Bristol-Myers Squibb said Thursday that the Securities and Exchange Commission is investigating sales tactics that may have boosted the company’s revenue by $1 billion last year, a move that means the SEC can subpoena information.
The investigation began as a more informal inquiry in April. It may result in the company having to restate its 2001 revenue, Bristol said in an SEC filing last week.
At issue is whether Bristol used sales incentives to get wholesalers to overstock their shelves with diabetes treatment Glucophage and several other products, driving up revenue and helping the company meet sales targets.
Analysts say the SEC may be looking at whether Bristol adequately notified investors that those marketing efforts would hurt earnings this year.
In April, Bristol said earnings projections could fall 30% from last year’s totals because many wholesalers remain overstocked. Some analysts are expecting up to a 50% decline.
The SEC would not confirm the investigation.
Bristol, in written statements, said it is cooperating with the SEC and defended its accounting of the inventory buildup as ”appropriate.” Its share price fell 77 cents, or 3%, to $24.29 Thursday.
One reason for elevating an inquiry to a formal investigation is if the SEC has difficulty getting documents, either from the subject of the investigation or third parties such as accounting firms, says former SEC general counsel David Becker, now with a private law firm in Washington.
A formal investigation, which is approved by the commission, gives investigators subpoena power, says Becker, who was not commenting specifically on Bristol.
Analyst Len Yaffe of Banc of America Securities says the investigation ”is not extremely significant because it’s looking at an issue in the past.”
Still, the investigation adds to the difficulties faced by Bristol this year. First, the Food and Drug Administration ( news – web sites) declined to review ImClone Systems’ cancer drug Erbitux shortly after Bristol agreed to pay $2 billion for a 20% share in ImClone. So far, Bristol has written off $875 million from that purchase.
Not long after, Bristol learned that its anticipated heart drug, Vanlev, was little more effective than a generic.
Bristol also faces lawsuits by 29 states alleging it used anti-competitive tactics to prevent generic competition to its anxiety drug BuSpar and its cancer drug Taxol.