Drugmaker Bristol-Myers Squibb Co. (BMY) on Thursday said the federal government is conducting a criminal antitrust probe of a settlement that would allow the company to stave off generic competition for its best-selling product for years.

Its shares fell 7 percent to $24.18 in late-morning trade on the New York Stock Exchange.

Settlements to delay the sale of generic drugs are coming under increased scrutiny from U.S. regulators and lawmakers, who fear consumers are being denied access to less-expensive medicines.

Bristol-Myers also reported its second-quarter profit fell sharply, but beat Wall Street expectations, hurt by generic competition for its drugs for cholesterol, infections and cancer.

Bristol said the probe by the U.S. Department of Justice is related to a settlement between Bristol and Sanofi-Aventis, its U.S. marketing partner for the anti-clotting medicine Plavix, and generic drugmaker Apotex.

Plavix accounts for 30 percent of Bristol's profits.

"This criminal probe will scare many investors in the short term, but I don't think the eventual financial impact will be too great," said Shaojing Tong, an analyst with Mehta Partners.

Bristol and Sanofi-Aventis had been locked in a high-stakes U.S. patent battle with Apotex, which had hoped to soon launch a cheaper generic form of Plavix, the world's second-biggest drug.

Under the proposed settlement, Apotex, based in Canada, would not begin selling its copycat drug until June 2011. The deal, which had eased investor concerns about Bristol's financial future, has been under review by the U.S. Federal Trade Commission.

Bristol-Myers said the Justice Department's Antitrust Division is probing the settlement,

"We do not have any specific information on the basis for or the focus of the investigation," Bristol spokesman Tony Plohoros said. He said the company's conduct related to the proposed settlement was "entirely appropriate."

Tong said he believes that if the settlement is rejected, Bristol will resume its patent-infringement claims against Apotex and prevail in court.

If the patent battle resumes, Dresdner Kleinwort analyst Benjamin Yeoh said a court decision would be unlikely until 2008, keeping the Apotex generic version at bay until then.

Bristol-Myers said it earned $667 million, or 34 cents per share, in the second quarter. That compared with a profit of $991 million, or 50 cents per share, in the year-ago period when results were bolstered by tax benefits.

Excluding special items, Bristol-Myers earned 35 cents per share. Analysts, on average, expected 32 cents per share, according to Reuters Estimates.

Revenue edged down to $4.87 billion in the quarter, from $4.89 billion a year ago.

Sales of Plavix jumped 18 percent to $1.15 billion, while revenue from schizophrenia treatment Abilify jumped 35 percent to $324 million. Sales of cancer drug Erbitux rose 76 percent to $172 million.

But sales of cholesterol fighter Pravachol were cut almost in half, to $323 million, on competition from cheaper generic forms of the drug.

For the full-year, Bristol forecast earnings of $1.15 to $1.25 per share, reflecting a decline of 12.5 percent to 19.5 percent from 2005. Bristol said earnings will also be hit by research and development spending and the cost of launching new products.

The company expects sales of recently approved products to help restore earnings growth in 2007. The new products include Orencia for rheumatoid arthritis, leukemia treatment Sprycel and Baraclude for hepatitis B.