Biovail second-quarter total revenues increase 23% to $238.8 million

Biovail Corporation (NYSE/TSX: BVF) today announced financial results for the three-month and six-month periods ended June 30, 2010. To the extent that this news release contains forward-looking statements, investors are cautioned that these are based on the Company's current views, and actual outcomes are not certain.

“Going forward, I am particularly enthusiastic about our proposed merger with Valeant Pharmaceuticals International, which will create a leading specialty pharmaceuticals company with large cash flows and exciting growth prospects.”

"I am pleased by the strong financial performance in the second quarter of 2010, and the continuation of the positive momentum we've seen over the past two years," said Biovail Chief Executive Officer Bill Wells. "Going forward, I am particularly enthusiastic about our proposed merger with Valeant Pharmaceuticals International, which will create a leading specialty pharmaceuticals company with large cash flows and exciting growth prospects."

Financial Results

Total revenues for the three months ended June 30, 2010 were $238.8 million, compared with $193.5 million for the second quarter of 2009, an increase of 23%. Total revenues for the six months ended June 30, 2010 were $458.4 million, compared with $366.9 million for the first six months of 2009. Second-quarter 2010 net income, in accordance with United States Generally Accepted Accounting Principles (GAAP), was $34.0 million compared with $24.1 million for the corresponding 2009 period, an increase of 41%. Net income for the first half of 2010 was $30.8 million, compared with $63.1 million in the same period a year earlier. On a per-share basis, Biovail recorded GAAP diluted earnings per share (EPS) of $0.21 for the second quarter of 2010, compared with $0.15 for the second quarter of 2009, an increase of 40%. In the first half of 2010, GAAP EPS were $0.19, compared with EPS of $0.40 for the first half of 2009.

Specific Items Affecting Operations

The following table displays specific items that affected results in the second quarter and first half of 2010 and 2009, respectively, and the impact of each individual item on diluted EPS.

In the second quarter of 2010, Biovail's financial performance was affected by a number of items that, in aggregate, negatively impacted net income by $21.2 million and EPS by $0.13. These include $10.2 million (including transaction costs) of in-process research and development (IPR&D) expenses related to the license of istradefylline from Kyowa Hakko Kirin Co., Ltd. ("Kyowa"); $7.6 million in acquisition-related costs, including banking, legal, accounting and other transaction costs, directly related to the proposed merger with Valeant Pharmaceuticals International ("Valeant"); and $2.9 million in restructuring costs, primarily related to employee termination costs as a result of the sale of Biovail's Contract Research Division ("CRD") to Lambda Therapeutic Research Inc. ("Lambda"). Accordingly, EPS Excluding Specific Items was $0.34 in the second quarter of 2010.

In the second quarter of 2009, Biovail's financial performance was affected by a number of items that, in aggregate, negatively impacted net income by $29.4 million and EPS by $0.19. These include $30.4 million (including transaction costs) related to the collaboration agreement with ACADIA Pharmaceuticals, Inc. (ACADIA) for pimavanserin; $11.4 million in restructuring costs, primarily related to the Company's manufacturing facilities in Puerto Rico and its research-and-development site in Mississauga; $5.6 million in transaction costs associated with the acquisition of the worldwide development and commercialization rights to tetrabenazine in June 2009; and $1.5 million in respect of independent consultant costs. Partially offsetting these items were proceeds of $22.0 million in respect of the settlement of arbitration proceedings related to Biovail's investment in auction rate securities. Accordingly, EPS Excluding Specific Items was $0.34 in the second quarter of 2009. For more information concerning EPS Excluding Specific Items, please refer below to "Use of Non-GAAP Financial Measures".

Balance Sheet & Cash Flow

At June 30, 2010, Biovail had cash and cash equivalents of $176.6 million. The Company had $350 million in Convertible Notes outstanding, a $17.5-million obligation related to the tetrabenazine acquisition, and no outstanding borrowings under its committed $410-million revolving credit facility.

Cash flow from operations was $108.9 million in the second quarter of 2010, compared with $97.1 million in the second quarter of 2009. Cash flow from operations before changes in operating assets and liabilities was $86.7 million ($94.2 million excluding acquisition-related costs associated with the Valeant merger) in the second quarter of 2010 and $94.1 million in the prior-year period.

Net capital expenditures in the second quarter of 2010 amounted to $2.9 million, compared with $0.8 million in the prior-year period. The increase reflects costs incurred at Biovail's Steinbach manufacturing facility in connection with the transfer of certain manufacturing and packaging processes from the Company's Puerto Rico manufacturing facilities. In 2010, Biovail anticipates capital expenditures to not exceed $10 million.

Proposed Merger with Valeant Pharmaceuticals International

On June 20, 2010, the boards of directors of Biovail and Valeant Pharmaceuticals International unanimously approved an Agreement and Plan of Merger under which the two companies would merge to create a combined company. Upon the completion of the merger, which is expected to occur before the end of 2010, Biovail shareholders will own approximately 50.5 percent and Valeant stockholders will own approximately 49.5 percent of the shares of the combined company, each on a fully diluted basis.

The merger is subject to approval by Biovail shareholders and Valeant stockholders and the satisfaction or waiver of customary closing conditions and regulatory approvals. On July 22, 2010, the Federal Trade Commission announced the grant of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, with respect to the proposed merger contemplated by the merger agreement. For more information, please see news release "Valeant and Biovail Agree to Merge" issued June 21, 2010.

U.S. Healthcare Reform

U.S. healthcare reform legislation, enacted in March 2010, contains several provisions that may impact Biovail. Although many provisions of the new legislation do not take effect immediately, several provisions became effective in the first half of 2010, including an increase in the minimum Medicaid rebate to states participating in the Medicaid program from 15.1% to 23.1% on branded prescription drugs. Other requirements of the new legislation will begin in 2011, including a new fee to be assessed on manufacturers and importers that sell branded prescription drugs to specified U.S. government programs, including Medicare and Medicaid.

Given the significant uncertainty that currently exists with respect to the legislation, Biovail has made several estimates with regard to important assumptions relevant to determining the financial impact of this legislation on its business. Based on these estimates and assumptions, this new legislation did not have a material impact on the Company's financial condition or results of operations in the second quarter or first half of 2010.

Sale of Non-Core Assets

On April 30, 2010, Biovail entered into an asset purchase agreement to sell its contract research division ("CRD") to Lambda Therapeutic Research Inc. CRD was no longer considered a core asset as a result of the Company's transition to its specialty central nervous system ("CNS") strategy. On July 23, 2010, the Company completed the sale of CRD for net cash proceeds of approximately $6.0 million.

With the sale of CRD, Biovail has realized its target of over $70 million in total gross proceeds from the divestiture and monetization of non-core assets.

Second-Quarter 2010 Financial Performance

The following table summarizes Biovail's product revenue performance in the second quarter and first half of 2010, compared with the corresponding periods in 2009:

Product revenues for the second quarter of 2010 were $231.2 million, compared with $187.7 million in the second quarter of 2009, an increase of 23% that reflects higher revenues from Wellbutrin XL®, Biovail Pharmaceuticals Canada (BPC), tetrabenazine products, the Zovirax® line, the Company's generics portfolio and Legacy products. Partially offsetting factors include lower revenues from Ultram® ER as a result of the introduction of generic competition to the 100mg and 200mg dosage strengths in the fourth quarter of 2009 and from Cardizem® LA as a result of the introduction of generic competition in March 2010. Product revenues for the six months ended June 30, 2010 were $443.3 million compared with $353.1 million for the six months ended June 30, 2009.

Product revenues for Wellbutrin XL® were $54.0 million in the second quarter of 2010, compared with $37.1 million in the corresponding period in 2009. This increase reflects the acquisition of full U.S. commercialization rights to the product in May 2009, partially offset by declining volumes due to the introduction of generic competition. In the first half of 2010, Wellbutrin XL® revenues were $103.8 million, compared with $57.3 million in the first half of 2009.

The supply of Wellbutrin XL® tablets to GlaxoSmithKline for distribution in Europe and other markets generated revenues of $5.4 million in the second quarter of 2010 and $9.8 million in the first half of 2010, compared with $2.6 million and $5.0 million, respectively, in the prior-year periods.

Biovail's global tetrabenazine franchise generated second-quarter 2010 revenues of $21.4 million. Launched in the U.S. in November 2008 by Biovail's marketing partner Ovation Pharmaceuticals, Inc. (now Lundbeck Inc.), Xenazine® generated second-quarter 2010 revenues of $16.3 million from sales in the U.S., compared with $11.0 million in the prior-year period. Further to the acquisition of the worldwide development and commercialization rights to tetrabenazine in June 2009, Biovail recorded $4.0 million in revenues in the second quarter of 2010 from sales of the product in Europe and around the world. In Canada, Nitoman® generated revenue of $1.2 million in the second quarter of 2010, which is included in Biovail Pharmaceutical Canada's revenues.

Aplenzin® generated revenues of $2.1 million in the second quarter of 2010, compared with $1.7 million in the prior-year period. Beginning in April 2010, sanofi-aventis US retained a contract sales organization for promotional activity for Aplenzin®.

Revenues for Biovail's Zovirax® franchise increased to $41.4 million in the second quarter of 2010 and $80.4 million in the first half of 2010, compared with $36.3 million and $69.2 million in the prior-year periods. The increases reflect the impact of price management, partially offset by lower prescription volumes.

Second-quarter 2010 revenues for BPC were $27.9 million, compared with $18.2 million in the prior-year period, an increase of 53%. First-half 2010 revenues for BPC also increased 53% to $51.2 million, compared with $33.5 million in the first half of 2009. This performance reflects the impact of a stronger Canadian dollar, and higher sales volumes for Wellbutrin® XL, Tiazac® XC and Ralivia®, as well as increased demand for Biovail's genericized Tiazac® product, which is attributable to competitors' manufacturing issues. In Canadian dollar terms, BPC product sales increased 30% and 29% in the second quarter and first half of 2010, respectively, compared with the corresponding periods of 2009.

Ultram® ER generated revenues of $6.9 million in the second quarter and $14.8 million in the first half of 2010, compared with $16.6 million and $37.2 million in the corresponding periods in 2009. The year-over-year decrease reflects the November 2009 introduction of generic competition to the 100mg and 200mg dosage strengths of the product (which also had some negative impact on sales of the 300mg product). The launch of a generic formulation of Ultram® ER resulted in a 50% reduction in Biovail's contractual supply price for the 100mg and 200mg dosage-strength products. These factors were partially offset by incremental revenues from the supply of an authorized generic formulation of the 100mg and 200mg dosage strengths.

In the second quarter of 2010, Cardizem® LA generated revenues of $5.4 million, compared with $8.9 million for the corresponding period in 2009. In the first half of 2010, Cardizem® LA generated revenues of $13.0 million, compared with $17.1 million in the first half of 2009. The decreases in sales for the three and six months ended June 30, 2010 reflect lower prescription volumes as a result of the introduction of generic competition (in all dosage strengths except 120mg) in March 2010. The amortization of deferred revenues associated with the May 2005 transaction with Kos Pharmaceuticals, Inc. continues to be reflected in Cardizem® LA revenues at an amount of $3.8 million per quarter.

Legacy products generated revenues of $46.5 million in the second quarter of 2010 and $89.0 million in the first half of 2010, compared with $40.6 million and $81.1 million in the corresponding periods in 2009, respectively. This performance primarily reflects the impact of price increases, which more than offset lower prescription volumes. In addition, sales of generic Tiazac® (distributed by Forest Laboratories, Inc. ("Forest")) were favourably impacted in the second quarter and first half of 2010 due to competitors' manufacturing issues.

In March 2010, Biovail Laboratories International SRL ("BLS") entered into a settlement agreement with Sun Pharmaceutical Industries, Ltd., India, ("Sun") with respect to patent litigation related to Sun's Abbreviated New Drug Application for a generic version of Cardizem® CD. Under the terms of the settlement and license agreements, which were submitted to the U.S. Federal Trade Commission and U.S. Department of Justice pursuant to Section 1112(a) of the Medicare Prescription Drug Improvement and Modernization Act of 2003, BLS has granted Sun a non-exclusive license (without the right to sublicense) to distribute various dosage strengths of Sun's generic formulation of Cardizem® CD in the U.S., upon receipt of regulatory approval from the FDA, subject to certain limitations on the sales quantities of the 360mg dosage strength. Sun will pay BLS a royalty based on net sales of the various dosage strengths of its generic formulation. The license term ends August 8, 2012 - the date the last Cardizem® CD patent expires. To date, Sun has not launched its generic product in any strength.

Product revenue for Biovail's portfolio of generic products was $26.1 million in the second quarter of 2010, compared with $17.2 million in the second quarter of 2009. In the first half of 2010, Biovail's generic products generated revenues of $47.2 million, compared with $34.0 million in the first half of 2009, reflecting higher sales of generic Cardizem® CD, which was attributable to competitors' manufacturing issues and which more than offset lower overall prescription volumes and pricing for other of these products.

Research and development (R&D) revenue was $2.7 million in the second quarter of 2010 and $5.6 million in the first half of 2010, compared with $3.3 million and $7.0 million, respectively, in the prior-year periods. The decrease reflects lower volume of clinical research and laboratory testing services provided to external customers by CRD, partially offset by the positive impact of the strengthening of the Canadian dollar relative to the U.S. dollar. Following the sale of the CRD, revenue generated periodically from other R&D activities is expected to be inconsequential to Biovail's total revenues.

Royalty and other revenue was $4.8 million in the second quarter of 2010 and $9.5 million in the first half of 2010, compared with $2.6 million and $6.8 million in the corresponding periods in 2009, respectively. The increases are due mainly to royalties earned on sales of generic Tiazac® by Forest and generic Cardizem® CD by other third parties.

Cost of goods sold excluding amortization of intangible assets for the second quarter of 2010 was $63.9 million in the second quarter and $122.8 million in the first half of 2010, compared with $50.1 million and $94.9 million, respectively, in the corresponding periods in 2009. The increases reflect higher revenues in 2010, the increased cost basis for Zovirax®, product mix (including a meaningful contribution from Xenazine® and lower volumes of Ultram® ER in 2010), the impact of lower labour and overhead costs at the Company's Puerto Rico manufacturing facilities and the negative impact on labour and overhead costs in its Steinbach, Manitoba facility as a result of the strengthening of the Canadian dollar relative to the U.S. dollar.

R&D expenditures were $37.3 million for the second quarter of 2010 and $104.1 million for the first half of 2010, compared with $44.7 million and $59.2 million for the corresponding periods in 2009, respectively. R&D expenditures in the second quarter of 2010 include $10.2 million in IPR&D associated with the license of istradefylline from Kyowa in April 2010. Excluding IPR&D and expenses associated with CRD, R&D expenses were $23.6 million in the second quarter and $36.2 million in the first half of 2010, compared with $10.7 million and $21.8 million, respectively, in the prior-year periods. This increase reflects heightened activity within Biovail's development pipeline. In the second quarter, BLS terminated development of BVF-324 (tramadol hydrochloride for premature ejaculation) as a result of the reassessment of the commercial opportunity for the product. As a result of the cancellation of this program, direct project spending in the second half of 2010 will be lower than the Company originally anticipated.

Selling, general and administrative (SG&A) expenses for the second quarter of 2010 were $45.1 million, compared with $49.5 million in the second quarter of 2009. SG&A expenses for the first half of 2010 were $88.6 million, compared with $92.7 million in the corresponding period in 2009. Included in SG&A expenses for the second quarter of 2010 were $0.5 million in indemnity obligations to certain former officers, compared with $7.6 million in the second quarter of 2009. On a normalized basis, SG&A expenses in 2010 reflect higher sales and marketing costs, higher compensation expense related to deferred share units, and the negative impact of the strengthening of the Canadian dollar relative to the U.S. dollar.

Amortization expense was $33.3 million in the second quarter of 2010 and $66.6 million in the first half of 2010, compared with $21.8 million and $37.3 million in the second quarter and first half of 2009, respectively. The increase in 2010 reflects the inclusion of amortization expense associated with the acquisitions of the U.S. commercialization rights to Wellbutrin XL® in May 2009 and the worldwide development and commercialization rights to tetrabenazine in June 2009.

Biovail recorded interest expense of $10.0 million in the second quarter and $19.8 million in the first half of 2010, compared with $4.0 million and $4.4 million, respectively, in the prior-year periods. The figures in 2010 reflect cash interest on $350 million in Convertible Notes (issued June 2009) as well as non-cash expenses of $4.2 million in the second quarter and $8.3 million in the first half of 2010, compared with $1.0 million and $1.1 million, respectively in the 2009 period, due to the amortization of debt discounts on the Convertible Notes and on the obligation to Cambridge Laboratories (Ireland) Ltd. (related to the tetrabenazine acquisition in June 2009) and the amortization of deferred financing costs associated with the Convertible Notes and the credit facility.

Cash EPS

Beginning in the first quarter of 2009, Biovail reports Cash EPS with its quarterly financial results, which it calculates as cash flows from operating activities excluding changes in operating assets and liabilities divided by the weighted-average number of shares outstanding. Cash EPS excludes changes in operating assets and liabilities because they are subject to timing variability that could result in fluctuations not reflective of operating results.

In the second quarter of 2010, Cash EPS was $0.54 compared with $0.59 in the second quarter of 2009. Excluding specific items, shown in Table 1 below, Cash EPS was $0.60 in the second quarter of 2010, compared with $0.52 in the second quarter of 2009, an increase of 17%. For more information concerning Cash EPS, please refer below to "Use of Non-GAAP Financial Measures."

Source:

Biovail Corporation

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