TORONTO (Reuters) - Biovail Corp’s shareholders will know later this week whether they have plotted a course that could dramatically change the future of Canada’s biggest publicly traded drugmaker.
The shareholders, who have seen the stock plunge 45 percent in the past four years, could vote for a new slate of directors floated by founder Eugene Melnyk and headed by a former chief executive, who promise a return to the former glory days. Or they may stay the course with the incumbent slate and a radical shift in the company’s drugmaking strategy.
A decision is expected to be announced at an annual meeting on Wednesday, though the results may come ahead of that.
Proxy battles have become more frequent in recent years, but few have seen a founder so passionate about ousting the present board as Melnyk, who is also the biggest shareholder with a 12 percent stake.
Melnyk, who founded the company almost 20 years ago and held numerous posts before stepping down last year, decided to oppose the board, he says, after losing confidence in Biovail’s corporate strategy and the board’s abilities earlier this year.
In Melnyk’s plan, a development committee headed by Bruce Brydon - who was CEO from 1995 to 2001 - will emphasize the drug pipeline, including a return to so-called “difficult to manufacture” generic pharmaceuticals and acquiring more products and technologies.
Meanwhile, the present board under newly appointed chief executive Bill Wells stands behind its strategic changes unveiled last month, including shutting down operations in Puerto Rico and shifting to new treatments for disorders of the central nervous system.
Earlier this month, CEO Bill Wells said the dissident plan was “out of touch” with the changing pharmaceutical industry, and was simply a ploy for Melnyk to make the most of his 12-percent stake in the company.
“This is an election. The final results haven’t been tabulated, but we are confident and continue to believe that shareholders want an independent Biovail,” said a Biovail spokesman.
A return to the days when the company was the darling of the pharmaceutical industry might seem attractive, but many analysts believe that path is ridden with its own troubles.
“We don’t think the dissidents have a platform that is any better than the incumbents have,” said John Maletic, an analyst at Scotia Capital. “There is also the ‘Melnyk factor’ that skews things.”
That Melnyk connection seems to be the deal breaker for many, as he is associated with a cloudy several past years for Biovail, in which he and the company have seen more than their fair share of regulatory and legal issues.
These include lawsuits stemming from an October 2003 truck accident involving a shipment of its Wellbutrin drug. Biovail’s disclosure of the impact of the accident on its 2003 results resulted in U.S. Securities and Exchange Commission charges.
The SEC alleged that Biovail and some of its executives schemed to deceive investors by falsely attributing nearly half of Biovail’s failure to meet its third quarter forecast to a single truck accident.
Indeed, at least two leading independent proxy voting and corporate governance advisory firms, RiskMetrics Group and Proxy Governance Inc, have recommended that Biovail shareholders vote for all the company’s director nominees.
“This has been very distracting to current management,” said Maxime Paris, an analyst at CIBC World Markets in Montreal, who recently downgraded the stock on worries of its growth prospects and limited pipeline.
“If the incumbents win hands down they can at least change their focus and work on their plan. Now they are going to know what they are doing. But if the dissidents come in then they will probably polish their plan and there will be lots of changes.”
In late morning trading, Biovail’s shares were up 6 Canadian cents, or 0.6 percent, at C$10.85, on the Toronto Stock Exchange.
Reporting by Scott Anderson; Editing by Bernadette Baum.