Updated from 8:37 a.m. EST

Bristol-Myers Squibb ( BMY) said Thursday that fourth-quarter sales dropped 16% as generic competition smacked the anticoagulant Plavix and the cholesterol drug Pravachol.

However, earnings per share of 19 cents beat Wall Street's estimates by 3 cents when one-time items were excluded. By early afternoon, shares were off 54 cents, or 2%, to $26.44.

Once all items were counted, the company lost $134 million, or 7 cents a share, for the three months ended Dec. 31, reversing a profit of $499 million, or 26 cents a share, for the same period in 2005.

The loss was caused primarily by two charges. One was a $220 million charge for early debt retirement, and the other was a $353 million expense for increasing a litigation reserve for a tentative settlement with the Justice Department over past drug pricing and marketing practices.

Bristol-Myers predicted 2007's earnings would be in a range of $1.20 to $1.30 excluding items. Analysts polled by Thomson First Call have projected $1.22 a share for what interim CEO James Cornelius called "a transitional year."

Cornelius replaced Peter Dolan, who was ousted in September. Cornelius told analysts and investors that the board was moving with "all deliberate speed" to hire a permanent CEO, but he offered no timetable.

Fourth-quarter sales fell to $4.2 billion from $5 billion for the year-ago period. Sales of Pravachol plunged 75% to $146 million thanks to the U.S. patent expiration in April. U.S. sales of the drug sank 86% to $50 million.

Sales of Plavix dropped 53% to $496 million during the fourth quarter. Plavix was attacked by cheap copies during three weeks in August after the company failed to make a deal with a Canadian generic-drugmaker to stall a patent challenge.

Canada's Apotex sold generic Plavix until a judge issued an injunction. The injunction will remain in effect until a U.S. court decides a patent infringement suit filed against Apotex by Bristol-Myers and Sanofi-Aventis ( SNY), which licenses the U.S. marketing rights to the New York-based drugmaker.

Oral arguments began Monday. A ruling probably won't be made until mid-2007 at the earliest. The Justice Department is continuing a criminal investigation of the Apotex matter.

Bristol-Myers executives say they can't assess the ultimate damage from generic Plavix because they aren't sure how much inventory is still held by wholesalers. Generic Plavix will have a "residual impact" on the brand-name drug's sales and overall financial results this year, the company said.

Still, Plavix's sales and profits will grow this year "assuming the absence of renewed or additional generic competition," it said.

Generic versions for several other drugs will eat into revenue this year, costing the company $900 million to $1 billion. However, that's less than the $1.4 billion last year and the $1.3 billion in 2005.

Andrew Bonfield, the chief financial officer, said the full-year dividend is expected to be $1.12, the same as in 2006 assuming that Bristol-Myers wins the Plavix patent fight. Dividend payments are a quarterly decision by the board, and a legal loss would force directors to reconsider the payout, he said.

Bonfield added that the company is enacting and exploring plans to cut costs, saying he expects $500 million in savings this year. The company is examining all aspects of its operations, and Bonfield will provide details in the coming months.

Despite the gloomy news about generics, there were encouraging signs from some products. Fourth-quarter sales of Abilify jumped 62% from last year to $362 million, making the schizophrenia drug the company's second-biggest product. The HIV drug Reyataz advanced 36% to $255 million, while sales of the HIV medication Sustiva gained 31%.

Revenue from the cancer drug Erbitux, licensed from ImClone Systems ( IMCL), rose 38% to $167 million. Combined sales of the blood pressure drugs Avapro and Avalide, licensed from Sanofi-Aventis, rose 11% to $307 million.

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