June 26, 2008 / 1:57 AM / 9 years ago

Biovail shares drop on uncertainty over strategy

TORONTO (Reuters) - Shares of Biovail Corp BVF.TO dropped almost 5 percent on Thursday amid uncertainty about the growth prospects of the biotech company and concern over more legal wrangling over a leadership challenge.

A shareholder vote on Wednesday overwhelmingly rejected a dissident slate of directors proposed by Biovail founder Eugene Melnyk, in favor of the current board. But Melnyk plans to challenge the result in court on July 8.

Melnyk argues the meeting was improperly held because it lacked a quorum, after he pulled his shares from the vote. The company then passed a special bylaw to allow voting to proceed.

Biovail said on Thursday it was “confident the court will confirm the validity” of its annual meeting.

Even so, the shares, which were as high as C$27.68 on the Toronto Stock Exchange 11 months ago, were off 4.7 percent, at C$10.34 on Thursday, just above their March 24 low of C$10.30.

Melnyk withdrew his shares after learning that about 10 percent of the shares voted in favor of the management slate had been withdrawn. That suggested to him a shift in momentum toward his proposal.

Melnyk was traveling on Thursday and was not immediately available for comment. Should he lose the legal battle, the colorful owner of the Ottawa Senators National Hockey League team said he would launch his own drug start-up company.

Biovail’s sliding share price may also reflect underlying investor uncertainty with the company’s strategy.

On Wednesday, a five-minute presentation by the recently installed chief executive raised more questions than it answered, said Claude Camire, an analyst at Paradigm Capital, in a note to investors.

The company is pitching a number of strategic changes, including shutting down operations in Puerto Rico and shifting to new treatments for disorders of the central nervous system.

“We do not believe that Biovail’s board, and its new CEO, Bill Wells, (have) fully thought out the firm’s transition from drug delivery products to niche products. The plan still appears to be very much in the early stages of development,” Camire wrote.

The analyst, who downgraded the company to “hold” from “buy,” argued that a strategy to develop new drugs with a focus on central nervous system diseases “carries a much higher risk” than its previous business in reformulated drugs.

Camire said developing new drugs requires huge capital, longer clinical trials and management expertise.

Melnyk, who founded the company 20 years ago and held a number of positions before stepping down last year, has proposed a plan that emphasizes the company’s product pipeline, including a return to “difficult to manufacture” generic drugs, as well as acquiring more products and technologies.

The company believes Melnyk’s plan is not suited to current market conditions.

“Staying the course or focusing fully on drug delivery is not a viable long-term strategy. There are many indications of that in the market,” Biovail spokesman Nelson Isabel said on Thursday.

($1=$1.01 Canadian)

Reporting by Scott Anderson; Editing by Frank McGurty

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