Bristol-Myers Is Sued by 29 States Over Its Efforts to Protect Taxol

By Gardiner Harris

The Wall Street Journal,  June 5, 2002

Bristol-Myers Squibb Co. is being sued by attorneys general from 29 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico, who allege that the drug maker illegally delayed for years generic competition to its huge-selling cancer drug, Taxol -- costing states and patients billions of dollars.

The suit, filed in U.S. District Court in Washington, claims that Bristol-Myers made "knowing, willful and fraudulent material misrepresentations" to the U.S. patent office to get patents on Taxol and delay generic competitors. The attorneys general cited the Sherman antitrust act in their suit, meaning Bristol-Myers could be subject to triple actual damages. "We're talking about billions of dollars," said Richard Blumenthal, Connecticut's attorney general.

Bob Laverty, a Bristol-Myers spokesman, said in a statement that the attorneys general had "chosen to enter late in the litigation." Most of the states' allegations were made last year by Miami attorney Michael Criden, who filed a suit in the same court against Bristol-Myers representing a group of plaintiffs seeking class-action status. "We will continue to deal with the issues raised by this new suit as we have been doing with other litigation related to these matters," Mr. Laverty said.

Tuesday's lawsuit is part of a growing wave of litigation against U.S. drug makers over their use of legal maneuvers to fend off generic competitors to big-selling drugs that are losing patent protection. Major drug makers, with the notable exception of Merck & Co., routinely use additional patent claims to delay generic competition to big-selling drugs. The new antitrust suit puts pharmaceutical companies on even higher alert that their actions are being closely scrutinized.

Bristol-Myers already faces similar suits from states' attorneys general, consumer groups and a generic maker regarding its defense of anxiety drug Bu-Spar. The Federal Trade Commission is investigating both the BuSpar and Taxol cases as well as the entire industry over alleged anticompetitive tactics.

Bristol-Myers shares were down $1.18 at $28.65 in 4 p.m. New York Stock Exchange composite trading. The suit traces the history of Taxol, a drug derived from the bark of the Pacific yew tree and discovered by researchers at the National Institutes of Health. Bristol-Myers licensed the drug from the NIH in 1991 for a paltry 0.5% royalty. Members of Congress griped at the time that Bristol-Myers was getting a steal and charging far too much for a drug discovered with public money. To mollify these concerns, Bristol-Myers assured government officials that generic versions would be available by 1998. "Taxol was never patented and no patent is even possible," Zola Horovitz, a Bristol-Myers vice president, told a congressional committee on Jan. 25, 1993.

Meanwhile, Bristol-Myers lawyers were feverishly working to get two patents on Taxol by claiming that Bristol-Myers's scientists had figured out that the drug could be given during three-hour infusions instead of a more taxing 24-hour infusion. In fact, the three-hour infusion therapy had long been known, but Bristol-Myers didn't disclose to the patent office an earlier study proving three-hour infusions worked, according to a decision by a federal judge. At the same time, however, Bristol-Myers provided that same study to the Food and Drug Administration to prove that the drug was safe to sell, the judge's decision found.

With patents in hand, Bristol-Myers sued Ivax Corp., which hoped to launch a generic version by 1998. The patents and legal maneuvering that eventually involved American BioScience kept Ivax's cheaper version of Taxol off the market until October 2000. Meanwhile, Bristol-Myers racked up billions in sales. Mr. Blumenthal said this delay cost desperate patients dearly -- and may have prevented some from getting life-saving treatment.

There is little doubt that Bristol-Myers went well beyond common industry practice in fighting off competition to Taxol. The question before the court is whether its actions were illegal.

"Filing blatantly false patent applications is not permissible," said Eliot Spitzer, New York State's attorney general. "It's against antitrust laws and for good reasons."

Bristol-Myers has been awash in bad news lately. Generic competition has ravaged sales of Taxol, BuSpar and its diabetes drug, Glucophage. A sales-incentive program last year lured wholesalers to load up on Bristol-Myers drugs and they now have to work through excess inventory. Earnings this year could be half last year's.

The suits could accelerate challenges to Taxol patents abroad, where the company had hoped sales of the chemotherapy treatment would continue to grow. Worse, the company's most promising follow-on to Taxol -- a monoclonal antibody licensed from ImClone Systems Inc. called Erbitux -- is under a cloud after federal regulators rejected its initial application because of problems with its human trials. And its labs have been largely unproductive since the 1980s.

Bristol-Myers put aside $125 million in the first quarter as a litigation reserve, but that may be just a first installment. The lawsuits that the beleaguered company is facing could also scare away potential suitors.

American BioScience was not sued but is named as a co-conspirator. "The concept of collusion between ABI [American BioScience Inc.] and BMS [Bristol-Myers Squibb] and the other allegations are false and without merit," said Lew Phelps, a spokesman for American Bioscience.