Just like in Kenny Rogers' hit song "The Gambler," pharmaceutical company Bristol-Myers Squibb
The cases go all the way back to 2002, when the attorneys general of several states accused multiple pharmaceutical companies of using all sorts of rebate and other schemes to make wholesale drug prices appear to be higher than they actually were. The advantage to doing this is that the pharmas then get reimbursed by Medicare and other government agencies at a higher rate than they otherwise would.
In settling the charges against it, Bristol-Myers has agreed to pay $499 million. In return, no criminal or civil charges will be filed against it. As a result of this large settlement, Bristol-Myers will increase its reserves for the case by $353 million. Combined with a newly announced $220 million debt-restructuring charge, BMY lowered its 2006 GAAP earnings per share to a range of $0.72-$0.77 from the previous $0.97-$1.02 the company was expecting at the end of the third quarter.
This latest settlement completes a long list of penalties that BMY has paid out to government agencies and individuals over its sales practices. In 2000, BMY had the channel-stuffing imbroglio, in which it shipped off more drugs than wholesalers needed in order to bolster its earnings in certain periods. Then BMY paid out settlements over allegations of anti-competitive practices and attempts to keep generic versions of its top drugs off the market.
These various scandals have now cost Bristol-Myers well more than $1.3 billion just in cash paid out as part of settlements or fines, not to mention the millions in dollars of litigation and lawyers' fees. Of course, these are all one-time expenses to BMY, but looking at things in a more pessimistic light, all these charges have amounted to a minimum of $0.65 a share in lost earnings for BMY. That's some major moola, and with shares of BMY trading at roughly $26 a stub, that amount represents nearly a 3% one-time dividend payout. Ouch! Hopefully BMY's new management realizes this and doesn't engage in any scandalous activities in the future.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .
