-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LRoZecoUFwmDSpmxmvZWgpOKBUp56LYbYDHVQbWb9JD72ra6SqHvYgtazyW/8Sun 17aelxbkxH0Ru8LST5udmw== /in/edgar/work/20000530/0000912057-00-026714/0000912057-00-026714.txt : 20000919 0000912057-00-026714.hdr.sgml : 20000919 ACCESSION NUMBER: 0000912057-00-026714 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000530 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOVAIL CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000885590 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 001-14956 FILM NUMBER: 646044 BUSINESS ADDRESS: STREET 1: 2488 DUNWIN DR STREET 2: MISSISSIAUGA CITY: ONTARIO STATE: A6 BUSINESS PHONE: 4162856000 MAIL ADDRESS: STREET 1: 2488 DUNWIN DR STREET 2: MISSISSAUGA CITY: ONTARIO STATE: A6 6-K 1 a6-k.txt 6-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 6-K REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13A -- 16 AND 15D -- 16 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 001-11145 ------------------------ BIOVAIL CORPORATION (Translation of registrant's name into English) 2488 DUNWIN DRIVE, MISSISSAUGA, ONTARIO L5L 1J9, CANADA (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (416) 285-6000 --------------------- Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F FORM 20-F _X_ FORM 40-F ___ Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the commission pursuant to Rule 12g 3-2 (b) under the Securities Exchange Act of 1934. YES ___ NO _X_ BIOVAIL CORPORATION QUARTERLY REPORT THIS REPORT OF FOREIGN ISSUER ON FORM 6-K IS INCORPORATED BY REFERENCES INTO THE REGISTRATION STATEMENT ON FORM S-8 OF BIOVAIL CORPORATION (REGISTRATION NO. 333-92229) INDEX PART I. FINANCIAL INFORMATION Consolidated Balance Sheets, March 31, 2000 and December 31, 1999......................................... 2 Consolidated Statements of Income (Loss) for the three months ended March 31, 2000 and 1999...................... 3 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999............................. 4 Condensed Notes to Consolidated Financial Statements........ 5 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 13 PART II. OTHER INFORMATION Operational Information..................................... 18 Legal Proceedings........................................... 19 Material Issued to Shareholders............................. 19 Additional Developments..................................... 19 Consolidated Financial Statements in U.S. dollars and in Accordance with Canadian Generally Accepted Accounting Principles................................................ 19
(ALL DOLLAR AMOUNTS IN THIS DOCUMENT ARE EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE STATED.) 1 BIOVAIL CORPORATION CONSOLIDATED BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP (All dollar amounts are expressed in thousands of U.S. dollars) (Unaudited)
MARCH 31, DECEMBER 31, 2000 1999 ---------- ------------- ASSETS CURRENT Cash and cash equivalents $ 475,670 $ 178,086 Short-term investments 19,547 65,893 Accounts receivable 75,577 60,571 Inventories (Note 2) 18,130 12,701 Assets held for disposal (Note 3) -- 20,000 Deposits and prepaid expenses 1,984 3,172 --------- --------- 590,908 340,423 LONG-TERM INVESTMENTS (Note 4) 3,190 12 PROPERTY, PLANT AND EQUIPMENT, net 47,193 45,300 OTHER ASSETS, net (Note 5) 89,878 86,478 --------- --------- $ 731,169 $ 472,213 ========= ========= LIABILITIES CURRENT Accounts payable $ 26,521 $ 22,685 Accrued liabilities 26,813 31,107 Income taxes payable 3,412 3,585 Customer prepayments 4,473 4,962 Deferred tax liability 336 336 Current portion of long-term debt (Note 6) 1,318 12,016 --------- --------- 62,873 74,691 DEFERRED TAX LIABILITY 4,614 4,698 CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES (Note 7) 300,000 -- LONG-TERM DEBT (Note 6) -- 125,488 --------- --------- 367,487 204,877 --------- --------- SHAREHOLDERS' EQUITY Common shares, no par value, unlimited shares authorized, 64,731,000 and 62,196,000 issued and outstanding at March 31, 2000 and December 31, 1999, respectively (Note 8) 475,470 373,962 Warrants 8,244 8,244 Warrant subscription receivable (1,005) (2,287) Deficit (120,741) (113,843) Accumulated other comprehensive income 1,714 1,260 --------- --------- 363,682 267,336 --------- --------- $ 731,169 $ 472,213 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 2 BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) IN ACCORDANCE WITH U.S. GAAP (All dollar amounts except per share data are expressed in thousands of U.S. dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------- 2000 1999 ----------- ----------- REVENUE Product sales $ 33,631 $ 12,562 Research and development 10,501 6,077 Royalty and licensing 2,728 8,952 ----------- ----------- 46,860 27,591 ----------- ----------- EXPENSES Cost of goods sold 11,035 5,039 Research and development 11,766 5,324 Selling, general and administrative 9,839 6,468 ----------- ----------- 32,640 16,831 ----------- ----------- OPERATING INCOME 14,220 10,760 INTEREST EXPENSE, net (266) (2,792) ----------- ----------- INCOME BEFORE INCOME TAXES 13,954 7,968 PROVISION FOR INCOME TAXES 813 533 ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 13,141 7,435 EXTRAORDINARY ITEM -- Premium paid on early extinguishment of U.S. Dollar Senior Notes (Note 6) (20,039) -- ----------- ----------- NET INCOME (LOSS) $ (6,898) $ 7,435 =========== =========== BASIC EARNINGS (LOSS) PER SHARE (Note 9) Income before extraordinary item $ 0.21 $ 0.15 Extraordinary item (0.32) -- ----------- ----------- Net income (loss) $ (0.11) $ 0.15 =========== =========== DILUTED EARNINGS (LOSS) PER SHARE (Note 9) Income before extraordinary item $ 0.19 $ 0.15 Extraordinary item (0.29) -- ----------- ----------- Net income (loss) $ (0.10) $ 0.15 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 9) Basic 62,792,000 49,207,000 =========== =========== Diluted 70,261,000 50,388,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS IN ACCORDANCE WITH U.S. GAAP (All dollar amounts are expressed in thousands of U.S. dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31, -------------------- 2000 1999 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (6,898) $ 7,435 Depreciation and amortization 5,540 1,489 Deferred income tax recovery (84) -- Extraordinary item -- Premium paid on early extinguishment of U.S. Dollar Senior Notes (Note 6) 20,039 -- Compensation cost for employee stock options -- 281 --------- -------- 18,597 9,205 Change in non-cash operating items: Decrease (increase) in accounts receivable (12,340) 1,466 Increase in inventories (5,550) (3,030) Decrease in deposits and prepaid expenses 1,188 45 Decrease in accounts payable and accrued liabilities (3,241) (383) Decrease in income taxes payable (177) (386) Increase (decrease) in customer prepayments (489) 9,440 --------- -------- (20,609) 7,152 --------- -------- (2,012) 16,357 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment, net (3,929) (1,611) Maturity of short-term investments, net 46,346 -- Acquisition of long-term investments (2,285) -- Proceeds from assets held for disposal (Note 3) 17,000 -- Decrease in other assets 261 -- Advance of executive stock purchase plan loans -- (52) --------- -------- 57,393 (1,663) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common shares 102,298 1,424 Repurchase of common shares -- (14,933) Issuance of convertible subordinated preferred equivalent debentures, net of financing costs 290,312 -- Repurchase of U.S. Dollar Senior Notes (Note 6) (141,017) -- Reduction in other long-term debt (10,651) (300) Collection of warrant subscription receivable 1,282 640 --------- -------- 242,224 (13,169) --------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (21) (548) --------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 297,584 977 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 178,086 78,279 --------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 475,670 $ 79,256 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 4 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES CHANGE IN ACCOUNTING REPORTING CONVENTION Biovail Corporation ("Biovail" or the "Company") has historically reported its consolidated results in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Beginning with the period ended March 31, 2000, the Company began to report its financial results in accordance with United States GAAP. Historical consolidated results have been restated to reflect this change. The decision to provide U.S. GAAP financial results was driven by the Company's desire to make it easier for the majority of its shareholders to assess the Company's financial performance by using accounting rules that are more familiar to these shareholders. This presentation is also more consistent with the presentation of financial results of most of the Company's industry customers and competitors. Consolidated financial statements in U.S. dollars and prepared in accordance with Canadian GAAP are included in Part II of this Report. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company in U.S. dollars and in accordance with U.S. GAAP, applied on a consistent basis. These unaudited condensed notes to the consolidated financial statements should be read in conjunction with the audited financial statements and notes on Form 20-F for the year ended December 31, 1999. In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. NEW ACCOUNTING STANDARDS In July 1999, the Financial Accounting Standards Board ("FASB") announced the delay of the effective date of Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), for one year to the first quarter of 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Gains or losses resulting form changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting under SFAS No. 133. The Company is determining the impact of the adoption of SFAS No. 133. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). In March 2000, the SEC delayed the implementation date of SAB 101 to the second quarter of 2000. SAB 101 summarizes the SEC's views in applying GAAP to revenue recognition in financial statements. The Company is 5 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) continuing to evaluate SAB 101's potential future impact on Biovail's financial position and results of operations with respect to upfront fees and milestone payments earned by the Company under certain research and development agreements and under certain licensing and supply agreements. It is possible that under SAB 101, certain of these fees would be required to be deferred and recognized as revenue over future periods rather than immediately on a one-time basis. 2. INVENTORIES
MARCH 31, December 31, 2000 1999 ---------- ------------- Raw materials $ 8,519 $ 5,149 Work in process 6,916 4,258 Finished goods 2,695 3,294 ------- ------- $18,130 $12,701 ======= =======
3. ASSETS HELD FOR DISPOSAL The Company determined, as part of its evaluation of the purchase of Fuisz Technologies Ltd. ("Fuisz") on November 12, 1999, that certain operations of Fuisz were not strategic to the Company's business plans and accordingly should be sold. Effective January 4, 2000, the Company entered into an agreement to sell all of the issued share capital of Clonmel Healthcare Limited ("Clonmel"), a pharmaceutical and antibiotic manufacturer and distributor located in Ireland, for proceeds of $20,000,000. No gain or loss was recognized by the Company on this transaction as Clonmel was included at fair value in the purchase price allocation at November 12, 1999. Since the date of sale, the Company has received cash proceeds of $17,000,000 and expects to receive the balance owing, which has been included in accounts receivable, following the finalization and issuance of the 1999 audited financial statements of Clonmel. In addition, under the terms of the sale of Clonmel, the Company repaid an IRL8,452,000 term bank loan connected with the 1997 acquisition of Clonmel by Fuisz. As a result, the cash balance of $11,258,000 that was pledged as collateral against the term bank loan at December 31, 1999 and included in short-term investments has become unrestricted. 4. LONG-TERM INVESTMENTS In February 2000, in connection with the acquisition from Hemispherx Biopharma, Inc. ("Hemispherx") of the exclusive Canadian marketing rights to Ampligen, the Company made a $2,250,000 investment in common shares of Hemispherx, the supplier of the product. The investment represents approximately 1% of the outstanding common shares of Hemispherx and has been classified as being available-for-sale. The fair value of the investment at March 31, 2000 was $3,143,000. 6 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 5. OTHER ASSETS The following table summarizes other assets net of accumulated amortization.
MARCH 31, December 31, 2000 1999 ---------- ------------- Goodwill $31,134 $31,771 Core technology and workforce 12,813 13,096 Product rights and royalty interests 29,166 31,945 Deferred financing costs 11,500 4,219 Other intangibles 5,265 5,447 ------- ------- $89,878 $86,478 ======= =======
Amortization amounted to $3,774,000 and $511,000 for the three months ended March 31, 2000 and March 31, 1999, respectively. Deferred financing costs at March 31, 2000 relate to the Convertible Subordinated Preferred Equivalent Debentures issued on March 22, 2000. These costs are being amortized over the 25 year term of the debentures. Deferred financing costs at December 31, 1999 related to the U.S. Dollar Senior Notes (the "Senior Notes") that the Company repurchased on March 22, 2000. The remaining costs at March 22, 2000, amounting to $4,022,000, were included in the determination of the premium paid to retire the Senior Notes and recorded in the extraordinary item in the period. 6. LONG-TERM DEBT
MARCH 31, December 31, 2000 1999 ---------- ------------- Non-interest bearing government loan $ 863 $ 1,250 U.S. Dollar Senior Notes -- 125,000 Term bank loan -- 10,799 Other debt 455 455 ------ -------- 1,318 137,504 Less current portion 1,318 12,016 ------ -------- $-- $125,488 ====== ========
On March 22, 2000, the Company repurchased all of its outstanding 10 7/8% Senior Notes at a redemption price of 112.820% of the principal amount. The premium paid by the Company of $16,017,000 together with the unamortized financing costs of $4,022,000 have been recorded as an extraordinary item in the period. Under the terms of the sale of Clonmel, the Company repaid the IRL8,452,000 term bank loan. 7 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 6. LONG-TERM DEBT (CONTINUED) During the period, the Company obtained a $75,000,000 credit facility with a Canadian chartered bank. Advances under the credit facility can be drawn in either U.S. or Canadian funds and are secured by accounts receivable and inventories. Interest rates available to the Company in respect of advances are U.S. base rate plus 0.25%, LIBOR plus 1.25% and the bank's prime lending rate plus 0.25%. A standby fee of 0.0625% applies to the unused portion of the credit facility. At March 31, 2000, the Company had not utilized any portion of the credit facility. 7. CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES On March 22, 2000, the Company issued $300 million of 6.75% Convertible Subordinated Preferred Equivalent Debentures, due March 31, 2025 (the "Convertible Preferred Securities"). The Convertible Preferred Securities are unsecured and subordinated to all Senior Indebtedness, as defined, of the Company. The Convertible Preferred Securities are convertible at any time into common shares at $60.675 per common share and may be redeemed at the option of the Company beginning on March 31, 2003 at a redemption price of 104.725% declining each year as prescribed in the indenture agreement to 100% by March 31, 2010. The Company has a special right to redeem the Convertible Preferred Securities prior to March 31, 2003 at 106.75% if the trading price of the Company's stock equals or exceeds $91.01 per share on the NYSE for a specified period, subject to certain conditions. Interest is payable quarterly in arrears commencing June 30, 2000. Subject to certain conditions, the Company has the right to defer payment of interest on the Convertible Preferred Securities for up to 20 consecutive quarterly periods. Interest and principal are payable in cash or, at the option of the Company, from the proceeds on the sale of equity securities of the Company delivered to the trustee of the Convertible Preferred Securities. 8. SHARE CAPITAL On March 22, 2000, concurrent with the Convertible Preferred Securities offering, the Company issued 2,000,000 common shares for gross proceeds of $101,125,000 less offering costs of $5,800,000. During the period, 535,000 options were exercised for proceeds of $6,183,000. 8 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 9. EARNINGS (LOSS) PER SHARE The reconciliation of the numerator and denominator for the calculation of basic and diluted earnings (loss) per share is as follows (number of shares in thousands):
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- BASIC EARNINGS (LOSS) PER SHARE Net income (loss) $(6,898) $ 7,435 ======= ======= Weighted average number of common shares outstanding 62,792 49,207 ======= ======= Basic earnings (loss) per share $ (0.11) $ 0.15 ======= ======= DILUTED EARNINGS (LOSS) PER SHARE Net income (loss) $(6,898) $ 7,435 ======= ======= Weighted average number of common shares outstanding 62,792 49,207 Dilutive effect of warrants 4,700 -- Dilutive effect of stock options 2,769 1,181 ------- ------- Adjusted weighted average number of common shares outstanding 70,261 50,388 ======= ======= Diluted earnings (loss) per share $ (0.10) $ 0.15 ======= =======
10. COMPREHENSIVE INCOME (LOSS) Pursuant to the requirements of SFAS No. 130 "Reporting Comprehensive Income", which established standards for the reporting of comprehensive income and its components, the following disclosure is provided:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- Net income (loss) $(6,898) $7,435 ------- ------ Other comprehensive income (loss) Foreign currency translation adjustment (439) 386 Unrealized holding gain (loss) on long-term investments 893 (818) ------- ------ Other comprehensive income (loss) 454 (432) ------- ------ Comprehensive income (loss) $(6,444) $7,003 ======= ======
11. LEGAL PROCEEDINGS In March 1998, Biovail commenced an action in the district court of New Jersey against Hoechst Aktiengesellschaft and related parties to recover monetary damages and gain injunctive relief for what 9 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 11. LEGAL PROCEEDINGS (CONTINUED) Biovail believes to be violations of U.S. anti-trust law. In addition, Biovail's complaint alleges that the various defendant parties engaged in breach of contract, deceptive trade practices, restraint of trade, unfair competition and other violations of the law. The action is proceeding to documentary and witness discovery. Biovail anticipates a trial by early 2001. From time to time, Biovail becomes involved in various legal proceedings which it considers to be in the ordinary course of business. The vast majority of these proceedings involve intellectual property issues that often result in patent infringement suits brought by patent holders upon the filing of ANDA applications. The timing of these actions is mandated by statute and may result in a delay of FDA approval for such filed ANDAs until the final resolution of such actions or the expiry of 30 months, whichever occurs earlier. In this regard, Biovail and its wholly owned subsidiary, Biovail Laboratories, Inc. ("Biovail Laboratories"), have been sued in separate lawsuits by Bayer AG and Bayer Corporation, as well as by Pfizer Inc. ("Pfizer"), upon the filing by Biovail Laboratories of separate ANDAs for generic versions of Procardia XL and Adalat CC. These actions make the usual, technical claims of infringement. Biovail is vigorously defending these suits and is aggressively pursuing motions for summary judgment in due course. Biovail has denied the allegations and has pleaded affirmative defenses that the patents are invalid, have not been infringed and are unenforceable. On April 23, 1998, Biovail filed a four-count complaint against Bayer AG, Bayer Corporation and Pfizer seeking a declaratory judgment that their patent is invalid, unenforceable, and not infringed by our filing of the ANDAs. Biovail has also asserted that Bayer corporation and Pfizer have violated anti-trust laws and have interfered with Biovail's prospective economic advantage. Biovail's action has been stayed until the conclusion of the patent infringement suits. On August 25, 1998, Andrx Pharmaceutical, Inc. ("Andrx") submitted to Biovail a Notice of Certification under the FDC Act certifying that the ANDA filed by Andrx for a generic version of Tiazac-Registered Trademark- did not infringe on Biovail's patent. In October 1998, Biovail commenced a patent infringement suit against Andrx. A non-jury trial in this action was completed in February 2000. On March 8, 2000, the district court ruled in favor of Andrx stating that there was no infringement of Biovail's patent. Biovail has appealed this ruling. Andrx' ANDA for its generic version of Tiazac has not yet been tentatively approved by the FDA. Under current FDA regulations, the FDA will not approve Andrx' ANDA for a period of 30 months from the date Biovail first received the Notice of Patent Certification or the date when Andrx successfully defends Biovail's appeal, whichever occurs first. In November 1999, Biovail acquired Fuisz Technologies Ltd. ("Fuisz"). Fuisz is now a wholly-owned subsidiary of Biovail and has been renamed Biovail Technologies Ltd. ("Biovail Technologies"). In February 2000 Biovail Technologies filed a complaint in Circuit Court of Fairfax County, Va. against Richard C. Fuisz, former chairman of Fuisz Technologies Ltd., and several other former Fuisz executives, directors and employees and related parties (the "Complaint"). The Complaint charges breaches of fiduciary duties, breaches of contract, fraud, conversion, business conspiracy and unjust enrichment arising out of a pattern of misconduct in which the defendants pursued their personal 10 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 11. LEGAL PROCEEDINGS (CONTINUED) advancement at the expense of Fuisz. Biovail Technologies seeks $25 million in damages, treble damages of $75 million, interest, punitive damages and attorneys fees. Biovail believes that the allegations against the defendants are meritorious and is in the process of vigorously litigating the suit. In connection with the Fuisz acquisition Biovail entered into a Consulting Agreement (the "Consulting Agreement") and an Option Agreement (the "Option Agreement") (together, the "Agreements") with Richard Fuisz. Pursuant to the Agreements Biovail acquired Richard Fuisz' shares in Fuisz Technologies Ltd. In March 2000, Richard Fuisz commenced an action in the district court of Delaware against Biovail (the "Delaware Action"). The Delaware Action alleges that Biovail fraudulently induced the Agreements and that Biovail is in breach of the Agreements. The Delaware Action seeks rescission of the Agreements plus damages or, in the alternative, entitlement to a sum of $8 million plus interest pursuant to the Consulting Agreement. Though it is currently premature to predict the outcome of this action, Biovail believes that the Delaware Action is without merit and intends to vigorously defend the lawsuit. While Biovail is not currently able to determine the potential liability, if any, related to such matters, Biovail believes that none of the matters, individually or in aggregate, will have a material adverse effect on Biovail's financial position, results of operations or cash flows. 12. SEGMENTED INFORMATION AND MAJOR CUSTOMERS Biovail is an international full service pharmaceutical company. The Company operates in a single industry and is engaged in formulation, clinical testing, registration and manufacture of drug products utilizing advanced drug delivery technologies. Organizationally, the Company's operations consist of three segments -- Product Sales, Research and Development, and Royalty and Licensing. The segments are determined based on several factors including customer base, the nature of the product or service provided, delivery channels and other factors. The PRODUCT SALES segment covers sales of production from the Company's Puerto Rico and Canadian facilities and sales by Crystaal, the Canadian marketing division of the Company. The RESEARCH AND DEVELOPMENT segment covers all revenues generated by the Company's integrated research and development facilities, and comprises research and development services provided to third parties, including Intelligent Polymers Limited, and product development milestone fees. The ROYALTY AND LICENSING segment covers royalty revenues received from licensees in respect of products for which the Company has manufacturing, marketing and/or intellectual property rights. 11 BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (TABULAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED) 12. SEGMENTED INFORMATION AND MAJOR CUSTOMERS (CONTINUED) The following table sets forth information regarding segment operating income:
PRODUCT RESEARCH AND ROYALTY AND THREE MONTHS ENDED MARCH 31, 2000 SALES DEVELOPMENT LICENSING TOTAL --------------------------------- -------- ------------ ----------- -------- Revenue from external customers $33,631 $10,501 $2,728 $46,860 ------- ------- ------ ------- Segment operating income (loss) 16,463 (2,794) 2,688 16,357 Unallocated amounts Selling, general and administrative expenses (2,137) Interest expense, net (266) ------- Income before income taxes $13,954 =======
PRODUCT RESEARCH AND ROYALTY AND THREE MONTHS ENDED MARCH 31, 1999 SALES DEVELOPMENT LICENSING TOTAL --------------------------------- -------- ------------ ----------- -------- Revenue from external customers $12,562 $6,077 $8,952 $27,591 ------- ------ ------ ------- Segment operating income 3,205 302 8,753 12,260 Unallocated amounts Selling, general and administrative expenses (1,500) Interest expense, net (2,792) ------- Income before income taxes $ 7,968 =======
12 BIOVAIL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (ALL DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS) OVERVIEW We derive our revenues from: (i) developing and licensing oral controlled-release products utilizing our proprietary drug delivery technologies; (ii) manufacturing such products for sale to licensees and wholesalers and from direct marketing of proprietary and in-licensed products in Canada; and (iii) providing pharmaceutical contract research services to third parties. CHANGE IN ACCOUNTING REPORTING CONVENTION We have historically reported our consolidated results in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Beginning with the period ended March 31, 2000, we began to report our financial results in accordance with United States GAAP. Historical consolidated results have been restated to reflect this change. The decision to provide U.S. GAAP financial results was driven by our desire to make it easier for the majority of our shareholders to assess our financial performance by using accounting rules that are more familiar to these shareholders. This presentation is also more consistent with the presentation of financial results of most of our industry customers and competitors. RESULTS OF OPERATIONS Revenue for the first three months of 2000 was $46.9 million, compared to $27.6 million in the same period of 1999. The increase was primarily due to higher product sales and third party research and development revenue, partially offset by lower royalty and licensing revenues. During the quarter, we repurchased all of our outstanding 10 7/8% U.S. Dollar Senior Notes (the "Senior Notes") resulting in an extraordinary charge of $20.0 million. Income before extraordinary item for the three months ended March 31, 2000, was $13.1 million, or $0.19 per share on a diluted basis, an increase of 77% over income before extraordinary item of $7.4 million, or $0.15 per share on a diluted basis, in the same period of 1999. After deducting the extraordinary item, the net loss for the three months ended March 31, 2000 was $6.9 million, or $(0.10) per share on a diluted basis, compared to net income of $7.4 million, or $0.15 per share on a diluted basis, in the same period of 1999. Product sales were $33.6 million for the first three months of 2000, compared to $12.6 million in the same period of 1999. The growth in product sales was attributable to increased sales of Tiazac-Registered Trademark- to Forest Laboratories ("Forest") for the U.S. market and recent launches of generic versions of Adalat CC 30mg, Voltaren XR and Cardizem CD in the U.S. marketplace. Research and development revenue was $10.5 million for the three months ended March 31, 2000 compared to $6.1 million in the same period of 1999. The increase was primarily due to a higher level of activity relating to the development of branded products on behalf of Intelligent Polymers Limited ("IPL"). Net royalty and licensing revenue was $2.7 million in the first three months of 2000, compared to the $9.0 million in the same period of 1999. First quarter 1999 royalty and licensing revenue was favourably impacted by a fee received from Mylan Pharmaceuticals related to a co-marketing agreement with respect to a generic version of Verelan. 13 COST OF GOODS SOLD AND GROSS MARGINS The cost of goods sold as a percentage of product sales was 33% in the first three months of 2000 as compared to 40% in the same period of 1999. Gross margins in 2000 on product sales for the first three months were 67%, as compared to 60% for the first three months of 1999. The Company's gross margins are impacted by product sales price, product mix, manufacturing volumes and manufacturing costs. The increase in gross margins was due to the impact of higher margin contributions from new products. RESEARCH AND DEVELOPMENT Research and development expenses were $11.8 million for the first three months of 2000 compared to $5.3 million in the same period of 1999. The increased spending reflected the increased level of activity related to the development of NDA products for IPL and work related to the development of rapid dissolve products utilizing our Flash Dose-Registered Trademark- technology. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $9.8 million in the first three months of 2000, compared to $6.5 million in the same period of 1999. The increase was due to ongoing sales and marketing expenses at our Crystaal division to support the four products launched in the Canadian marketplace during 1999. Also contributing to the increase are the additions to our management base and the inclusion of the first full quarter of ongoing administrative expenses and amortization expense associated with our Biovail Technologies Ltd. subsidiary. OPERATING INCOME Operating income increased to $14.2 million for the three months ending March 31, 2000, as compared to $10.8 million for the same period of 1999. Segment operating income for the first three months of 2000, before unallocated selling, general and administrative expenses, was $16.4 million, compared to $12.3 million for the same period of 1999. Of the 2000 total, product sales accounted for $16.5 million, compared to $3.2 million in the previous year. This increase relates primarily to the higher sales of Tiazac-Registered Trademark- and the impact of recent launches of Adalat CC 30mg, Voltaren XR and Cardizem CD. The research and development segment had an operating loss of $2.8 million in 2000, compared to operating income of $302,000 in 1999. The loss in 2000 is attributable to work being performed at Biovail Technologies to develop rapid dissolve products that will utilize our Flash Dose-Registered Trademark- technology. Royalty and licensing activities generated operating income of $2.7 million in 2000 compared to $8.8 million in 1999, which included the co-marketing agreement with Mylan with respect to Verelan. INTEREST Net interest expense was $266,000 in the first three months of 2000 compared to $2.8 million in the same period of 1999. The decline in net interest expense was due to an increase in interest income as the surplus proceeds from the October 1999 equity offering have been invested in high grade commercial paper. INCOME TAXES Income taxes in the first three months of 2000 were $813,000 compared to $533,000 in the same period of 1999. The Company's tax provision is related to our foreign subsidiaries, in which lower statutory tax rates apply than those in Canada. The benefit of tax losses historically incurred by the Canadian operations and by the U.S. operations of Biovail Technologies Ltd. have not been recognized for accounting purposes to-date. 14 INCOME BEFORE EXTRAORDINARY ITEM Income before extraordinary item for the three months ended March 31, 2000 was $13.1 million, or $0.19 per share on a diluted basis, and $7.4 million, or $0.15 per share on a diluted basis, for the three months ended March 31, 1999. EXTRAORDINARY ITEM During the period, we successfully tendered for and retired our Senior Notes. We recorded a $20.0 million extraordinary charge related to the premium paid on early extinguishment and the write-off of the deferred financing costs associated with the notes. NET INCOME (LOSS) After deducting the extraordinary item, the net loss for the three months ended March 31, 2000 was $6.9 million, or $(0.10) per share on a diluted basis, compared to net income of $7.4 million, or $0.15 per share on a diluted basis, for the three months ended March 31, 1999. EBITDA For the reasons set forth above, EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization, increased by $7.6 million or 61% to $19.8 million for the first three months of 2000 from $12.2 million in the comparable period of 1999. The ratio of total debt at March 31 to EBITDA for the three months ended March 31 was 15.2:1 in 2000 compared to 10.3:1 in 1999. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, our cash position was $475.7 million, our cash plus short-term investments was $495.2 million and our working capital was $528.0 million, representing a working capital ratio of 9.4:1. At December 31, 1999 our cash position was $178.1 million, our cash plus short-term investments was $244.0 million and our working capital was $265.7 million, representing a working capital ratio of 4.6:1. Cash used in operating activities (after changes in non-cash operating items) was $2.0 million for the three months ended March 31, 2000 compared to cash provided by operating activities of $16.4 million in the same period of 1999. The decline from the prior year was primarily due to increases in accounts receivable and inventories, only partially offset by higher net income adjusted for non-cash items. Cash flows from investing activities, for the first three months of 2000, totaled $57.4 million and related mainly to the activity in short-term investments ($46.3 million) and proceeds received to-date from the sale of Clonmel Healthcare Limited ("CLONMEL") ($17.0 million). Additions to property, plant and equipment totaled $3.9 million in the first three months of 2000 compared to $1.6 million in same period of 1999. Acquisitions of long-term investments totaled $2.3 million in the three months ended March 31, 2000 and no investments were made in the same period of 1999. Cash flows from financing activities, for the three months ended March 31, 2000, include a concurrent offering of 6.75% Convertible Subordinated Preferred Equivalent Debentures (the "Convertible Preferred Securities"), due March 31, 2025 and two million common shares. The Convertible Preferred Securities were issued for gross proceeds of $300 million ($290.3 million net of financing costs) and the common shares were issued for gross proceeds of $101.1 million ($96.1 million net of issuance costs). On the same date, $141.0 million of the proceeds were used to repurchase the $125 million principal of our outstanding Senior Notes, and pay a premium of $16.0 million. We reduced other long-term debt, principally through the repayment of the term bank loan in connection with the sale of Clonmel, by $10.7 million. Common shares issued on the exercise of stock options generated $6.2 million during the first three months of 2000. In the same period of 1999, cash used in financing activities reflected the repurchase of common shares in 15 the amount of $14.9 million, offset in part by the issuance of common shares on the exercise of stock options for $1.4 million. Exchange rate changes in foreign cash balances resulted in a decrease in cash of $21,000 in the first three months of 2000 as compared to a reduction in cash of $548,000 in the same period of 1999. As a result of the foregoing, we had positive cash flow of $297.6 million for the first three months of 2000 compared to $977,000 in the same period of 1999. After completing our Convertible Preferred Securities offering, the repurchase of our Senior Notes and the repayment of a portion of our other long-term debt, we had total long-term debt (including current portions thereof) of $301.3 million at March 31, 2000, compared to $137.5 million at December 31, 1999. The debt-to-equity ratio at March 31, 2000 was 0.8:1 compared to 0.5:1 at December 31, 1999. Long-term debt at March 31, 2000 is comprised of $300 million of Convertible Preferred Securities and $1.3 million of other debt. In addition, we have established a new $75 million banking facility. At March 31, 2000, we have not utilized any portion of this facility. We believe we have adequate capital and sources of financing to support our ongoing operational and interest requirements and investment objectives. We believe that we would be able to raise capital, if necessary, to support our objectives. It is possible that our results of operations for the current fiscal year will be impacted by potential costs relating to the rationalization of certain of our research and development facilities. We are currently evaluating our business plans and, accordingly, we are not able to determine the costs of this process at the present time. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We do not believe that we have material exposure to financial market risks, including changes in foreign currency exchange rates and interest rates on debt instruments and short-term investments. We and our subsidiaries generate revenue and incur expenses primarily in U.S. dollars. For the three months ended March 31, 2000, revenue was generated in the following proportions: 91% in U.S. dollars and 9% in Canadian dollars. Expenses were incurred in the following proportions: 54% in U.S. dollars and 46% in Canadian dollars. We do not believe that we have significant exposure to exchange risk because of the relative stability of the Canadian dollar in relation to the U.S. dollar. On March 22, 2000, we issued $300 million 6.75% Convertible Preferred Securities, due March 31, 2025. The interest rate on these securities is fixed and therefore is not subject to interest rate risk. The proceeds were used, in part, to repurchase our $125 million Senior Notes, due November 15, 2005 for consideration of $141.0 million. Such consideration included a consent payment of $2.5 million and a premium of approximately $13.5 million calculated by reference to the bid price and yield on March 6, 2000 for the 5 3/4% U.S. Treasury Note due November 20, 2002. From time to time we have surplus funds available for investment. Our policy is to invest such funds in high grade commercial paper and U.S. government treasury bills with varying maturities, typically of less than 90 days. In light of the high quality and short-term duration of these investments, the Company believes that there is no significant risk to the principal value of these investments. Inflation has not had a material impact on our operations. RECENT ACCOUNTING DEVELOPMENTS The Financial Accounting Standards Board has issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by Statement No. 137, which is required to be adopted in the first quarter of 2001. The Company is determining the impact of the adoption of the new statement. 16 In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). In March 2000, the SEC delayed the implementation date of SAB 101 to the second quarter of 2000. SAB 101 summarizes the SEC's views in applying GAAP to revenue recognition in financial statements. The Company is continuing to evaluate SAB 101's potential future impact on Biovail's financial position and results of operations with respect to upfront fees and milestone payments earned by the Company under certain research and development agreements and under certain licensing and supply agreements. It is possible that under SAB 101, certain of these fees would be required to be deferred and recognized as revenue over future periods rather than immediately on a one-time basis. FORWARD-LOOKING STATEMENTS To the extent any statements made in this report contain information that is not historical, these statements are essentially forward-looking. As such, they are subject to risks and uncertainties, including the difficulty of predicting FDA and TPP 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, availability of raw materials, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in the Company's filings with the U.S. Securities and Exchange Commission and Canadian securities authorities. 17 BIOVAIL CORPORATION PART II -- OTHER INFORMTION 1. OPERATIONAL INFORMATION The press releases issued by the Company subsequent to the filing of SEC Form 6-K on November 30, 1999 are attached as the following exhibits: a) On December 1, 1999, the Company announced the purchase of a generic version of Procardia XL from Intelligent Polymers. b) On December 22, 1999, the Company announced a proposed stock split and the expiration of Biovail Technologies Ltd.'s offer to purchase its outstanding 7% convertible subordinated debentures. c) On December 23, 1999, the Company announced receipt of final approval for generic Cardizem CD. d) On January 6, 2000, the Company announced that its shareholders approved all proposed resolutions. e) On January 19, 2000, the Company announced the divestiture of its Irish manufacturing operations. f) On February 4, 2000, the Company announced the initiation of Buspirone clinical trials. g) On February 7, 2000, the Company announced that it would acquire significant manufacturing facilities in Puerto Rico and expand other sites in Virginia and Manitoba. h) On February 11, 2000, the Company announced it had acquired Ampligen marketing rights for Canada. i) On February 17, 2000, the Company announced it had received final approval for Voltaren XR generic. j) On February 24, 2000, the Company announced record 1999 fourth quarter and year-end financial results. k) On March 1, 2000, the Company announced public offerings. l) On March 6, 2000, the Company announced it had received FDA approval for novel once daily diltiazem formulation -- New Drug Application optioned to Forest Laboratories. m) On March 7, 2000, the Company announced it had received majority of consents in connection with debt tender offer. n) On March 8, 2000, the Company announced its appeal to District Court decisions. o) On March 13, 2000, the Company announced FDA final approval of generic Adalat CC 30mg. p) On March 17, 2000, the Company announced it had completed concurrent offerings. q) On March 23, 2000, the Company announced the completion of its concurrent common share and Convertible Subordinated Preferred Equivalent Debenture offerings and its cash tender offer for Senior Notes. r) On April 7, 2000, the Company announced the launch of first commercial product using patented Flash Dose-Registered Trademark- technology. s) On April 27, 2000, the Company announced record 2000 first quarter financial results. 18 2. LEGAL PROCEEDINGS For detailed information concerning legal proceedings, reference is made to Note 11 in the financial statement contained as part hereof and to the Annual Report on Form-20F for the year ended December 31, 1999. 3. MATERIAL ISSUED TO SHAREHOLDERS The material issued by the Company to shareholders is attached as the following exhibit: t) The 2000 First Quarter Report to Shareholders 4. ADDITIONAL DEVELOPMENTS NUROFEN MELTLETS In April 2000, the first commercial introduction of a Flash Dose-Registered Trademark- product took place. Nurofen Meltlets, a new form of ibuprofen, were launched in the United Kingdom by Crookes Healthcare Ltd., a division of Boots Healthcare International. Nurofen Meltlets are manufactured for Boots by the Company's subsidiary, Biovail Technologies, using its patented Flash Dose-Registered Trademark- technology. ADALAT CC In March 2000, the Company received final approval from the U.S. Food and Drug Administration for its in-licensed 30mg dosage strength of Adalat CC. The Company in-licensed the 30mg dosage strength from Elan Corporation plc in October 1999. This arrangement allowed the Company to market the 30mg dosage strength, through its marketing partner Teva Pharmaceuticals Industries Ltd., six months earlier than originally scheduled. VOLTAREN XR In February 2000, the Company received final approval from the U.S. Food and Drug Administration for its generic version of Voltaren XR. The Company immediately began to market its generic Voltaren XR through its marketing partner, Teva Pharmaceuticals Industries Ltd. 5. CONSOLIDATED FINANCIAL STATEMENTS IN U.S. DOLLARS AND IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Consolidated financial statements in U.S. dollars and in accordance with Canadian Generally Accepted Accounting Principles are attached to this report as exhibit "u". 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Biovail Corporation May 30, 2000 By /s/ JOHN R. MISZUK ---------------------- John R. Miszuk Vice President, Controller
20 EX-99.1 2 ex-991.txt EXHIBIT 99.1 EXHIBIT T INTERIM REPORT 2000 FIRST QUARTER REPORT [BIOVAIL LOGO] DEAR FELLOW SHAREHOLDERS The first quarter of 2000 has seen Biovail Corporation continue the excellent performance achieved throughout 1999. The Company reported record first quarter financial results, with total revenues 70% greater than the first quarter 1999, driven by product sales 168% better than the first three months of last year. In addition, I am pleased to report a number of significant achievements in the first quarter, including new product launches, in-licensing agreements and exciting progress in our product pipeline. RECORD PRODUCT SALES Biovail recorded $33.6 million from product sales in the first quarter of 2000, a substantial increase from the $12.6 million in sales recorded in the same period of last year. The increase is due to continuing strong sales of Tiazac-Registered Trademark- in the U.S., where it currently maintains a 17% share of the diltiazem market; continued penetration of Tiazac-Registered Trademark- and other in-licensed products marketed by the Company's Crystaal division in Canada; and the recent U.S. launches of generic versions of Adalat CC, Cardizem CD and Voltaren XR through our U.S. marketing partner Teva Pharmaceuticals. NEW PRODUCT LAUNCHES In the first quarter, Biovail successfully launched two significant new generic products. The Company's generic version of Voltaren XR, a treatment for osteoarthritis and rheumatoid arthritis with annual U.S. branded sales of $98 million, received FDA approval in February, and was immediately launched in the U.S. market by Teva Pharmaceuticals Industries Ltd. Teva also launched Biovail's generic Adalat CC in a 30mg dosage strength. At present, the 30mg dosage accounts for approximately 30% of total Adalat CC sales of $357 million. In addition, the launch in the U.K. of Nurofen Meltlets, a new form of ibuprofen developed using Biovail's patented Flash Dose-Registered Trademark- technology, marked a significant milestone. Nurofen Meltlets are marketed in the U.K. by Boots Healthcare. Boots' Nurofen is currently the U.K.'s best selling pain relief medication. CRYSTAAL PORTFOLIO GROWTH Crystaal, Biovail's successful Canadian sales and marketing operation, significantly increased its portfolio in the first quarter with the in-licensing of three new products. Ampligen, a medication used in the treatment of chronic fatigue syndrome, was in-licensed from Hemispherx Biopharma Inc. and is currently awaiting final marketing approval. Fibrostat, a treatment for scars due to burns and surgery, was in-licensed from Procyon Biopharma. Fibrostat is in late Phase II trials. Monocor, a beta-blocker indicated for mild to moderate hypertension was in-licensed from Wyeth-Ayerst Laboratories and is expected to be launched in the second quarter. These join the five products currently marketed in Canada by Crystaal, including Tiazac-Registered Trademark- and four selected in-licensed products. MANUFACTURING EXPANSION Biovail's existing manufacturing operations in Manitoba, Canada and Puerto Rico are operating at peak efficiency to meet the demand for the Company's products. To ensure that the Company will continue to meet its future requirements, Biovail announced the acquisition of the Dorado, Puerto Rico manufacturing facility from McNeil Pharmaceuticals Corp., a division of Johnson & Johnson Inc., in the quarter. The Dorado plant is an FDA-approved cGMP facility currently occupying 120,000 sq. ft. with room for expansion. PIPELINE PROGRESS Significant progress was made in Biovail's product pipeline in the first quarter of 2000, highlighted by two exciting developments. In March, FDA approval was received for Biovail's NDA for a novel once-daily controlled-release formulation of Diltiazem Hcl. In January, the Company initiated Phase III clinical trials of its novel once-daily controlled-release formulation of Buspirone, a successful medication used to treat generalized anxiety disorders. Buspirone is currently only available as a three-times-daily immediate-release product. Also in Biovail's NDA pipeline, development of a controlled-release formulation of the antidepressant Celexa is proceeding on schedule and other products, at various stages of development, are progressing favourably. The Company's controlled-release generic pipeline includes three products awaiting final FDA approval and several others under development. OTHER DEVELOPMENTS Additional developments during the first quarter of 2000 included the successful completion of two financing programs that raised gross proceeds of approximately $400 million. Approximately $100 million was raised from an equity offering, and $300 million from the issuance of convertible preferred debentures. Approximately $141 million of these proceeds were used to retire the Company's 10 7/8% U.S. Dollar Senior Notes. Finally, Biovail completed the sale of its Irish manufacturing operations, acquired in the acquisition of Fuisz Technologies Ltd., to Stada Arzneimittel AG for $20 million. RECORD FINANCIAL RESULTS Effective January 1, 2000, Biovail changed its accounting reporting convention to U.S. GAAP from Canadian GAAP. In addition, the Company began reporting its earnings per share on a diluted basis. Biovail reported record financial results for the first quarter of 2000. Revenue for the first quarter increased by 70% to $46.9 million, compared to $27.6 million for the first quarter of last year. Operating income for the quarter was $14.2 million, a 32% improvement over the $10.8 million reported in first quarter 1999. Diluted earnings per share before extraordinary item increased by 27% to $0.19 per share over first quarter 1999 diluted earnings per share of $0.15. This excellent start to the new year, both financially and in terms of Company progress, clearly positions Biovail for an outstanding 2000. On behalf of the Board, I offer my gratitude to the employees of Biovail for all of their efforts and to you, our shareholders, for your continued support. (signed) Eugene Melnyk Eugene Melnyk Chairman of the Board CONSOLIDATED BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP (ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
MARCH 31, DECEMBER 31, (UNAUDITED) 2000 1999 - ----------- --------- ------------ ASSETS CURRENT Cash and cash equivalents $475,670 $178,086 Short-term investments 19,547 65,893 Accounts receivable 75,577 60,571 Inventories 18,130 12,701 Assets held for disposal -- 20,000 Deposits and prepaid expenses 1,984 3,172 -------- -------- 590,908 340,423 LONG-TERM INVESTMENTS 3,190 12 PROPERTY, PLANT AND EQUIPMENT, net 47,193 45,300 OTHER ASSETS, net 89,878 86,478 -------- -------- $731,169 $472,213 ======== ======== LIABILITIES CURRENT Accounts payable $ 26,521 $ 22,685 Accrued liabilities 26,813 31,107 Income taxes payable 3,412 3,585 Customer prepayments 4,473 4,962 Deferred tax liability 336 336 Current portion of long-term debt 1,318 12,016 -------- -------- 62,873 74,691 DEFERRED TAX LIABILITY 4,614 4,698 CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES 300,000 -- LONG-TERM DEBT -- 125,488 -------- -------- 367,487 204,877 -------- -------- SHAREHOLDERS' EQUITY Common shares, no par value, unlimited shares authorized, 64,731,000 and 62,196,000 issued and outstanding at March 31, 2000 and December 31, 1999, respectively 475,470 373,962 Warrants 8,244 8,244 Warrant subscription receivable (1,005) (2,287) Deficit (120,741) (113,843) Accumulated other comprehensive income 1,714 1,260 -------- -------- 363,682 267,336 -------- -------- $731,169 $472,213 ======== ========
CONSOLIDATED STATEMENTS OF INCOME (LOSS) IN ACCORDANCE WITH U.S. GAAP (ALL DOLLAR AMOUNTS EXCEPT PER SHARE DATA ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
THREE MONTHS ENDED MARCH 31, ------------------------- (UNNAUDITED) 2000 1999 - ------------ ----------- ----------- REVENUE Product sales $ 33,631 $ 12,562 Research and development 10,501 6,077 Royalty and licensing 2,728 8,952 ----------- ----------- 46,860 27,591 ----------- ----------- EXPENSES Cost of goods sold 11,035 5,039 Research and development 11,766 5,324 Selling, general and administrative 9,839 6,468 ----------- ----------- 32,640 16,831 ----------- ----------- OPERATING INCOME 14,220 10,760 INTEREST EXPENSE, net (266) (2,792) ----------- ----------- INCOME BEFORE INCOME TAXES 13,954 7,968 PROVISION FOR INCOME TAXES 813 533 ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 13,141 7,435 EXTRAORDINARY ITEM -- Premium paid on early extinguishment of U.S. Dollar Senior Notes (20,039) -- ----------- ----------- NET INCOME (LOSS) $ (6,898) $ 7,435 =========== =========== BASIC EARNINGS (LOSS) PER SHARE Income before extraordinary item $ 0.21 $ 0.15 Extraordinary item (0.32) -- ----------- ----------- Net income (loss) $ (0.11) $ 0.15 =========== =========== DILUTED EARNINGS (LOSS) PER SHARE Income before extraordinary item $ 0.19 $ 0.15 Extraordinary item (0.29) -- ----------- ----------- Net income (loss) $ (0.10) $ 0.15 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 62,792,000 49,207,000 =========== =========== Diluted 70,261,000 50,388,000 =========== ===========
CONSOLIDATED STATEMENTS OF CASH FLOWS IN ACCORDANCE WITH U.S. GAAP (ALL DOLLARS AMOUNTS ARE EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
THREE MONTHS ENDED MARCH 31, --------------------- (UNAUDITED) 2000 1999 - ----------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (6,898) $ 7,435 Depreciation and amortization 5,540 1,489 Deferred income tax provision (84) -- Extraordinary item -- Premium paid on early extinguishment of U.S. Dollar Senior Notes 20,039 -- Compensation cost for employee stock options -- 281 --------- --------- 18,597 9,205 Change in non-cash operating items: Decrease (increase) in accounts receivable (12,340) 1,466 Increase in inventories (5,550) (3,030) Decrease in deposits and prepaid expenses 1,188 45 Decrease in accounts payable and accrued liabilities (3,241) (383) Decrease in income taxes payable (177) (386) Increase (decrease) in customer prepayments (489) 9,440 --------- --------- (20,609) 7,152 --------- --------- (2,012) 16,357 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment, net (3,929) (1,611) Maturity of short-term investments, net 46,346 -- Acquisition of long-term investments (2,285) -- Proceeds from assets held for disposal 17,000 -- Decrease in other assets 261 -- Advance of executive stock purchase plan loans -- (52) --------- --------- 57,393 (1,663) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of share capital 102,298 1,424 Repurchase of share capital -- (14,933) Issuance of convertible subordinated preferred equivalent debentures, net of financing costs 290,312 -- Repurchase of U.S. Dollar Senior Notes (141,017) -- Reduction in other long-term debt (10,651) (300) Collection of warrant subscription receivable 1,282 640 --------- --------- 242,224 (13,169) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (21) (548) --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 297,584 977 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 178,086 78,279 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 475,670 $ 79,256 ========= =========
CORPORATE INFORMATION BOARD OF DIRECTORS EUGENE N. MELNYK Chairman of the Board, Biovail Corporation BRUCE D. BRYDON Chief Executive Officer, Biovail Corporation ROBERT A. PODRUZNY President and Chief Operating Officer, Biovail Corporation KENNETH C. CANCELLARA, Q.C. Senior Vice President, General Counsel and Secretary, Biovail Corporation ROLF K. REININGHAUS Senior Vice President, Corporate and Strategic Development, Biovail Corporation WILFRED BRISTOW Vice President, Nesbitt Burns Inc. ROGER ROWAN President and Chief Operating Officer, Watt Carmichael Inc. ROBERT VUJEA President, R&D Chemical Corporation
TRADING SYMBOLS REGISTRARS AND TRANSFER AGENTS - --------------- ------------------------------ Common Shares: BVF Common Share CIBC Mellon Trust Company Warrants: BVF_w Toronto, Canada Convertible ChaseMellon Shareholder Subordinated Services Preferred New York, New York Equivalent Debentures: BVF_p
THE ANNUAL MEETING OF SHAREHOLDERS The annual meeting of shareholders will be held at 10:00 a.m. Monday, June 26, 2000 at the Royal York Hotel, Territories Room, 100 Front Street, Toronto, Ontario. SHAREHOLDER INFORMATION HEAD OFFICE Biovail Corporation 2488 Dunwin Drive Mississauga, Ontario Canada L5L 1J9 HOW TO REACH US FOR MORE INFORMATION 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. BY MAIL: Biovail Corporation 2488 Dunwin Drive Mississauga, Ontario Canada L5L 1J9
BY PHONE: BY FAX: - --------- ------- (416) 285-6000 (416) 285-6499
BY E-MAIL: BY WEB: - ---------- ------- ir@biovail.com www.biovail.com
THE FOLLOWING WORDS AND LOGOS ARE TRADEMARKS FOR THE COMPANY AND MAY BE REGISTERED IN CANADA, THE UNITED STATES AND CERTAIN OTHER JURISDICTIONS: BIOVAIL, TIAZAC-REGISTERED TRADEMARK-, VIAZEM, CEFORM-REGISTERED TRADEMARK-, FLASH DOSE-REGISTERED TRADEMARK-, SHEARFORM-REGISTERED TRADEMARK- AND CRYSTAAL. TO THE EXTENT ANY STATEMENTS MADE IN THIS REPORT CONTAINS INFORMATION THAT IS NOT HISTORICAL, THESE STATEMENTS ARE ESSENTIALLY FORWARD-LOOKING. AS SUCH, THEY ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING THE DIFFICULTY OF PREDICTING FDA AND TTP 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, AVAILABILITY OF RAW MATERIALS, THE REGULATORY ENVIRONMENT, FLUCTUATIONS IN OPERATING RESULTS AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION AND CANADIAN SECURITIES AUTHORITIES. [biovail logo] 2488 Dunwin Drive, Mississauga, Ontario, Canada L5L 1J9 Tel (416) 285-6000 Fax (416) 285-6499 EX-99.2 3 ex-992.txt EXHIBIT 99.2 Exhibit U BIOVAIL CORPORATION CONSOLIDATED BALANCE SHEETS IN ACCORDANCE WITH CANADIAN GAAP (All dollar amounts are expressed in thousands of U.S. dollars)
MARCH 31, December 31, 2000 1999 (UNAUDITED) (Audited) ----------- ------------ ASSETS CURRENT Cash and cash equivalents $475,670 $178,086 Short-term investments 19,547 65,893 Accounts receivable 75,577 60,571 Inventories 18,130 12,701 Assets held for disposal -- 20,000 Deposits and prepaid expenses 1,984 3,172 -------- -------- 590,908 340,423 LONG-TERM INVESTMENTS 2,297 12 CAPITAL ASSETS, NET 47,193 45,300 OTHER ASSETS, NET 214,467 249,402 -------- -------- $854,865 $635,137 ======== ======== LIABILITIES CURRENT Accounts payable $ 26,521 $ 22,685 Accrued liabilities 26,813 31,107 Income taxes payable 3,412 3,585 Customer prepayments 4,473 4,962 Future income taxes (Note 1) 3,814 -- Current portion of long-term debt 1,318 12,016 -------- -------- 66,351 74,355 FUTURE INCOME TAXES (NOTE 1) 12,660 -- LONG-TERM DEBT -- 125,488 -------- -------- 79,011 199,843 -------- -------- SHAREHOLDERS' EQUITY Convertible subordinated preferred equivalent debentures (Note 2) 300,343 -- Share capital 470,046 368,538 Warrants 8,244 8,244 Retained earnings (deficit) (3,601) 57,252 Cumulative translation adjustment 822 1,260 -------- -------- 775,854 435,294 -------- -------- $854,865 $635,137 ======== ========
BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) IN ACCORDANCE WITH CANADIAN GAAP (All dollar amounts except per share data are expressed in thousands of U.S. dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- REVENUE $48,141 $28,231 EXPENSES Cost of goods sold 11,035 5,039 Research and development 13,957 5,324 Selling, general and administrative 9,459 6,245 ------- ------- 34,451 16,608 ------- ------- OPERATING INCOME 13,690 11,623 INTEREST INCOME (EXPENSE), NET 184 (2,792) PREMIUM PAID ON EARLY EXTINGUISHMENT OF U.S. DOLLAR SENIOR NOTES (20,039) -- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES (6,165) 8,831 PROVISION FOR (RECOVERY OF) INCOME TAXES (NOTE 1) (1,556) 533 ------- ------- NET INCOME (LOSS) (4,609) 8,298 INTEREST EXPENSE ON CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES (793) -- ------- ------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $(5,402) $ 8,298 ======= ======= BASIC EARNINGS (LOSS) PER SHARE $ (0.09) $ 0.17 ======= ======= FULLY DILUTED EARNINGS (LOSS) PER SHARE $ (0.09) $ 0.16 ======= ======= SEGMENTED INFORMATION REVENUE FROM EXTERNAL CUSTOMERS Product sales $33,631 $12,562 Research and development 11,782 6,717 Royalty and licensing 2,728 8,952 ------- ------- $48,141 $28,231 ======= ======= SEGMENT OPERATING INCOME (LOSS) Product sales $16,463 $ 3,147 Research and development (3,703) 942 Royalty and licensing 2,688 8,753 Unallocated (1,758) (1,219) ------- ------- $13,690 $11,623 ======= =======
BIOVAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS IN ACCORDANCE WITH CANADIAN GAAP (All dollar amounts are expressed in thousands of U.S. dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (4,609) $ 8,298 Depreciation and amortization 7,350 1,489 Future income tax recovery (Note 1) (2,453) -- Premium paid on early extinguishment of U.S. Dollar Senior Notes 20,039 -- -------- ------- 20,327 9,787 Change in non-cash operating items: Decrease (increase) in accounts receivable (12,340) 1,466 Increase in inventories (5,550) (3,030) Decrease in deposits and prepaid expenses 1,188 103 Decrease in accounts payable and accrued liabilities (3,689) (383) Decrease in income taxes payable (177) (386) Increase (decrease) in customer prepayments (489) 9,440 -------- ------- (21,057) 7,210 -------- ------- (730) 16,997 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to capital assets, net (3,929) (1,611) Acquisition of product rights -- -- Maturity of short-term investments, net 46,346 -- Acquisition of long-term investments (2,285) -- Proceeds from assets held for disposal 17,000 -- Decrease in other assets 261 -- Advance of executive stock purchase plan loans -- (52) -------- ------- 57,393 (1,663) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of share capital 102,298 1,424 Repurchase of share capital -- (14,933) Issuance of convertible subordinated preferred equivalent debentures, net of financing costs (Note 2) 290,312 -- Repurchase of U.S. Dollar Senior Notes (141,017) -- Reduction in other long-term debt (10,651) (300) -------- ------- 240,942 (13,809) -------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (21) (548) -------- ------- INCREASE IN CASH AND CASH EQUIVALENTS 297,584 977 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 178,086 78,279 -------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $475,670 $79,256 ======== =======
BIOVAIL CORPORATION CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH CANADIAN GAAP (All dollar amounts are expressed in thousands of U.S. dollars) (Unaudited) 1. FUTURE INCOME TAXES Effective January 1, 2000, Biovail Corporation (the "Company") changed its method of accounting for income taxes from the deferral method to the liability method of tax allocation as required by the Canadian Institute of Chartered Accountants. As permitted under the new rules, prior-year financial statements have not been restated. The cumulative effect of this change at January 1, 2000 was a decrease in opening retained earnings of $55,451,000, a decrease in goodwill of $36,524,000 and an increase in the future income tax liability of $18,927,000, reflecting the net liability which existed at that date for the difference between the accounting and tax value of the Company's assets and liabilities. For the three months ended March 31, 2000, application of the new income tax rules increased net income by $2,934,000 reflecting the reduction of the difference between the accounting and tax values, the reduction in goodwill amortization and the recognition of losses incurred by the Company's subsidiary Biovail Technologies Ltd. during the period. 2. CONVERTIBLE SUBORDINATED PREFERRED EQUIVALENT DEBENTURES On March 22, 2000, the Company issued $300 million of 6.75% Convertible Subordinated Preferred Equivalent Debentures, due March 31, 2025 (the "Convertible Preferred Securities"). The Convertible Preferred Securities are unsecured and subordinated to all Senior Indebtedness, as defined, of the Company. The Convertible Preferred Securities are convertible at any time into common shares at $60.675 per common share and may be redeemed at the option of the Company beginning on March 31, 2003 at a redemption price of 104.725% declining each year as prescribed in the indenture agreement to 100% by March 31, 2010. The Company has a special right to redeem the Convertible Preferred Securities prior to March 31, 2003 at 106.75% if the trading price of the Company's stock equals or exceeds $91.01 per share on the NYSE for a specified period, subject to certain conditions. Interest is payable quarterly in arrears commencing June 30, 2000. Subject to certain conditions, the Company has the right to defer payment of interest on the Convertible Preferred Securities for up to 20 consecutive quarterly periods. Interest and principal are payable in cash or, at the option of the Company, from the proceeds on the sale of equity securities of the Company delivered to the trustee of the Convertible Preferred Securities. For purposes of accounting under Canadian GAAP, the Convertible Preferred Securities are presented within shareholders' equity and are comprised of the holder conversion option and the interest and principal component. The value ascribed to the option component of $43,506,000 has been determined using the residual method after calculating the component attributable to the present value of the required interest and principal repayments at a rate approximating the interest rate that would have been applicable to non-convertible debt at the time the Convertible Preferred Securities were issued. The present value of the interest and principal repayments amounted to $256,837,000 and is also shown as a component of shareholders' equity reflecting the option the Company has to pay the liability from the sale of equity securities. The present value will be accreted to the face value of the payments over the 25 year term of the indenture as a charge to income attributable to common shareholders. [BIOVAIL LOGO] May 29, 2000 Dear Fellow Shareholder, Biovail Corporation changed its accounting reporting convention from Canadian Generally Accepted Accounting Principles to U.S. Generally Accepted Accounting Principles effective January 1, 2000. Enclosed you will find our Letter to Shareholders and quarterly financial statements prepared under U.S. GAAP. Additionally, Biovail Corporation will continue to provide and has enclosed its financial results under Canadian GAAP for your information. Thank you for your continued support and if you have any questions regarding the enclosures, please do not hesitate to contact Kenneth Howling at (416) 285-6000. Sincerely, /S/ Bruce Brydon Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----