Bausch Health Companies Inc (BHC) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the third quarter earning conference call for Biovail Corporation. [OPERATOR INSTRUCTIONS] To the extent any statements made during this conference call contain information that is not historical, these statements are forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in or implied by these forward-looking statements.

Forward-looking statements are identified by words such as believe, anticipate, expect, intend, plan, will, may, and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to risks and uncertainties including the difficulty of predicting U.S. Food and Drug Administration, FDA, and Canadian Therapeutics Product Directorate, TPD, 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 and finished products, third parties, the regulatory environment, tax rate assumptions, fluctuations in operating results, and other risks detailed from time-to-time in the company's filings with the Securities and Exchange Commission and Ontario Securities Commission. Biovail Corporation undertakes no obligation to update or revise any forward-looking statements.

At this point I would like to turn the call over to Mr. Ken Howling, Vice President of finance and corporate affairs for Biovail Corporation. Mr. Howling will moderate today's call.

Thank you, operator, and good morning, everyone. On behalf of Biovail, thank you for joining us. This morning we will provide additional information pertaining to the Company's operating highlights and financial results for the third quarter 2005. Joining me on today's call are Dr. Douglas Squires, Chief Executive Officer and Charles Rowland, Senior Vice President and Chief Financial Officer. Also on the call today are Ken Cancellara, Senior Counsel, Rick Keefer, Senior Vice President of commercial operations, and Greg Szpunar, Senior Vice President, research and development and Chief Scientific Officer. They will be available, along with myself, to participate during the question and answer session with research analysts following our prepared remarks. As always, we will try answer as many questions as possible while limiting the call to approximately one hour. After the call, other participants are encouraged to follow-up with the Company by dialing 905-286-3000 and asking for investor relations.

Doug, would you like to begin?

Thank you, Ken. Good morning, everyone. Thank you again for joining us this morning. In preparing for today's call, the fact that I am rapidly approaching the first anniversary -- or anniversary of my arrival at Biovail has been very much on my mind. I made the decision to come to Biovail because I firmly believed that it was a tremendous opportunity, a tremendous Company, and had tremendous potential. Upon joining the Company, it became readily apparent to me that Biovail has many strengths. But it also become apparent that there were some issues that were preventing the Company from reaching its true potential. I would like to take just a few minutes to discuss what has been accomplished over the past 12 months because I believe it gives insight into what we expect to accomplish going forward.

My first priority was to work with our senior management team to implement a strategy that would best leverage our core competencies and one that would result in immediate profitability for Biovail's U.S. commercial operation. We accomplished that in May of this year, when we announced our decision to restructure our commercial approach in the United States. Going forward, we will continue to leverage our drug delivery and technological capabilities and our pipeline development efforts. We will also look to strategic partners, with the established primary care sales organizations, to commercialize our products in the primary care segment of the U.S. market. In turn, Biovail will focus its direct sales efforts, and select specialists and niche markets. We believe that this dynamic model gives us the maximum flexibility to generate sustainable growth in the world's largest pharmaceutical market.

This strategy was first affected through the divestiture of our cardiovascular product line to Kos Pharmaceuticals. It was further validated with the recent agreement with Ortho-McNeil, which I will expand upon in a moment. This strategy, this business model, facilitates more favorable operating margins and strong cash flows, as evidenced by the Company's performance thus far this year. As an organization, we have reaffirmed one of Biovail's core competencies is the application of advanced drug delivery technologies to improve the clinical effectiveness of medicines. Biovail currently has over 20 distinct delivery technologies and this depth and breadth allows us to target a wide range of high-value opportunities and to develop products with clinical -- clinically meaningful benefits to patients and physicians.

To this end, Biovail has a deep drug development pipeline, with over 20 products currently in development. Importantly, our approach to product development is compound oriented. Tramadol, for example, is the basis for a compound family. While the oral-dissolving tablet and extended-release formulations are the first two members of this family, Biovail has four other development programs associated with the Tramadol molecule.

Some of these programs have considerable value and some are more modest, but at the end of the day, Biovail is focused on the total value of that family, as one development program may be a prelude to achieve the next developmental enhancement. As you can imagine, one of the highlights of my first 12 months relates to Tramadol. It was an absolute pleasure for me to be a part of the team when we received our approval from the U.S. Food and Drug Administration in September. I would like to take this opportunity to express my thanks, and those of the board, to the many Biovail employees who contributed to the achievement of this great milestone over the past eight years.

It is no secret that we had been engaged in partnership negotiations with a number of quality pharmaceutical companies for sometime. Those discussions came to an end last week, on Thursday, as we announced a commercial alliance with Ortho-McNeil for the marketing and distribution of Biovail's once-daily and oral-disintegrating tablet formulations of Tramadol in the United States and Puerto Rico. This achievement represents the culmination of one of Biovail's most ambitious development undertakings to-date. Biovail's development work on Tramadol began more than eight years ago in 1997, and involved numerous studies and over 3,000 patients. As of today, Biovail is the first and the only Company to submit an application to the FDA for review and to receive an approval for a once-daily Tramadol formulation. We've negotiated a very attractive agreement with Ortho-McNeil, the innovator company, and that's the ideal partner for these products.

To recap the key financial terms of the alliance, Biovail will manufacture, supply and sell Ultram® ER to Ortho-McNeil for distribution at contractually-determined prices, which will be based on Ortho-McNeil's net selling price. The supply prices are between 27.5% and 37.5% of Ortho-McNeil's net selling price. They will be at the low-end of that range in 2006, when Ortho-McNeil is investing heavily in the launch of the product, and at the high-end of the range in 2007 and 2008. Biovail will manufacture, supply and sell Ultram® ODT to Ortho-McNeil for distribution at prices approximately equal to 30% of Ortho-McNeil's net selling price.

The opportunity for Biovail to associate our formulation with a well-established brand name like Ultram® will be particularly advantageous to accelerating awareness and market acceptance for both the extended-release and orally-disintegrating tablet formulations. Furthermore, Biovail will benefit competitively from a very significant first-to-market advantage in the once-daily Tramadol market. Leveraging a specialty sales force in the United States, Biovail will be compensated for providing co-promotion services to women's health care practitioners for a period of two years from commercial launch. Both Biovail and Ortho-McNeil retain an option to extend the co-promotion arrangement by mutual consent for an additional two years.

Turning to the intellectual property front, Biovail currently has two patents under active review by the U.S. Patent and Trademark office that we expect to be issued. We also believe that the combined intellectual property of Biovail, Ortho-McNeil and Purdue, pursuant to the agreement reached between Ortho-McNeil and Purdue, provides patent protection through 2014 for Biovail' formulation, which may extend the branded market opportunities. for Ultram® ER. The launch of Ultram® ER represents a considerable market opportunity. Statistics from IMS for the United States analgesia market show that sales for the 12 months ended September 30, 2005 were $12.6 billion.

Over the same period, Tramadol-based products had total prescriptions of 20.5 million, reflecting a 13% increase compared with the 12-month period ended September 30, 2004. Upon closing of the transaction, Ortho-McNeil has paid Biovail a supply prepayment of $60 million to be credited against product purchases of Ultram® ER. Biovail has retained the rights for the future commercialization of extended-release and ODT versions of Tramadol for Canada. Biovail intends to meet with the Therapeutics Product Directorate to discuss what the associated filing requirements are for this product. If approved, Biovail would commercialize the products through Biovail Pharmaceuticals Canada, the Company's Canadian sales and marketing division.

To be sure, 2005 has been a banner year for Biovail on the product development front. The fact that Biovail has received four product approvals and one tentative approval speaks volumes for the integrity, breadth and depth of its portfolio of drug delivery technologies, as well as its development pipeline. The development of our fixed combination of Vasotec® and Cardizem®, which we call Vasocard, continues according to plan. We expect to complete the pivotal program for this formulation in 2006, which, in turn, would facilitate the filing of a new drug application in early 2007. We are also pleased to report that a significant number of pharmacokinetic viability trials will be initiated in 2006, evaluating a number of new, novel once-daily formulations of several drugs currently administered multiple times per day. These cover indications such as hypertension, pain, epilepsy, depression, schizophrenia and Alzheimers's dementia.

I'd like to mention that Biovail continues to make significant progress in its ongoing corporate governance enhancement initiatives. As you know, this initiative was first announced in June 2004 and has been championed by Executive Chairman, Eugene Melnyk, as part ever the Company's commitment to increase investor confidence. Throughout the year, Biovail has provided regular updates with regard to the progress it has made.

But on October 17, the Company received important third-party validation of its efforts. In Board Games, the Globe and Mail's annual scorecard of corporate governance, Biovail was ranked 64th out of 209 Canadian publicly-traded companies for 2005, climbing 79 places in the 2005 rankings, up from 143rd place finish in 2004. The Company's performance, with the second biggest place jump amongst the top 100 companies in the 2005 rankings and Biovail's 81 total points in 2005 weighted averages of scores in board composition -- compensation shareholders rights and disclosure, an increase of 18 points over 2004, was the biggest point jump among the top 100. Biovail cut in half the point gap between itself and the top ranked Canadian company to just 16 points.

Let me reiterate that, although we are very encouraged by this form of public recognition of our governance efforts, we aren't done yet. The emphasis on the word 'on going.' We at Biovail, the employees, the board of directors and the executive chairman, remain steadfastly committed to becoming among Canada's elite companies in terms of governance. Much has been accomplished on many fronts in the past 12 months. It has been a very busy year and, in particular, a busy several weeks. I'm very proud of the people of Biovail. Their dedication and tremendous efforts are reflected in all of the successes they've achieved in the past 12 months.

Earlier, I indicated that one of the objectives of our organization is to ensure that we have financial strength to fund our growth. First and foremost, that financial strength must be based on solid operational performance and our ability to execute according to plan. In this regard, I'm pleased to report that Biovail has performed strongly in the third quarter and first nine months of 2005. Among our highlights, total revenues for the three months ended September 30 increased 21% year-over-year.

On the bottom line, third quarter 2005 adjusted earnings per share increased 125% versus the comparable period a year ago, a record quarterly level of cash flow from operations. And in September 2005, Biovail's board of directors gave approval to divest our Nutravail division, a wholly-owned subsidiary that specializes in the development and marketing of innovative nutraceuticals, nutritional products and functional foods. More information with regard to the accounting treatment of this discontinued opshur -- operation will be provided later by Charlie Rowland, who will provide more highlights of Biovail's third quarter financial performance.

Let me now take a few minutes to provide some commercial highlights from the third quarter. Wellbutrin XL® continued to strengthen its position in the United States anti-depressant market. Total prescriptions for Wellbutrin XL® increased 21% in the third quarter of 2005, compared to the same period of 2004. For the first nine months of 2005, total prescriptions for Wellbutrin XL® were up 36.2%, compared with the corresponding period of 2004. Additionally, in September 2005, Wellbutrin XL® captured 57.9% of new prescriptions written for the Wellbutrin® brand, including generics. Development efforts continue for Biovail's enhanced-absorption formulation of a bupropion salt. We anticipate being able to file a new drug application with the FDA in the first quarter of 2006.

With respect to Wellbutrin XL®, we anticipate a European regulatory filing by GSK in 2006. Biovail's Zovirax franchise share of the topical herpes market rose to 69.3% during the third quarter of 2005, an increase of 3.6 percentage points versus the third quarter of 2004. Total prescriptions for Zovirax cream and Zovirax ointment, combined, increased 2% in the third quarter, compared with a corresponding three-month period in 2005. Enhanced promotional efforts through our recently expanded women's health dermatology products sales force have contribud -- contributed considerably to the success of this product.

In Canada, Biovail Pharmaceutical Canada's perform, was driven by Tiazac®. The rapidly growing acceptance of Tiazac® XC, our once-daily Diltiazem hydrochloride, launched in late January. Total prescriptions for the Tiazac® franchise, in both the third quarter and first nine months of 2005, were up 15% over the corresponding periods in 2004. Once-daily Tiazac® XC continues to track ahead of expectations. In the third quarter of 2005, Tiazac® XC captured 21.6% of new Tiazac® prescriptions, and 13.1% of new prescriptions for the nine months ended September 30. Total prescription for Tiazac® XC doubled in the third quarter of 2005, compared with the second quarter and were more than five times higher than the first quarter of the year.

Subsequent to the end of the third quarter, the litigation between RhoxalPharma and Biovail concluded with a decision in RhoxalPharma favor. This event, while disappointing, does not impact Biovail's ongoing conversion strategy for Tiazac® XC or the Company's 2005 financial guidance. BBC continues to encourage physicians to convert their patients to Tiazac® XC, which provides the added benefits of improved 24-hour blood pressure control, with additional blood pressure control during the early morning hours. To participate in the market opportunity created by the potential generic entrant, Biovail anticipates launching its own ultra-generic formulation under a distribution agreement entered into with Novapharm.

Over the next two weeks, Biovail Pharmaceuticals Canada, the Company's Canadian sales and marketing division, will be putting the finishing touches on its preparations for the launch of Glumetza, a once-daily formulation of metformin for the treatment of Type II diabetes. Of note is the fact that Glumetza is the first once-daily formulation of metformin to treat Type II diabetes to be introduced in the Canadian market. Metformin is viewed by many as the gold standard for the treatment of this disease. Clinical data indicates that Glumetza offers a significant advantage to both physicians and patients by simplifying the dosage resi -- regiment of twice-a-day or three-times-a-day metformin to once-a-day.

And Biovail is excited about the market opportunity that exists for Glumetza in Canada. It will vie for a share of the over $320 million oral diabetes drug market, which was characterized by year-over-year growth of just under 19% for the 12-month period ended September 30, 2005. During that period, about 12.6 million prescriptions, a year-over-year increase of just under 10%, were written for oral diabetes products to treat Type II diabetes, and metformin products captured 52% of the market.

Earlier this year, Biovail stated that company's board of directors was looking at a number of options to unlock the value of the Company's branded off-patent pharmaceutical products, or legacy products. A number of proposals have been prepared and presented to the board of directors of Biovail for their consideration, and the board is seriously considering one of these proposals. We expect to make an announcement with regard to how the Company intends to maximize the value of these assets very shortly.

Ken, this concludes my remarks.

Thanks, Doug. I would now like to introduce Charles Rowland, Biovail Senior Vice President and Chief Financial Officer. Charlie will review the Company's financial performance for the third quarter and for the first three quarters of 2005. Charlie.

Thanks, Ken. Morning, everyone. Biovail reports its financial results in U.S. dollars and under U.S. Generally Accepted Accounting Principles, or U.S. GAAP guidelines. Canadian GAAP statements are available upon request. All earnings-per-share information discussed in the conference call today will be present on a diluted basis. On a consolidated basis, total revenues for the third quarter of 2005 increased 21% to a record 258.1 million, compared with 213.6 million for the third quarter of 2004. Total revenues for the first three quarters of 2005 were 647.4 million, up 7% from the 603.8 million for the corresponding period in 2004.

Product revenues for the third quarter of 2005 were 244.5 million, compared with 202.2 million in the third quarter of 2004, a 21% increase that reflects the strong performance of Wellbutrin XL®, Zovirax and Biovail's generic portfolio, partially offset by declines of Biovail's Pharmaceuticals Canada, legacy products, and the sale of Teveten to KOS. Product revenues for the nine months ended September 30, 2005 were 609.5 million, compared with 572.6 million for the nine months ended September 30, 2004. Wellbutrin XL® revenues grew 26 at 4% -- excuse me, 26% and 4% in the third quarter and first nine months of 2005, respectively. The same periods, Zovirax grew 134% and 53% respectively, Cardizem® LA grew 230% and 7% respectively. Despite the change of Cardizem® LA, resulting from our deal with KOS, the growth for Zovirax and Cardizem® LA can in large part be attributed to the reductions wholesale inventories in 2004.

Net income for the third quarter of 2005 was 101.2 million, compared with 49.6 million for the corresponding period in 2004, reflecting an increase of 104%. For the first three quarters of 2005, net income was 116.5 million, compared with 114.9 million for the corresponding 2004 period. Fully dilerted -- diluted earnings per share for the quarter of 2005 -- third quarter of 2005 were $0.64 compared with $0.31 in the third quarter of 2004. Earnings per share for the first three quarters of 2005 were $0.73 versus $0.72 in the first three quarters of 2004.

GAAP net income and EPS figures for the third quarter of 2005 were negatively impacted by an additional restructuring charge, related to the realignment of our Company's U.S. commercial operations group and a write-down of assets held for disposal. These charges negatively impacted net income by 7.2 million and EPS by $0.05 in the third quarter of 2005. GAAP net income and EPS figures for the first nine months of 2005 were impacted by restructuring charge, a noncash write-down of assets, and the write-off of inventory related to the May 2005 transaction with KOS Pharmaceuticals. These items negatively impacted 2005 GAAP net income and EPS by 57.3 million and $0.36 respectively.

I would now like to take a few minutes to cover specific items that affected operations in the third quarter of 2005. Biovail recorded an additional 1.1 million restructuring charge, related to the May 2005 realignment of the U.S. commercial operations. These charges were related to severance costs and various program cancellation fees. At this point, we don't anticipate incurring any additional material charges related to this realignment. Also in the third quarter of 2005, Biovail's board of directors approved the divestiture of the Company's Nutravail division. As of September 30, Nutravail has been presented on the balance sheet as an asset of discontinued operations held for sale. The carrying value of Nutravail's net assets was written down to their sale value of $3 million, resulting in a 6.1 million non-cash charge in the third quarter of 2005. During the third quarter of 2005, following FDA approval of Glumetza, Biovail paid 25 million to Depomed.

In the first nine months of 2005, in addition to the charges described above, in the third quarter of 2005, Biovail incurred a 19.7 million restructuring charge, primarily related to the severance costs associated with the May 2005 realignment. In addition, it was also a 26.5 million write-down of assets, primarily comprised of the write-down of the Teveten line. Additionally, $4.9 million of Cardizem® LA and Teveten inventory not purchased by KOS was written off to cost to goods sold in the second quarter of 2005. At the end of September 2005, Biovail had cash balances of 326.7 million and no outstanding borrowings under its revolving term credit facility. The Company's debt to equity ratio stood at .4 at the end of the third quarter of 2005, compared with .5 at the December 31, 2004.

Biovail is in a very strong cash position. As of October 31, the Company had approximately 375 million in the bank. In addition, we have just received a $60 million payment from Ortho-McNeil in accordance with the terms of our Tramadol supply agreement. Our cash flows from continuing operations this quarter at 122.4 million were the highest in Biovail's history. This strong cash flow from operations reflects the strength of our new business model, our continued strong sales performance, as well as the ongoing cost management initiatives that we had outlined during our investor day last June.

Net capital expenditures in the third quarter of 2005 amounted to 12.8 million, compared with six million in the third quarter of 2004. This increase reflects the ongoing expansion of the Company's Steinbeck manufacturing facility, which Biovail expects to complete in 2006.

As a result of the strong EPS and cash flow performance in the third quarter of 2005, Biovail is increasing its diluted EPS guidance range from $1.75 to $1.80 to a range of $1.80 to $1.85. We were anticipating cash flows from operations to be the strongest in Biovail's history. As such, we were increasing our guidance from $00 million to $40 million to 350 million to 380 million. This is excluding the $60 million supply prepayment received from Ortho-McNeil for Tramadol. As before, Biovail's 2005 guidance does not include the impact of any potential new product launches, supply and distribution agreements or acquisitions, restructuring or other specific charges. Nor does it include expenses related to stock-based compensation.

This concludes my review of Biovail's outstanding performance for the third quarter and first nine months of 2005. Ken?

Thanks very much, Charlie. I would like to call on Doug Squires to make his formal closing remarks. Doug?

Thank you, Ken. In closing, let me reiterate that I believe Biovail has come a long way in the past year. Our achievements are a testament to the hard work, perseverance and dedication of our 1,700 employees in Canada, United States, Puerto Rico and Ireland. As you've heard, the Company continues to execute against its stated financial objectives and it's business plan. And to reiterate what Charlie said a little earlier, our strong cash position and ongoing strong cash flows create num -- numerous options for us going forward.

Again, let me reiterate that we are very pleased to have reached an agreement with Ortho-McNeil for the commercialization of extended-release and immediate-release Tramadol in the United States and Puerto Rico. Without a doubt, Ortho-McNeil is the ideal partner for these products. In addition to gearing up for the launch of Ultram® ER and Ultram® ODT in January of next year, we look forward to the launch of Glumetza, in Canada later this month. As we continue to progress through the fourth quarter, I can tell you that our strategy remains the same. We will continue to look for ways to leverage our value-creating technologies, execute against our corporate objectives, and create shareholder value.

This concludes my comments and the formal portion of today's call. I will now turn the call over to the operator for questions. Operator?

Thank you, sir. [OPERATOR INSTRUCTIONS] The first question is from Doug Miehm of RBC Capital Markets. Please go ahead.

Thanks. A couple questions. I guess with respect to the upcoming Tramadol launch, perhaps you can give us an idea of what type of strengths J&J or Ortho are going to put behind this product in terms of number of sales people, how it will be detailed, et cetera, et cetera?

Good morning, Doug. The contract with Ortho-McNeil specifies a significant number of primary details and a very extensive advertising and promotion spin, particularly in the first year of launch. I mean, it's going to represent the efforts of over 1,000 representatives very actively detailing the advantages and benefits of this product. And that's one of the reasons we're so excited about this, because with that type of commercial weight tied to the Ultram® brand name, we're very confident that this will be an extremely successful launch.

Alright. Secondly, could we just get an update on some of the various R&D programs there, ongoing right now as it relates to products like Metoprolol and Carvedilol and Venlafaxine?

Maybe, Greg, you could just make a few general comments on that?

Yes, actually, we're very -- we're very pleased with the progress that we've made on the various programs you mentioned, Doug. In particular our Carvedilol, the program that we've got some very promising results. We have a formulation now that we believe is likely able to be differentiated from the current formulation that we believe GSK is about to file, and we're actually looking forward to initiating some Phase 3 programs on that formulation in late 2006. Metoprolol continues as well on an aggressive path, as well as our Venlafaxine effort.

Okay. And then, finally, just with respect to the additional disclosure that's being required by the SEC relative to what was provided in '04 and up through Q2 in 2005, could you give us an idea of what additional disclosures might be required in Q3 and going forward?

Doug, this is Charlie. We've just -- we received a letter early October. We're pulling together information. I mean, the areas that they're focusing on is sort of some of the sales disclosures, gross to net. A number of different areas where they've asked questions and, basically, wondered if we should enhance the disclosures, what have you. We're working with the SEC on that. We expect that that should be wrapped up sometime in the next month or two and whatever changes, we would make them at that time.

And just be clear, they're not saying there's a problem. They just want more information provided to investors?

Correct.

Okay.

Doug, if you are familiar in Canada with the continuous disclosure review that the OSC have for all the top 100 companies where they constantly look at the disclosure and ask questions and/or provide suggestions, same thing with the SEC, they have the same or a similar initiative.

That's great. Thank you.

Thank you. The following question is from David Lickrish of HSBC Securities. Please go ahead.

Yes, thanks very much and good morning, guys. Just like to cycle back on some of the questions with respect to the Tramadol deal. In particular, I wanted to review, again, the IP with you here. You have some patents that you anticipate listing in the orange book, and I realize the deal that you have here with J&J is ten years. Can you give us some sense in terms of the comfort that you have in terms of expanding on the exclusivity period that you were previously granted, three years. Presumably these patents are going to give you a longer period of time in which to harvest cash flow. I'm assuming by the nature of the deal it's up to ten years, but maybe you can give me some comfort on that.

Good morning, Dave. I think our comfort level is quite high with respect to the extension beyond September 2008 exclusivity date. I think it's important to remember that, in addition to the patents that Biovail has pending, the nature of this deal, without going into great detail, gives us effectively access to multiple patent suites, both Johnson and Johnson and effectively Purdue, and so our comfort level is high. That's one of the reasons, of course, why we felt this -- this arrangement was so economically compelling as it relates to trading off a potential exclusivity of one brand potentially coming on the market a little earlier, versus the significant extension of the exclusivity period beyond '08.

How does that affect, if at all, the timing of some the additional product life-cycle extensions strategies you have behind the once-daily Tramadol?

How does the IP affe -- I don't think the IP affects it at all. We were going full bore on all of the life-cycle extensions that we talked about, some of the combinations and other work.

But does it affect the timing in which you would expect to introduce those products?

You are talking now maybe from a commercial sense as opposed to a -- as opposed to a IP sense, and I suppose that's possible. But I think the extensions that we're working on have their own inherent benefit. Tramadol ER is basically a product that radically improves convenience in patient compliance and chronic pain, whereas some of the combination products would be targeted explicitly for acute pain. For example, if you're combining it with a short-term nonsteroidal or pain that has a significant inflammatory component, and so on. I think there's room for those line extensions in addition to the extended-release Tramadol.

Okay, and maybe there's a question for Charlie, but how does this agreement affect a tax rate going forward, if at all, and what you'll be using as -- where do you see tax rates trending here?

Hey, Dave, this is Charlie. I don't think from -- you know, from our investor day we sort of gave the -- looking into the future there, out tax rate would be going up over the next couple of years, probably into the -- you know, a couple of points. And this was already factored in when we gave that guidance, so I would not have a material change in our tax rate.

Okay. And finally one more question, then I'll jump back into queue here. Can you give us an update with respect to the status of Wellbutrin XL®. You're working on an enhanced formulation, new salt, in terms of partnership or timing of filing/

Yes, I guess I'll ask Greg to comment on that. Just as a quick comment, I said, I think, in my introductory comments that we were targeting a filing in early '06 or the first quarter of '06. Greg can comment upon that. And, as I say, we have not talked a great deal about our discussions with our partner on that, so probably won't give much more information on that, but -- Greg, you want to comment?

Not only, as we've indicated in the past, our development strategy with this bupropion salt is included multiple programs running in parallel or in a slightly staggered manner and as the results from those come in, we're constantly looking at what -- you know, what represents the most optimistic and favorable position. We're saying now that we're going to file this in early '06, in the first quarter. And the change in that date, because there is a slight change, really, which represents a strategic focus-to-focus on -- strategic decision to focus on one of these programs, which is just running a few weeks behind what was our first one. So we remain confident. We know a lot about this drug and a lot about the technology we were using, and anticipate filing this in the first quarter.

Okay. Thanks very much and congratulations on a great quarter.

Thank you.

Thank you. The following question is from from Dimi Ntantoulis of UBS Securities. Please go ahead.

Good morning. I have a few questions. First to follow-up on the Wellbutrin XL® salt maybe, Greg, could you just give us some color? Are you doing like randomized trials or are these more PK trials like the original XL program? And, Doug, can you give us any color as to whether any discussions have been had with GSK about picking up the new formulation of the salt?

This Greg. I guess I'm going to have to fall back to the position we've kind of taken historically on this. And representing -- or realizing that we're in a competitive position with this, we're really not disclosing any details on our strategy until such time as it makes sense to do so. I'm not the one to comment on the GSK --

All I can say, Dim -- this is Doug, Dimi is that, of course, we have had discussions with -- preliminary discussions with GSK on this formulation and others, but we're not going to go into detail as where to we stand, at this point.

You had discussions with other parties, as well?

I'm not going to comment on that, Dimi.

Okay. And second question, just on the generics, they look strong this quarter, maybe a little stronger than prescriptions would suggest. Was there a back order situation? Is Teveten sort of building inventory? Can you give us a little bit more color there. And then just finally, on the Wellbutrin XL®, summary judgment hearing, can perhaps -- could you comment. Do you expect any decision coming back from that hearing prior to the Markman hearings in early December?

Should I deal with that first, Dini, the last question first?

Sure, whatever you would like.

We, of course, don't know when the decision will come down. Normally -- as a normal course, these decisions come down between one and three months following -- or longer, following the end of a hearing. So it's really, Dimi, impossible to say whether it's going to come down prior to the Markman hearing or whether it will be coming down subsequent to that. The timing is -- there's no magic to it. It's simply the complexity of the case that will take sometime before the judge to decides what to do with it. And secondly the judge's schedule, frankly.

Great. Thanks.

Dimi, this is Charlie. Your question on the generics, we do believe that in the quarter, [Tepit] did increase their safety stock a little bit.

Okay. That's great. Thank you.

Thank you. The following question is from Campbell Parry of Scotia Capital. Please go ahead.

Thanks very much. Good morning, guys. Especially on Cardizem® LA, I wonder if you could, maybe, just remind us of the economics there and maybe talk a little bit to what the gross royalties were in the quarter? And then lastly, just talk about Zolpidem. I know you have FDA approval for the product, and any negotiations with this product at the moment?

Okay, this is Charlie. I will start off on Cardizem® LA, I mean, the royalty rate we've disclosed is greater than 30%. That's all we book during the quarter. I think some of the disconnect some people may be having with the performance there is you have to remember in '04, we worked down inventories in the trade during that quarter, and I believe during this quarter KOS was actually rebuilding their safety stock.

I just want to jump in for a second. The -- I know people refer to it as a royalty rate. I guess it's easier to model it that way, but do keep in mind it's a manufacturing supply price.

Yes, it's product driven.

I want to make sure not confused as a royalty that has no cost associated with it.

Right. So that's why I was saying when we ship them product, then we're booking, you know, our revenue.

Okay.

And, Campbell, just I can't say too much on our discussions with respect to other parties on Zolpidem, other than to say there are discussions on going.

Okay. Thanks very much, guys.

Thank you.

The following question is from Elliot Wilbur of CIBC World Markets. Please go ahead.

Good morning, thanks for leaving time for questions. Just have a two quick financial related questions, first for Charlie. On the charges, I guess the 6.1 and the 1.1 that you show in the table are after tax and then there's the 7.6 million item in the P&L related to discontinued OPSs. I'm trying to reconcile those two. Is the 6.1 to 7.6, is that the same charge just pre and after tax?

I'm going to see. I'm just trying to find them in there, the table that you're looking at. Let's see, the restructuring charge is the 1.1 and the 6.1?

Correct. And then in the P&L, you show discontinued OP, and perhaps that' -- perhaps that's income, I guess, from that operation --

Yes, it's actually the income for that operation, which we do dis not adjust for.

Okay. And then with respect to the restructuring charge, where is -- where does that flow through the P&L?

It's below the -- the 1.1?

Correct.

Yes, it's just in the expenses.

SG&A? Or split?

SG&A.

Okay. Thanks. And just one final question here. When can we expect to hear from you guys on '06 guidance?

We have done a bit of an analysis in that regard, Elliot, and what we have found is the majority of our peals -- not all, but the majority of our peals -- our peers announce their guidance when they present their full year, in this case full area '05, so likely in the early part '06 when we're providing the market with our year-end results, we would provide the future outlook for the coming year.

Okay, thank you.

Yes.

Thank you. The following question is from Kenneth Kulju from Credit Suisse First Boston.

Yes, good morning.There was a discussion about the proposals that are being evaluated for the legacy product line. As I understand it, the range of proposals that you had been looking at have been, for instance, a spin-off into a Canadian income trust, private equity transaction or an outright product sale. I was wondering if you could just review, essentially, the range of proposals and timing of the decision and, I guess, where you're leaning on this one?

Good morning. I think you outlined the range of the possible proposals that we previously disclosed, which range essentially from maybe one other, which is not to do anything, which is always an option when you are making those sorts of evaluations. I'm not going to comment at this point on which of the proposals the board is most interested in pursuing, but I think the decision will come shortly with respect to what they're currently looking at.

Okay, thank you.

The following question is from Christine Charette from BMO Nesbitt Burns

Hi, thank you. Congratulations on the J&J deal. Now the question is, what are you doing in order to leverage your products in Europe? Can we expect you to be able to announce a partnership in Europe and what kind of time frame? And regarding -- can we get more detail regarding what it is about the patent portfolio, [eurosaltic] combined with yours that will give you extended life on the market. What is it specifically that you were trying to access there?

Just a -- good morning, Christine. Let me comment on Europe. Firstly, we are in active discussions with potential partners there. Of course, you understand that part of the reason for the, sort of a sequence of these negotiations is that, dependent on which partner we chose for the Tramadol ER and ODT for the U.S., some of those partners had, you know, extensive interest in Europe and others did. So, that was a rate limiting steps in us executing something prior to the announced deal and we, of course, had a focus of concluding the U.S. deal any non-U.S. agreements.

On the patent side, I guess I'm not going to -- it's hard for me to give you that degree of explicitness in terms of what we are trying to access. We know where the patent suites that were available from -- that Purdue had, also that J&J had, and also that we had pending, and we felt it was the depth and breadth of those patents in combination that provided us with comfort as it related to exclusivity, and hence the types of actions that we took, as opposed to trying to access any one particular patent in and of itself. Greg, you want to make any comment on that?

No, I think you stated it very way. I think you really provided a robust position.

Okay. And regarding the SEC investigation, your press release actually states that resolution of these comments could involve modification to previous SEC documents. Can you expand on that, in light of what was said in answer to Doug's question that it would only require further disclosure.

And second question is, can you give us a bit of color on your strategy in Canada? I've been noticing that for Wellbutrin® SR in terms of IMS data, the dollars are falling faster than the prescriptions are and it's been so for the last two quarters. So, are you doing a pricing strategy trying to price in line with the generics; and what will be your pricing strategy Glumetza, given that the Ontario Formulary doesn't want to list sustained release products that are any higher than generic immediate release?

Okay, maybe Charlie can comment firstly on the SEC component.

It's independent of anything else that we have going on with the SEC. It's part of their normal disclosure review, and to the extent that we agree to changes in our disclosures or what have you, we would file an amended 20-F or 6-K, which would be normal course when you receive one of those letters.

But is that a restatement of past?

At this point, we don't anticipate that.

Okay. Thank you.

And maybe we could -- I'll ask maybe Rick Keefer to comment a little bit on what [inaudible] in Canada. But just, maybe, as a prelude to that, we're not going to comment on our pricing strategies in Canada, as it relates to the generic or to the Ontario Formulary for obvious proprietary reasons but, Rick, if you could just maybe comment a little bit on the SR situation in Canada?

Yes. This is Rick. The there was a generic product that was recently approved and it was -- it's been slow coming to market for a variety of reasons. They had some supply situations and we continue to leverage our Canadian sales force on the Wellbutrin@ SR opportunity in Canada, and we also have Wellbutrin® XL that we expect to have on the way in not too distant future. So, we want to maintain our relationship with those key physicians and get ready for the next extension of that franchise.

And what typically happens is the wholesalers stop buying in anticipation of that generic coming, so prescriptions may be tracking at one level and dollars are dropping at a faster level, I think is --

But, IMS is supposed to pick prescription dollars, not wholesaler dollars. Do you care to comment why this quarter was a week later than normal?

On BPC?

Sorry.

Why this quarter earning --

A week later than normal?

I think it was pretty self-evident. That last week we were finalizing our negotiations and discussions with J&J and, ultimately, announced that transaction on what some analysts had anticipated was the date we would do our earnings.

Is it was a busy time, Christine.

Thanks.

Thank you. The following question is from David Maris from Banc of America Securities. Please go ahead.

Good morning. A few questions. First, when did you find out that the insider trading investigation includes a focus on Melnyk? Specific date if you have it, The second is, Doug, you are on the board. If the OSC finds there were improper trading activities by Eugene Melnyk, will you, as a board member, recommend that he steps down?

Well firstly, David, as it relates to the first question, I'm not going to give a precise date, but it was recently that we learned that and I would say we've disclosed that -- what's been said in its entirety. And secondarily, I'm not going to speculate on what the board is going to do in the event of any finding one way or the other, at this time.

And as for the options of the legacy business, would you take a management spin-out off the table or make it possible for management to not privately hold any positions in the Company or invest in a company that's actually investing in the spin-out company? The reason I ask these is that you've made a big thing about the corporate governance issues, and I want to understand if things are really changing or if just Canadian Press rankings are improving?

I guess I'm not going to, sort of, engage in discussion, sort of, speculative in terms of what might be happening because, in fact, as we mentioned earlier, these range from doing nothing to selling the assets and where that question really is not relevant anyway. So we will, maybe, discuss that at the time when we announce what we were planning on doing.

Alright. Thank you very much.

Thank you.

The following question is from Hari Sambasivam from Merrill Lynch. Please go ahead.

Yes, thank you. Doug, quickly in terms Ultram® in Europe, do you have European studies currently -- oh, I guess the questions is, are your U.S. political trials adequate for European approval, or do you have to run additional studies to give Ultram® approved in Europe? I'm just kind of wondering whether, you know, we're looking at an immediate or an imminent near-term partnering and launch or is this, sort of, a staggered out a year or two from now, in terms of an Ultram® ER launch in that jurisdiction? additional major trials in Europe.

We're not planning on doing any additional major trials in Europe, Hari. We think that the database would be registrable. I mean, you have to do certain things, of course, to convert the file and expert opinions and all that sort of thing. But. we're not planning on running any major clinical trial programs to support a European registration. We think it stands on its own. Greg, do you want to comment on that?

I really can't add to that, Doug. We have a strong file and we believe actually provides more data than some of the products already approved in Europe.

That's great. Thank you.

Thank you. The following question is from Cosme Ordonez of GMP Securities. Please go ahead.

Yes, thank you. Could you please add more color about what the strategy will be with regard to the introduction of generic versions of Wellbutrin® once-daily when this happens? And also to add what the clinical program on Ultram® ER, going forward. If there are additional comparative studies that will be performed to improve marketing?

Thank you. Greg, you want to take --

With respect to Ultram®, I think it's -- we've disclosed. We've got some post-approval commitments as it relates to pediatric studies. which we are anxious to get completed, as that will provide additional exclusivity to us, once that's done. We were in active discussions with our partner, J&J, on additional trials moving forward, as it relates to Ultram® ER specifically. Clearly, this is a key program for us and for them, and we're going to support it.

And along the lines of Wellbutrin®, I think we've talked quite a number of times about some of the strategies that we have either in place or that we could initiate, as required. Some of those strategies could involve the launch of an ultra-generic of this product. The strategies involved, of course, creating a sort of a new and improved and more clinically-beneficial version of Wellbutrin® that could be very attractive to the U.S. marketplace. Other than that, I don't think I can make more comments.

Thank you.

Thank you.

It's just about 9:30, why don't we take one or two more questions.

Thank you. The following question is from Ray Garson of UBS Securities. Please go ahead.

Thanks. I was just wondering if you could give us some perspective for what you plan to do with you cash balance since, obviously, you've delever'd the balance sheet. Just curious with what you plan to do there? And additionally, I guess, could you just comment on acquisitions and if that's something that's currently being evaluated as a strategy thing?

Yes, they're sort of part and parcel of the same answer. We're in the very fortunate position, of course, of having a strong cash balance and strong cash flows at Biovail. And the intent, with respect to the utilization of that cash, is to use the majority of it to invest in assets that will fund future growth of Biovail. And that could certainly involve certain acquisitions or product acquisitions or product licenses and so on, and we are active in that area, going forward. Those are all targeted on supporting and sustaining the strategy for Biovail.

Is most of the stuff you are looking at stuff in development or are you looking at adding products that are currently on the market?

It's a combination. We really sort of have four prongs to this. We look at products for Canada, because we think Canada is a very significantly under utilized resource for emerging pharmaceutical companies. And we look at products -- products and/or companies, as it relates to our current business in the U.S. and womens health and dermatology. we look at products and companies that would be supportive of other potential business units we form in the future, as a result of our pipeline efforts. And we also pay a lot of attention to new technologies, both in the [oil] delivery space but also in other areas of drug delivery that could enhance our leadership position in that area.

And then just, I want to make sure I heard -- did you got the $60 million payment from J&J in the fourth quarter, is that right?

Yes.

Thank you.

Thank you, the following question is from David Lickrish from HSBC Securities. Please go ahead.

Hi, guys.Thanks for taking a follow-up. I know you aren't giving out any specific guidance, but do you have targeted long-term EPS growth rates you might be looking at?

I can't comment on that in terms of our long-term EPS growth rate targets.

Okay. In terms of niche markets that you talked about earlier, are you looking to maintain a focus in OBGY area? Are you looking at other areas in which you might sort of -- you know, in limited scale, sort of broaden your presence in sales and distribution capabilities?

Yes, yes. The answer to both those questions is yes, we're certainly looking at expand -- maybe not expanding the people, but expanding the products and so on in the portfolio for our womens health dermatology division. But we're paying a lot of attention to other niche areas, particularly as it relates to some the efforts in our pipeline that we look at when those products might flow through. And then we make that up strategically into our business development efforts to see if we can accelerate the formation of a business group, in a accretive way, but be ready for that product or series of products when they come through.

One final question, do you owe any more money to Depomed, at this stage, after that 25 million?

No.

Okay. Thanks very much.

Thank you.

This concludes the Q&A session. I would like to turn the meeting back over to Dr. Squires.

Thank you very much. We appreciate your attendance this morning. I just want to reiterate again, the thanks -- my personal thanks and the thanks of the senior executive at Biovail and the board of Biovail, to all of the employees who have worked so diligently in the past nine months and the past year to produce this very successful quarter, to produce this very exciting advance in terms of the partnering of Tramadol and our thanks, our heartfelt and we look forward to a great success in the coming months and years. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you all for your participation and have a great day.