Bristol-Myers Squibb Co. overstated sales by $2.5 billion for 1999 to 2001 by encouraging wholesalers to purchase more drugs than they could sell, forcing the company Monday to cut $900 million from its previously reported earnings.
The company, whose chief executive, Peter Dolan, has been criticized for his management and a plunging stock price, said the long-awaited restatement of earnings was due to "errors and inappropriate accounting."
"This seems to clean up their accounting and give us some idea of the true earnings power of Bristol-Myers even though the company's presentation was very confusing and disorganized," said Larry Smith, a drug analyst for Gerard Klauer Mattison & Co, who rates Bristol a "buy."
Drug makers often coax wholesalers to buy more of their products than they immediately can sell. But analysts have said the magnitude of Bristol-Myers' sales incentives in recent years may have been unprecedented. Despite Bristol-Myers' efforts to boost sales, earnings growth has slowed over the last two years as patents expired on three of the New York-based company's biggest-selling drugs.
Shares fell 29 cents or 1.3% on Monday to $22.51 on the New York Stock Exchange.
The Securities and Exchange Commission launched a probe last July into the company's accounting, after Bristol-Myers said it had encouraged wholesalers to stock up on drugs by offering incentives.
By encouraging wholesalers to stock up on excess supplies -- a practice known as channel-stuffing -- companies can book revenue before the products are sold to end users.
The largest misstatement, which is for earnings excluding discontinued operations, took place in 2001, when Bristol-Myers booked an excess of $1.44 billion in revenue as wholesalers stocked up on drugs such as Glucophage, its diabetes treatment, and Plavix, to prevent blood clots.
In May 2001, Dolan became chief executive. Since then he has been under fire for a series of missteps, including mismanaging inventory, a $2-billion investment in ImClone Systems Inc. and Bristol-Myers' filing of inappropriate patents to extend monopolies on its drugs.
Bristol-Myers lowered its 1999 operating earnings by about $300 million to $3.5 billion; 2000 profit was lowered by about $200 million to $3.9 billion; and 2001 earnings were reduced by about $400 million to $2.1 billion.
The company said earnings were $221 million higher than previously reported for the first six months of 2002, while sales were $650 million higher.
For the third quarter, earnings were $46 million higher than reported; sales were $366 million higher.