While investors in Bristol-Myers Squibb ( BMY) focus on whether future drug prospects can overcome the impact of patent expirations, they also are keeping one eye on the company's troubled past. Bond rating agencies and equity analysts worry about the litany of lawsuits, patent challenges, government investigations and other legal matters that occupy six pages of the company's 2002 10-K report (the 2003 version hasn't been issued yet). Many of the legal issues played a role in the weakening of the company's stock in 2001 and 2002 and in a restatement, announced early last year, of financial results from 1999 through 2002. Last April, Moody's Investors Service declared that the company's exposure to litigation risks "is considerably higher than the industry norm," given the fact that the company is being investigated by the Securities and Exchange Commission and the Justice Department. Moody's downgraded the long-term rating on the company last by two notches to A1 from Aa2, affecting approximately $6 billion in long-term debt, and it also placed a negative outlook on the company. On Wednesday, Standard & Poor's placed Bristol-Myers Squibb's corporate credit, senior unsecured deb, short-term corporate credit and commercial paper ratings on its CreditWatch "with negative implications," meaning the rating could be cut. S&P has cut the company's corporate credit rating twice in the last two years. The bond rating firm has several concerns, including the impact of company's internal reviews of its sales, marketing and pricing practices which have been the subject of lawsuits and federal and state inquiries. Six weeks ago, when the company issued its 2003 earnings review and 2004 financial guidance, it reported that it had established $225 million in reserves for the fourth quarter for government investigations and civil lawsuits covering wholesaler, pricing and accounting issues. The company said the reserves reflected "minimum expected probable losses" for these matters. And in a statement that even the most supportive analyst would have to acknowledge, the company warned that "the aggregate impact, beyond current reserves, of these and other legal matters -- is reasonably likely to be material" to operating results and cash flow "and may be material to our financial condition and liquidity." Analysts say the legal matters with the most potential financial damage include allegations in state and federal courts that Bristol-Myers Squibb and other companies overstated prices of certain drugs, enabling prescribers of the drugs to get inflated reimbursements from insurers; allegations that the company and other drugmakers engaged in improper pricing and marketing of drugs covered by Medicare and/or Medicaid; and allegations that the company engaged in improper accounting of inventories.