BIOVAIL CORP INTERNATIONAL - 6-K - 20050812 - EXHIBIT_99
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Exhibit 99.3
Second
Quarter
Report 2005
Biovail
Corporation
Q2
Letter to
Shareholders
Dear
Fellow Shareholders,
In
the second quarter of 2005, Biovail Corporation continued to take significant steps toward fortifying its business strategy, while executing strongly against its financial objectives.
To
this end, the first phase of a new Strategic Plan for Biovail — to enhance the return on investment of the Company's U.S. commercial operations,
restructure its approach to selling and marketing products in the primary-care market in the U.S. and generate significant cost savings in 2005 — is
complete. As part of an agreement with Kos Pharmaceuticals, Inc. (Kos), Biovail divested the Teveten and Teveten HCT products and entered into a manufacturing-and-supply
agreement for Cardizem® LA in the U.S. and Puerto Rico. Accordingly, Biovail no longer has an economic interest in the Teveten products, but continues to manufacture, supply and sell
Cardizem® LA to Kos for distribution at contractually determined prices. In consideration for these and other items of the transaction, Kos paid Biovail $105.5 million.
A
critical objective for our organization is to ensure that we have the financial strength to fund our growth. This strength will continue to be based on solid operational performance, and our ability
to execute according to plan.
FINANCIAL PERFORMANCE
Total
revenues for the three months ended June 30, 2005 were $217.4 million, compared with $206.3 million for the second quarter of 2004. Total revenues for the six months ended
June 30, 2005 were $392.7 million, compared with $392.9 million for the first six months of 2004.
Second-quarter
2005 net income, in accordance with U.S. GAAP, was $3.7 million, compared with $44.2 million for the corresponding 2004 period. GAAP diluted earnings per share
(EPS) for the second quarter of 2005 were $0.02, versus $0.28 for the second quarter of 2004. In the first half of 2005, GAAP EPS were $0.09, versus EPS of $0.41 for the first half of 2004.
Second-quarter
and first-half 2005 GAAP net income and EPS figures were impacted by a restructuring charge, a non-cash write-down of assets and the
write-off of certain inventories associated with the Kos transaction. These items negatively impacted net income and EPS by $50.0 million and $0.31, respectively.
Total
product revenues for the second quarter of 2005 were up 4% over the comparable period in 2004. This increase reflects the strong performance of Zovirax®, Biovail's legacy products
and the Company's generics portfolio, partially offset by anticipated declines in Wellbutrin XL®, and Cardizem® LA and Teveten revenues associated with the May 2005 Kos
transaction.
1
PRODUCTS
Revenues
for Wellbutrin XL® in the second quarter of 2005 were $70.5 million, compared with $79.1 million in the prior year period, reflecting a reduction in safety-stock
levels at our marketing partner GlaxoSmithKline (GSK). Wellbutrin XL® continues to strengthen its market position as a leading treatment for depressive illnesses in adults. In
June 2005, Wellbutrin XL® captured 57.5% of the new prescriptions written for the Wellbutrin brand (including generics). In the second quarter of 2005, Biovail entered into the
second tier of its tiered-pricing agreement with GSK.
Biovail's
Zovirax® franchise (Zovirax® Ointment and Zovirax® Cream) generated second-quarter 2005 revenues of $18.3 million, compared with
$7.1 million in the second quarter of 2004, which was impacted by a reduction in wholesaler inventory levels. The Zovirax® franchise held a combined 68.1% share of the topical
herpes market, an increase of 3.5 percentage points in market share versus second-quarter 2004 levels.
Cardizem®
LA revenues were $17.6 million in the second quarter of 2005, compared with $23.6 million in the corresponding period in 2004. The decline reflects the
May 2005 strategic alliance with Kos, whereby Biovail now manufactures and supplies the product to Kos for distribution. Importantly, total prescriptions for Cardizem® LA were up
24% in the second quarter of 2005, indicating a smooth transition of this product to Kos.
Second-quarter
2005 revenues for Biovail Pharmaceuticals Canada (BPC) were $23.7 million, compared with $23.9 million in the second quarter of 2004. Key performance drivers for BPC were
the Tiazac® line and Wellbutrin® SR. Total prescriptions for the Tiazac® line (including Tiazac® XC) increased 15% in the second quarter of 2005, making
it Canada's fastest-growing calcium channel blocker. Launched in January 2005, Tiazac® XC continues to track ahead of expectations and, to date, has gained formulary coverage in
Quebec, Ontario, Manitoba, Saskatchewan and Alberta, and most recently, Nova Scotia.
Total
prescription volume for Wellbutrin® SR decreased 5% in the second quarter of 2005 versus the comparable 2004 period, as a result of the availability of a generic formulation.
REGULATORY HIGHLIGHTS
From
a regulatory perspective, the second quarter of 2005 was one of most the successful in the Company's history.
In
May 2005, Biovail received U.S. Food and Drug Administration (FDA) approval for its orally disintegrating tablet version of tramadol. At this time, we are in late-stage
discussions with potential strategic partners to commercialize Tramadol ODT and its sister product, Tramadol ER. We anticipate hearing from the FDA with respect to our Complete Response to the
Tramadol ER Approvable Letter in September 2005.
Also
in May 2005, Biovail received a Notice of Compliance from the Therapeutic Products Directorate (Canada) for its extended-release version of Glumetza™, a once-daily
formulation of metformin hydrochloride for the treatment of Type II diabetes, which we developed in partnership with Depomed, Inc. Biovail is planning toward launching
Glumetza™ to Canadian physicians in the fourth quarter of 2005 through BPC. In June 2005, Biovail received an Approval Letter from the FDA for Glumetza™ in the
United States. At this time, Biovail is in discussions with potential partners to commercialize this product in the United States.
In
its central nervous system portfolio, Biovail received tentative FDA approval in May 2005 for an orally disintegrating tablet formulation of zolpidem tartrate, indicated for
the short-term treatment of sleep disorders. Final approval for this product is impacted by a patent protecting Ambien until October 2006.
2
MANUFACTURING
In
April 2005, Biovail broke ground on a $27.6-million optimization and expansion project announced in late February for its manufacturing facility in Steinbach. The expansion,
which we expect to be completed in 2006, will add over 60,000 square feet, bringing the facility to 205,000 square feet. The optimization will contribute to the manufacture
of near-term pipeline products, such as Tramadol ER and Venlafaxine EA. In 2004, we produced in excess of 1.4 billion dosage units at Steinbach; we expect to exceed that number in
2005, as a result of increases being driven by growing demand for Wellbutrin XL® and Cardizem® LA.
The
Company's facilities in Puerto Rico at Dorado and Carolina are also preparing for the production of oral disintegrating tablet products, including Zolpidem ODT and Tramadol ODT. They will also
produce 500mg and 1,000mg versions of Glumetza™.
CORPORATE-GOVERNANCE ENHANCEMENTS
In
the second quarter, several more initiatives were undertaken to further enhance Biovail's corporate governance. Most notably, at our Annual and Special Meeting, shareholders elected two new
independent members to the Board — Jamie Sokalsky, Executive Vice-President and Chief Financial Officer of Barrick Gold Corporation and William Wells,
Chief Financial Officer of Bunge Limited. And upon approval of the continuance of Biovail under the Canada Business Corporations Act, my election to the Board was effected.
At
the Annual and Special Meeting, our shareholders also approved changes to the composition of Board Committees, including the dissolution of the Compensation Committee, which has been combined with
the Nominating and Corporate Governance Committee to form the Compensation, Nominating and Corporate Governance Committee. The newly formed Risk and Compliance Committee reviews with management the
risks facing Biovail, and the management of those risks; it will also assist the Board in overseeing the Company's compliance programs.
In
late May, we added a corporate-governance breakout site to Biovail.com. The site includes detailed information pertaining to current practices and procedures related to corporate governance,
including director expectations, Board committees and charters, by-laws, and codes of professional and business conduct.
LOOKING AHEAD
Biovail
is financially strong, ending the second quarter of 2005 with over $245 million in cash. Thus far in 2005, we have executed to plan. We have grown our business organically, paid down
debt and have the resources to execute our strategies.
The
Company's dynamic, flexible commercialization model now enables us to add multiple business units connected to a shared-services organization. We believe a key success factor in this business is
being flexible: if the market changes, we've shown that we can react quickly.
Biovail
currently has over 20 distinct drug-delivery technologies. This depth and breadth allows us to target a wide range of high-value opportunities, and to develop
products with clinically meaningful benefits to patients and physicians. To this end, Biovail has a deep drug-development pipeline, with over 25 products currently in development.
Importantly, our approach to product development is compound-oriented. Tramadol, for example, is the basis of a compound family. While Tramadol ODT and Tramadol ER are the first two members of the
family, Biovail has four other development programs associated with the tramadol molecule. Some of these programs have considerable value, some are more modest, but at the end of the day, we're
focused on the total value of that compound family.
3
Going
forward, Biovail is well positioned for future growth. The Company is focused and well organized, and has the financial strength to execute its long-term strategy.
I
would like to thank our employees and shareholders for their continued support.
/s/
DOUGLAS SQUIRES
Douglas Squires
Chief Executive Officer
4
BIOVAIL CORPORATION
CONSOLIDATED BALANCE SHEETS
In accordance with U.S. generally accepted accounting principles
(All dollar amounts are expressed in thousands of U.S. dollars)
(Unaudited)
June 30
2005
December 31
2004
ASSETS
Current
Cash and cash equivalents
$
245,443
$
34,324
Marketable Securities
1,257
5,016
Accounts receivable
99,017
148,762
Inventories
101,195
110,154
Deposits and prepaid expenses
7,995
16,395
454,907
314,651
Long-term investments
67,043
68,046
Property, plant and equipment, net
179,625
186,556
Goodwill
100,294
100,294
Intangible assets, net
892,819
978,073
Other assets, net
121,755
63,440
$
1,816,443
$
1,711,060
LIABILITIES
Current
Accounts payable
$
33,885
41,120
Accrued liabilities
120,417
82,917
Income taxes payable
22,732
24,594
Deferred revenue
20,530
8,141
Current portion of long-term obligations
24,396
33,465
221,960
190,237
Deferred revenue
103,881
16,525
Deferred leasehold inducements
4,955
4,914
Long-term obligations
423,997
445,471
754,793
657,147
SHAREHOLDERS' EQUITY
Common shares
1,457,264
1,457,065
Stock options outstanding
1,450
1,450
Deficit
(431,845
)
(446,684
)
Accumulated other comprehensive income
34,781
42,082
1,061,650
1,053,913
$
1,816,443
$
1,711,060
5
Three Months Ended
June 30
Six Months Ended
June 30
2005
2004
2005
2004
REVENUE
Product sales
$
204,824
$
197,213
$
365,992
$
372,310
Research and development
6,705
2,673
14,231
6,889
Royalty and other
5,861
6,427
12,428
13,740
217,390
206,313
392,651
392,939
EXPENSES
Cost of goods sold
60,863
59,052
102,954
111,193
Research and development
22,752
15,830
43,239
33,821
Selling, general and administrative
58,051
55,991
133,656
115,449
Amortization
15,477
15,734
31,511
32,839
Write-down of assets
26,560
—
26,560
—
Restructuring costs
18,607
—
18,607
—
Acquired research and development
—
—
—
8,640
202,310
146,607
356,527
301,942
Operating income
15,080
59,706
36,124
90,997
Interest income
912
167
1,290
571
Interest expense
(9,574
)
(8,970
)
(18,471
)
(20,364
)
Foreign exchange loss
(153
)
(1,318
)
(691
)
(356
)
Other expense
(263
)
(3,577
)
(533
)
(2,434
)
Income before provision for income taxes
6,002
46,008
17,719
68,414
Provision for income taxes
2,295
1,800
2,880
3,100
Net income
$
3,707
$
44,208
$
14,839
$
65,314
Earnings per share
Basic
$
0.02
$
0.28
$
0.09
$
0.41
Diluted
$
0.02
$
0.28
$
0.09
$
0.41
Weighted average number of common shares outstanding (000s)
Basic
159,398
159,084
159,391
159,043
Diluted
159,441
159,201
159,444
159,241
6
Six Months Ended
June 30
2005
2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
14,839
$
65,314
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization
50,579
44,009
Amortization and write-down of deferred financing costs
2,074
2,699
Amortization of discounts on long-term obligations
1,344
1,526
Write-down of assets
26,560
—
Acquired research and development
—
8,640
Other
176
(401
)
Changes in operating assets and liabilities
59,358
(14,127
)
Net cash provided by operating activities
154,930
107,660
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on disposal of intangible assets, net of withholding tax
98,127
—
Additions to property, plant and equipment
(11,314
)
(14,155
)
Purchase of marketable securities
(5,470
)
—
Proceeds from sales and maturities of marketable securities
4,618
—
Acquisition of business, net of cash acquired
—
(9,319
)
Acquisition of long-term investments
—
(245
)
Net cash provided by (used in) investing activities
85,961
(23,719
)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of other long-term obligations
(28,500
)
(52,796
)
Repayments under revolving term credit facility, including financing costs
(1,300
)
(122,550
)
Issuance of common shares, net of issue costs
199
3,678
Proceeds on termination of interest rate swaps
—
6,300
Net cash used in financing activities
(29,601
)
(165,368
)
Effect of exchange rate changes on cash and cash equivalents
(171
)
(175
)
Net increase (decrease) in cash and cash equivalents
For additional copies of this report, the annual report on Form 20-F as filed with the United States Securities and Exchange Commission, for quarterly
reports or for further information, please contact Investor Relations.
Corporate Information
TRADING SYMBOL — BVF
New York
Stock Exchange
Toronto Stock Exchange
REGISTRARS AND TRANSFER AGENTS
CIBC Mellon
Trust Company
Toronto, Ontario, Canada
Mellon Investor Services, LLC
New York, New York, USA
The
following words are trademarks of the Company and may be registered in Canada, the United States and certain other jurisdictions: Ativan®, Biovail®,
Cardisense®, Cardizem®, Cardizem® LA, CEFORM™, DrinkUp™, FlashDose®, Glumetza™, Instatab™,
Isordil®, Shearform™, Smartcoat™, Tiazac®, Tiazac® XC, Vasotec® and Vaseretic®.
Wellbutrin®,
Wellbutrin® SR, Wellbutrin XL®, Zovirax® and Zyban® are trademarks of "The GlaxoSmithKline Group of Companies" and are used by
the Company under license.
All
other trademarks mentioned in this report, which are not the property of the Company, are owned by their respective holders and may be licensed to the Company for use in certain markets.
To
the extent any statements made in this report contain information that is not historical, these statements are forward-looking. As such, they are subject to risks and uncertainties, including the
difficulty of predicting U.S. Food and Drug Administration and Canadian Therapeutic Products Directorate approvals, acceptance and demand for new pharmaceutical products, the impact of
competitive products and pricing, new product development and launch, reliance on key strategic alliances, reliance on third parties to distribute, promote and price certain of our key products,
availability of raw materials and finished products, the regulatory environment, tax rate assumptions, the outcome of legal proceedings, fluctuations in operating results and other risks detailed from
time to time in the Company's filings with the Securities and Exchange Commission and the Ontario Securities Commission. Biovail undertakes no obligation to update or revise any forward-looking
statement.
Financial
statements prepared in accordance with Canadian Generally Accepted Accounting Principles are made available to all shareholders.
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