS revenues were
artificially boosted by $1.5 billion when in actuality, their net sales were reduced by $376
million in 1999, $678 million in 2000, and $1.4 billion in 2001 (Abelson, 2002).
Additionally, an order issued in 2004 by the U.S. District Court Judge for the District of New
Jersey required Bristol­Myers to pay $150 million for overstating its revenues from the first
quarter of 2000 through the fourth quarter of 2001. The $150 million comprises of a $100
million civil penalty and a $50 million shareholder fund. Consequently, the $150 million
payment decreased BMS working capital, therefore decreasing the pool of cash for investment
potential (US SEC, 2004c).
Bristol Myers Squibb’s income and capital were further hindered by on­going pharmaceutical
lawsuits and monopoly accusations. The release of Bristol Myers Squibb’s channel stuffing,
15

16. cookie jar accounting, and illegal patent behavior had discouraged potential future investors, in
effect reducing the company’s future cash flows from financing activities. These overall effects
have extended the rate at which Bristol­Myers Squibb could recover from its financial setbacks
by hindering the company’s overall future growth and financial progress.
Distributor Costs
The profits of wholesalers who distributed the excess inventory were also negatively affected by
BMS channel stuffing activities. Distributors who are unable to sell BMS’ excess inventory
return the unsold goods to the company. Consequently, these distributors incur a carrying cost
and develop a backlog of product inventory. These additional cost decreases the net income
pharmaceutical wholesalers earn as stakeholders due to the accounting scandal (Chipalkatti,
Chatterji, & Bee, 2007).
Stock Prices, Stock Holders, and Stockholder Earnings
Unveiling the antitrust lawsuit and illegal patent behavior caused an immediate drop within
weeks of the news release. Figure 3 from yahoo finance illustrates a drop in stock price from
$50.91 in March 2002 (when the news was released) to $20.75 in June 2002 ­ under half the
original stock price 3 months later (BMY: 1996­2013, 2013).
Figure 3: BMS’ Stock Prices from 1996­2013
(BMY: Key Stock Statistics for Bristol­Myers Squibb from 1996­2013, 2013)
The abrupt change in stock prices significantly decreased the overall stock value of the company.
16

17. Stockholders who purchased BMS stock experienced a significant loss in stock income as the
price per share diminished to less than half its original price from March 2002 to July 2002. In
other words, investors who had purchased $100,000 worth of Bristol­Myers Squibb’s stock
during March 2002 would hold $40,000 worth of the same stock in July 2002. This significant
drop in stock price is credited to the exposure of Bristol­Myers Squibb’s anti­trust lawsuits and
the channel stuffing scandal.
The Washington post conveyed that these “failures have caused a loss of confidence,” (Masters,
2006, par. 5) among investors. The inability to sell new stock to public investors hinders the
company’s ability to issue stock and equity finance. The inability to sell stock to finance
corporate activities slows down growth, and research and development within the company, and
in effect, delays an increase in income of current shareholders in the market. As a result, all
current shareholders tied financially to the company were negatively impacted from the press
release of accounting scandal (BMY: 1996­2013, 2013).
The channel­stuffing scandal prolonged the recessionary period of Bristol Myers Squibb’s stock
recovery. BMS faced bad publicity and a loss of confidence from potential investors and
creditors. As a result, stock prices never recovered until mid­2013, nearly 10 years after the SEC
investigation (BMY: 1996­2013, 2013c).
Management and Internal Controls Changes
Decreases in net sales, stock value, and income have had a significant impact on Bristol­Myers
workforce. As a result of the illegal allegations, stockholders demanded a change within the
company’s management. Forbes business magazine stated, “Since the accounting problems, the
head of Bristol’s pharmaceuticals business, its chief financial officer, and its chief scientists have
all left the company” (Herper, 2002, par. 8). Although these measures will help ensure that this
incident does not reoccur, the resignation of several executives poorly reflects the company’s
management public image.
In addition, Peter R. Dolan, the former chief executive officer of Bristol­Myers Squibb resigned
from his office in September 2006. By 2011, all the officers involved with the channel stuffing
accounting scandal have stepped down from their positions. Since the retirement of these
officers, Bristol­Myers Squibb has seen a steady incline in stock value (Herper, 2002).
After the incident, Bristol­Myers Squibb was required to restate its 1999­2001 financial
statements and alter its accounting structure to become more transparent to their stockholders.
Bloomberg reports that Bristol­Myers Squibb will soon be “adopting internal controls to thwart
future sales abuses” (Mumma, 2005, par. 3). Since the Bristol­Myers Squibb accounting
17

18. incident, the company’s financial report must be periodically assessed by an independent advisor
for future operating cycles.
18

19. RECOVERY AND CURRENT STANDING
Subsequent to the heavy backlash that Bristol­Myers Squibb experienced, it resumed its strategy
of acquisitions and partnerships with hopes of capturing investor and shareholder confidence
once again. Additionally, the company has changed their research and development strategies
slowly reclaiming its position as one of the top pharmaceutical companies of the world.
Recovery
Since 2008, BMS agreed to numerous acquisitions and licensing partnerships, of which the
major ones are listed below (Blake, 2013):
● KAI Pharmaceuticals – A global leader in the development and commercialization in a
therapy for cardiovascular diseases.
● Kosan Biosciences – a cancer therapeutics company
● Exelixis – Specializing in developing and commercializing two therapies: 1) medullary
thyroid cancer 2) a treatment for advanced solid tumor malignancies.
● ZymoGenetics – Focused on hepatitis C (par 17)
Figure 4 reflects Bristol­Myers Squibb stock recovery as a result from an increase in investor
confidence and capital acquisitions.
Figure 4: BMS’ Stock Price from 2011­2013
(BMY: Key Stock Statistics for Bristol­Myers Squibb from 2011 to 2013, 2013)
19

20. Current Standing
Beginning in 2009, Bristol­Myers Squibb set forth in a new direction after reclaiming their
position as one of the leading pharmaceutical companies. In response to changing their research
and development strategy, they chose to dispose of the nutritional division, Mead Johnson
Nutrition, at a price of $6.5 billion in order to concentrate more on pharmaceuticals (BMY,
2013b). BMS announced the company’s new primary concentration would include experimental
treatments for HIV, hepatitis B, cancer immune conditions, and fibrotic disease in lieu of its
previous direction, broad based drug discovery (BMY, 2013c). Since transcending to its new
scope Bristol Myers Squibb developed, marketed and sold several blockbuster drugs. Its top five
best­selling products in 2012 were (Blake, 2013):
● Abilify (aripiprazole) Sales: $2.8 billion­ used for depression in adults, bipolar disorder,
or schizophrenia.
● Plavix (clopidogrel) Sales: 2.5 billion­ used to prevent blood clots after a recent heart
attack or stroke.
● Sustiva (efavirenz) Sales: $1.5 billion­ HIV­1 infection franchise.
● Reyataz (atazanavir) Sales: $1.5 billion­ HIV drug
● Baraclude (entecavir) Sales: $1.4 billion­ used for chronic hepatitis B.
(par 20).
20

21. REFERENCE PAGE
Abelson, R. (2002, October 25). Bristol­Myers to Restate Results to Reflect Shift in Inventory
Policy. The New York Times. Retrieved from
http://www.nytimes.com/2002/10/25/business/bristol­myers­to­restate­results­to­reflect­s
hift­in­inventory­policy.html
Abelson, R. (2003, March 11). Bristol­Myers Lowers Revenue By $2.5 Billion in Restatement.
The New York Times. Retrieved from
http://www.nytimes.com/2003/03/11/business/bristol­myers­lowers­revenue­by­2.5­billio
n­in­restatement.html
“Antitrust.” (2013). In Investopedia. Retrieved November 15 from
http://www.investopedia.com/ask/answers/09/antitrust­law.asp
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