March 13, 2008 / 12:23 PM / 10 years ago

Biovail posts loss as pressure from Melnyk mounts

OTTAWA (Reuters) - Biovail Corp BVF.TO BVF.N reported a fourth-quarter loss on Thursday as charges related to a U.S. class action lawsuit and competition from generic drug makers took their toll.

Canada’s biggest drug maker, under mounting pressure from founder Eugene Melnyk to improve its performance, also said it would terminate immediately one drug development program as part of a sweeping strategic review.

“While 2007 was a difficult year for our shareholders, Biovail’s management team is not complacent in the face of the challenges facing us in 2008,” Chief Executive Doug Squires said on a conference call.

“The comprehensive strategic review we announced this morning is focusing on all key components of the company and we expect it to result in significant change this year.”

Beyond 2008, the company sees “incredible growth” in the next few years, Squires told Reuters in an interview.

Melnyk, who stepped down as chairman last June, said on Thursday he has no confidence in the review and is not satisfied with Biovail’s financial performance. He said he plans to propose an alternate slate of nominees to the company’s board, but will not personally seek election.

Melnyk, Biovail’s largest shareholder, recently told the Toronto-based company that he may sell his shares or link up with an equity partner to buy out the company.

Biovail said it current status reflects decisions made by Melnyk, who resigned as a director and officer at two key subsidiaries on February 25. “Until three weeks ago Mr. Melnyk was ultimately responsible for the company’s drug development pipeline,” Squires said.

A spokesman for Melnyk, who was traveling and unavailable for comment, said “Squires’ comments will be addressed — and corrected — in the proxy circular” Melnyk plans to send.

Biovail said that as part of its review, it will end work on BVF-146, a combination of tramadol and an anti-inflammatory drug, after reassessing the market. Analysts said the decision was not a surprise.

The company wants to focus on highly differentiated drugs that address medical needs not currently met and have long exclusivity periods.

“To the extent we kill programs we will certainly replace them with other attractive candidates,” Chief Financial Officer Ken Howling said. “I wouldn’t want to suggest that we have any intention of taking the throttle off the R&D spending.”

The company plans to bolster its management team as part of the strategy review, which will also study its acquisition targets, global infrastructure, capital structure and litigation strategy. Biovail said it is not focused on selling the company, but would not rule that out.

In its fourth quarter ended December 31, the company lost $32 million, or 20 cents a share. That compares with a profit of $118 million, or 74 cents a share, in the year-before period.

Revenue fell 34 percent to $203.9 million from $307.6 million. Eroded by generic competition, sales of its Wellbutrin XL anti-depressant drug sank 70 percent to $44.4 million.

Adjusted to exclude a range of charges, the company said it earned $72.5 million, or 45 cents a share, in the quarter.

Analysts had expected earnings of 39 cents a share before exceptions, according to Reuters Estimates.

Citigroup analyst Andrew Swanson said it was a strong fourth quarter, but the future is less certain.

“The company did not provide guidance in the press release, referring instead to 2008 as an ‘inflection point in the company’s strategic direction and focus’,” he said in a note. “We do not currently view its near-term opportunities as particularly compelling.”

Charges in the fourth quarter included $83.1 million related to a class action lawsuit that centered on claims Biovail made regarding its hypertension drug Cardizem LA and Wellbutrin XL.

Biovail also took a $10 million charge for a potential settlement of a Securities and Exchange Commission probe, and a $9.9 million charge to write down certain product rights and technology assets.

Biovail shares fell 2 percent to C$12.84 on the Toronto Stock Exchange and 1.7 percent to $13.05 in New York. So far this year, the stock has lost about 4 percent of its value.

($1=$0.99 Canadian)

Reporting by Susan Taylor and Frank Pingue; Editing by Peter Galloway

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