Bausch Health Companies Inc (BHC) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter and full-year 2005 earnings conference call for Biovail Corporation.

At this time, all participants are in a listen-only mode. This conference call is being webcast on the World Wide Web at www.Biovail.com. (OPERATOR INSTRUCTIONS). As a reminder, a replay of this conference call will be available until 7 PM Eastern Standard Time on Thursday, March 30, 2006. Callers from Toronto and countries other than the United States should dial 416-695-5800. Callers from the rest of Canada and the United States should dial 1-800-408-3053. Your access code for the replay is 3180221#.

On behalf of the speakers who follow, investors are cautioned that the presentation and responses to questions may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and would comprise forward-looking information within the meaning of the Safe Harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements. Actual results may differ materially from those expressed or implied in such statements. Forward-looking statements include but are not limited to our goals, targets, strategies, intentions, plans, beliefs, estimates, expectations, outlook, 2006 earnings guidance and other statements which contain language such as believes, anticipates, expects, intend, plan, will, may and other similar expressions. For additional information about the material factors or assumptions underlying such statements and about the material factors that may cause actual results to vary from those expressed or implied in such statements, please consult the Company's earnings release and guidance release both dated March 23, 2006 that are available on the Company Web site, as well as its filings with the Securities and Exchange Commission and the Ontario Securities Commissions. Including the risk factors detailed in its most recent annual report on Form 20-F, Item 3-D, the Company does not undertake to update any forward-looking statements.

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

Good morning, everyone.

On behalf of Biovail, I would like to thank you for taking the time to join us this morning on our conference call to summarize the Company's financial results for the fourth quarter and full year 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 is Ken Cancellara, Biovail's Senior Counsel. After members of our management team have completed their review, we will conduct a question-and-answer session for research analysts on today's call who cover Biovail. As always, we will try to get to as many questions as possible while limiting the call to about one hour. After the conference call, other participants are encouraged to follow up with the Company by calling 905-286-3000 and asking for investor relations. Doug, would you like to begin?

Thank you very much, Ken. Good morning, everyone. Thank you again for joining us.

I'm delighted to review with you today Biovail's accomplishments in 2005. Clearly, it was a successful year. The Company executed against its stated financial objectives and generated record revenues on cash flow from operations and strong earnings per share. This financial strength enabled the Company to declare its first-ever dividend in 2005, (indiscernible) to join the approximately 900 companies on the Toronto Stock Exchange and 1000 companies on the New York Stock Exchange that pay dividends to shareholders.

Operationally, 2005 was also a great year. In May, we adopted a dynamic business and commercialization model, one that significantly enhanced our operational profitability and cash flow. On the research and development front, we've received regulatory approval for six new products in 2005, including our once-daily formulation of Tramadol. We also had great success with respect to our business development activities, as we entered into strategic alliances with Kos Pharmaceuticals and Ortho-McNeil. In the past couple of years, we have worked diligently to prepare a road map that we believe will guide us as we continue to evolve into one of the world premiere specialty pharmaceutical companies.

Shortly after I took over as CEO, we initiated a full-scale review of our business. The first priority was to incorporate a strategy that would immediately establish a profitable commercial business for Biovail in the U.S. market. This important goal also needed to be balanced with the knowledge that creating the flexibility to capitalize on opportunities as they are created through our product development pipeline in addition to those presented to us through the market would be important to Biovail's mid-term and long-term growth objectives. The key conclusions of this review provided us with the strategic foundation and commercialization strategy that is predicated upon entering into strategic alliances with companies that have a strong primary care capability and are committed to the applicable therapeutic area.

We also decided to maintain a realigned specialty commercial organization in the U.S., and we have leveraged this organization in selected markets that are aligned well with our research and development and business development efforts. In turn, this allowed us to enter into two partnerships that had a significant impact on our business in 2005. In early May, Biovail entered into a strategic alliance with Kos. As a result of this partnership, we divested our Teveten product line and we entered into a manufacturing and supply agreement for distribution of Cardizem LA in the United States with Kos. The multifaceted transaction also resulted in Kos offering employment to approximately 200 members of our commercial group. We also agreed to collaborate on the development of up to three products, the first of which is a fixed-dose combination product comprised of Cardizem LA and [Analabra], a combination that has the potential to broaden the lifecycle of Cardizem LA.

In early November, Biovail announced a commercial alliance with Ortho-McNeil for the marketing and distribution of Biovail's once-daily and orally disintegrating tablet formulations of Tramadol in the United States. We 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. Supply prices are between 27.5% and 37.5% of Ortho-McNeil's net selling price. The opportunity for Biovail to associate our formulation with a well-established brand name like Ultram and with Ortho-McNeil's world-class sales team is very advantageous in accelerating awareness and market acceptance of this product. Furthermore, Biovail will benefit competitively from a very significant first-to-market advantage in the once-daily Tramadol market. Leveraging its specialty sales force in the United States, Biovail will be compensated for providing copromotion services for Ultram ER 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 copromotion arrangement by mutual consent for additional two-year periods.

In February of this year, over 2000 Ortho-McNeil sales representatives began to detail Ultram ER to physicians in the U.S. As part of the arrangement, at the same time, Biovail's specialty sales force began to copromote the product to women's health care practitioners in the U.S.

The review of our business and the ensuing changes that we made to our business model contributed significantly to Biovail's decision last November to pursue a spinoff of substantially all of the Company's branded off-patent pharmaceutical products. The spinoff transaction is subject to a number of conditions, including but not limited to the preparation, review and approval of an offering document containing financial statements and other related disclosures (indiscernible) factory third-party consents and regulatory and shareholder approval depending on the form of the distribution. We believe that the spinoff will allow for the underlying value of these assets to be better realized, as well as a far more focused growth strategy. Greg Gubitz, who officially joined us on March 15 as Senior Vice President of Crystaal Pharmaceuticals, will assume a leadership role in affecting the proposed spinoff. To this end and for management purposes, we recently announced the realignment of our business into three distinct business units, marking the culmination of the business unit model we introduced in 2005 and our new strategic plan. Each of these business units -- Biovail Drug Delivery, which comprises Biovail's drug delivery technologies, its drug development capabilities and its strategic partnerships; Biopharmaceuticals U.S., which focuses on the promotion of products to specialists and niche therapeutic markets; and Biovail Pharmaceuticals Canada, our Canadian sales and marketing division -- is supported by our corporate and shared service organization and ensures maximum operating efficiency.

In 2005, we accomplished a lot. Total revenues for Biovail were a record 935.5 million, compared with 879.2 million for the corresponding period in 2004, an increase of 6%.For the full year of 2005, product sales were 6% higher at 884.3 million compared with 837.1 million for the corresponding twelve-month period in 2004. This performance is largely attributable to revenue increases for Wellbutrin XL and Zovirax, which continue to gain market share.Net income for 2005 was 236.2 million compared with 161 million for the twelve months ending December 31, 2004, an increase of 47%. GAAP diluted earnings per share for 2005 were $1.48. This compares with $1.01 per diluted share for the corresponding period in 2004. Excluding specific items for which we will provide additional detail shortly, non diluted EPS was $1.86 in 2005 compared with $1.35 in 2004.

In November of 2005, Biovail declared its first dividend in the amount of $0.50 per share, which was paid to shareholders on December 14, 2005. As contemplated by the Company's dividend policy, I am pleased to announce that Biovail will pay a dividend of $0.125 per share for the first quarter of 2006 payable April 28, 2006 to shareholders of record as of April 7. Charles Rowland, our Chief Financial Officer, will provide more in-depth information with regard to Biovail's financial and operational performance for the fourth quarter and full year 2005 a bit later in this morning's call.

Let me now take a few minutes to provide some commercial highlights. Wellbutrin XL continued to strengthen its position in the United States antidepressant market. Total prescriptions for Wellbutrin XL increased 16% in the fourth quarter of 2005, compared with the same period in 2004. For 2005, total prescriptions for Wellbutrin XL were up 30% compared with the corresponding period in 2004. Additionally, in December of 2005, Wellbutrin XL captured 58.5% of new prescriptions driven for the Wellbutrin brand, including generics. In the next couple of weeks, Biovail Pharmaceuticals Canada will be putting the finishing touches on its preparations for the launch of Wellbutrin XL. We expect that the availability of this product will offer Canadian healthcare practitioners and their patients another compelling option of a treatment of depression in adults.

Our marketing partner, GSK, is proactively moving forward with plans to build new markets for Wellbutrin XL in Europe. To date, GSK has made regulatory filings for Wellbutrin XL in several European markets.

In December of 2005, Biovail submitted a citizen's petition to the FDA to require rigorous bioequivalence testing for generic products that reference (indiscernible) Wellbutrin XL before they can be approved. Biovail took this step to protect patients against such potentially serious risks as seizures, which are partly disclosed in the Wellbutrin XL labeling, and to ensure that generic versions of Wellbutrin XL are safe and effective and the (indiscernible) product. More detailed information is contained in the news release we issued on December 21, 2005.

Turning to the legal situation pertaining to the genericization of Wellbutrin XL, Biovail believes that the intellectual property that protects this product has been infringed by four companies that are seeking FDA approval for generic formulations. As such, we are pursuing ongoing litigation against each company. Biovail has been notified that Anchen Pharmaceuticals Incorporated filed a motion of summary judgment on March 17 in the United States Central Court of California, Santa Ana division. The materials supporting the motion have been filed under seal and are subject to a protective order. Biovail intends to actively defend its intellectual property rights and will file its response in due course. The Anchen case is scheduled to go to trial in the United States District Court in September, 2006.

The Markman hearing in the Abrika case is scheduled for next week, March 29 and 30, in the U.S. District Court of the southern district of Florida. With respect to the Impax case, the Markman hearing has been scheduled for April 17, 2006 in the United States District Court Eastern District of Pennsylvania. The litigation against Watson is still in the early stages.

In 2005, sales of Wellbutrin SR in Canada were negatively impacted by the introduction of generic competition. Earlier this month, Biovail learned that this generic competitor was requested to conduct a recall at the wholesaler level; it involves bupropion 150 mg tablets. Although it is too early to fully assess the impact that this action will have, Wellbutrin XL is competitively priced and may be an excellent alternative for patients who take Wellbutrin SR. In Canada, the performance of Biovail Pharmaceuticals Canada was driven by the Tiazac line. This strong performance can in part be attributed to the growing acceptance of the Tiazac XC, which was launched in late January 2005 and continues to track ahead of expectations. In the fourth quarter of 2005, Tiazac XC captured 17% of total Tiazac prescriptions. Last fall, the litigation between RhoxalPharma and Biovail concluded with the decision in Rhoxal's favor. Rhoxal's generic Tiazac became commercially available in February 2006. Shortly thereafter, to participate in the market opportunity created by the potential generic entrant, Biovail launched its own [alter] generic formulation.

Our development activities continue to focus on new products that target unmet patient needs in primary care markets and other markets, specialty markets, and identify ways to increase exclusivity periods or strengthen intellectual property protection to extend the commercial life and value of the products that we develop. Biovail currently has development efforts ongoing for over 25 pipeline products, including 10 full development programs. These include once-daily formulations of [carvadalol], novel formulations of (indiscernible) combination products involving buproprion and Tramadol. Biovail SmartBook technology is well-suited to combining two active molecules with different mechanisms of actions for the same indication. Additionally, this type of innovation to existing molecules is aligned with Biovail's strategy of building upon and creating a family of products at a line extension of products around a common molecule such as the buproprion or Tramadol molecules. In addition to these, we have a number of feasibility or early-stage programs, including four once-daily formulations of undisclosed products currently dosed multiple times per day. Development efforts also continue for Biovail's formulation of a buproprion (indiscernible). Clinical work is continuing, and based on the availability of new data, this formulation is being further optimized. The New Drug Application and filing is now anticipated in the third quarter of 2006.

In addition to our internal development programs, Biovail has never been more active in the area of business development. We are actively exploring a number of complementary product and technology opportunities, several of which have advanced to the stage of due diligence. Although we do not include these opportunities in our guidance, nor can there be any assurance that any transactions will be completed, Biovail is very well situated financially and is well positioned to capitalize on multiple opportunities.

Biovail's product development accomplishments have contributed significantly to the success and subsequent expansion of our world-class manufacturing operations. During the past several months, production at our facility at Steinbach has been ramped up to manufacture production quality or Ultram ER in anticipation of -- (technical difficulty) -- commercial launch. This was accomplished despite ongoing construction related to our $27.6 million optimization and expansion project that we expect to be completed in mid-spring, which will be several months ahead of schedule. For the past several months, production at Dorado has been ramped up in anticipation of our partner Ortho-McNeil's upcoming launch of 50 mg Ultram ODT in the United States.

Before turning the call back to Ken Howling, I would like to briefly address the lawsuit filed by Biovail on Wednesday, February 22, 2006 that alleges stock market manipulation. Biovail takes matters of this nature very seriously and is acting to protect the rights and interests of the Company and its shareholders and its stakeholders. The Company is represented by senior and highly experienced litigation counsel in New York, and Biovail intends to pursue the matter vigorously and expeditiously before the Superior Court of New Jersey. As these are matters that are before the court, Biovail cannot comment on the merits of these allegations nor repeat them for the benefit of the investment community or the news media. We will not make further comments or respond to questions related to this matter.

Ken, this concludes my remarks.

Thank you, Doug. Let me now introduce Charles Rowland, Biovail's Senior Vice President and Chief Financial Officer. Charlie will provide you with a detailed recap of the Company's financial performance for the fourth quarter and fiscal year 2005. Charlie?

Good morning, everyone.

Biovail reports its financial results in U.S. dollars and under U.S. Generally Accepted Accounting Principles, or U.S. GAAP. All earnings per share information discussed on the conference call today will be presented on a diluted basis. On a consolidated basis, total revenues for the fourth quarter of 2005 were 287.6 million, a 4% increase relative to the 275.4 million for the fourth quarter of 2004. Total revenues for 2005 were 935.5 million, up 6% from the 879.2 million for the corresponding period in 2004. Product revenues for Wellbutrin XL were 137.7 million in the fourth quarter of 2005, compared with 109.7 million for the same period a year ago, a 26% increase. For the year, total revenue for Wellbutrin XL was 12% higher at 354.2 million compared with 317.3 million in 2004. This exceptional performance can be attributed to the success of GSK in driving prescription volume and price growth.

Turning to the Zovirax franchise, revenues for the fourth quarter were 27.7 million compared with 30.8 million for the corresponding period in 2004, a 10% decrease.

Revenues for 2005 were 95.9 million, 27% higher than the 75.5 million for the previous year. Revenues in 2005 were favorably impacted by a 3% increase in total prescription volume, price increase, and a reduction in wholesaler inventory levels in 2004. In the fourth quarter of 2005, Zovirax ointment and Zovirax cream held a combined 68.2% share of the U.S. topical herpes market, an increase of 3.4 percentage points in market share versus the fourth-quarter 2004 levels. Product revenues for Cardizem LA in the fourth quarter of 2005 were 13.4 million, compared with 10.3 million for the corresponding period in 2004, an increase of 30%. For the full year, revenues were up 59.7 million, up 11% from 53.6 million for the 12 months ended December 31, 2004. Since May, 2005, sales of Cardizem LA reflect our supply agreement with Kos whereby Biovail manufactures and supplies Cardizem LA to Kos at contractually determined prices that are in excess of 30% of Kos' net selling price. Amortization of the deferred revenue associated with the Kos transaction positively impacted Cardizem LA by 3.8 million and 10 million in the fourth quarter and 12 months of 2005, respectively. Biovail's commercial trade inventories across all product lines represented approximately a one-month supply as of December 31, 2005.

Biovail's U.S. GAAP net income for the fourth quarter of 2005 was 119.7 million, compared with 46 million for the corresponding period in 2004, an increase of 160%. For the full year 2005, net income was 47% higher at 236.2 million compared with 160.9 million for 2004. Fully diluted GAAP earnings per share for the fourth quarter of 2005 were $0.75 compared with $0.29 per share for the same period in 2004. Diluted EPS for 2005 was $1.48 versus $1.01 in 2004.

With respect to specific items affecting operations, in the fourth quarter of 2005, Biovail recorded a $2.7 million charge related to the write-down of the Company's investments in Reliant pharmaceuticals, a 0.4 million equity loss in the Company's investment in Western Life Sciences fund, and a 0.5 million adjustment to the write-down of the Company's Nutravail assets.

In the full year of 2005, Biovail incurred a 19.8 million restructuring charge primarily related to severance costs associated with the May, 2005 realignment of the Company's U.S. commercial operations. The decision to divest the Company's Nutravail division resulted in a $5.6 million non-cash write-down of the carrying value of those assets, which is recorded in the loss from discontinued operations. In addition, the disposal of the Teveten line resulted in a $25.8 million write-down of the carrying value of these product rights to reflect their fair value at the date of disposition. Biovail also wrote off $0.7 million investment in convertible debentures of Procyon Biopharma, Inc. following termination of the Fibrostat licensing agreement. Additionally, 4.9 million of Cardizem LA and Teveten inventory not purchased by Kos was written off to cost of goods sold in 2005. Further, Biovail incurred a 1.2 million equity loss in 2005 related to the Company's investment in the Western Life Sciences product. In the fourth quarter of 2004, Biovail recorded a $4.4 million charge related to the write-off of the remaining value of Rondec, a $37.8 million charge relating to the write-down of the carrying value of the Company's investment in Ethypharm, and a $4.1 million loss on the investment in Western Life Sciences. In the full year 2004, Biovail also incurred an $8.6 million acquired R&D charge related to the acquisition of the remaining interest in BNC PHARMAPASS and a $1.5 million gain related to the sale of Tiazac product rights. This increase in EPS in 2005 represents 38% growth over adjusted earnings in 2004.

Cash flows from continuing operations were 223.4 million in the fourth quarter of 2005 and 501.9 million in the full year of 2005, representing growth of 99 and 80%, respectively. This compares with 112.1 million and 279.6 million in the corresponding periods of 2004. Adjusting for the $60 million upfront payment from OMI, cash flows from operations were 441.9 million.

Net capital expenditures amounted to 13.7 million in the fourth quarter of 2005 and 37.8 million in the full year of 2005, compared with 7.8 million in the fourth quarter of 2004 and 28 million in the full year of 2004. The increases were partially driven by the ongoing expansion of the Company's Steinbach manufacturing facility.

At the end of December, 2005, Biovail's cash balances were 445.3 million with no outstanding borrowings under our revolving term credit facility. As Doug mentioned earlier, last November, the Board of Directors of Biovail Corporation adopted a dividend policy that contemplates the payment of a quarterly dividend of $0.125 per share. Accordingly, Biovail will pay the dividend of $0.125 per share for the first quarter of 2006, payable in April.

To summarize, Biovail continues to strengthen our balance sheet and our financial metrics in 2005. The following is an indication of our progress -- exclusive of specific items, gross margins improved from 74.8% to 78.4%, which puts us ahead of our peer group. SG&A as a percentage of sales decreased from 28.8% to 24.3%, which also puts us ahead of peer group. Operating margins improved from 30.8% to 38%, which moves us into the top quartile of our peer group. EBITDA as a percentage of sales increased from 33.3% to 41%, which ranks us in the top quartile of our peer group. Operating cash flows as a percentage of sales improved from 31.5% to 47%, which moves us into the top quartile of our peer group. Debt to EBITDA improved from 1.64 to 1.14, which is in line with our peer group. Debt-to-equity improved from 0.45 to 0.36, in line with our peer group. For more comprehensive information pertaining to Biovail's financial and operational performance for the fourth quarter and for the full year 2005, please refer to the news release distributed earlier this morning.

Before I conclude my remarks, I would like to take this opportunity to provide earnings guidance for 2006, which reflects ongoing confidence in our business. Biovail is providing overall revenue guidance for 2006 of 990 million to 1.07 billion and diluted earnings per share guidance of $2.30 to $2.40, exclusive of any charges, which at the midpoint represents in excess of 25% growth relative to 2005. Biovail's EPS guidance includes an estimated EPS impact of $0.10, reflecting the effect of expensing stock options in accordance with Financial Accounting Standards Board's statement 123R or FAS 123R, which Biovail will begin to implement in the first quarter of 2006. Biovail's 2006 guidance does not include the impact of any potential acquisitions or dispositions, the introduction of new generic formulations of the Company's key products, any new supplier distribution agreements and restructuring or other specific charges. Biovail's revenue guidance is based on a number of variables, including the current prescription and business trends and the success of our strategic marketing and distribution partners. Revenues from Wellbutrin XL are expected to be in the range of 400 to 410 million in 2006 with revenues weighted more towards the second half of the year due to the tiered pricing for this product. Revenues from Ultram ER are expected to be in the range of 75 to 85 million in 2006. This reflects a supply price of 27.5% of Ortho-McNeil's net selling price and is based on (indiscernible) forecasted sales, trade inventories and anticipated safety stock levels.

Biovail's guidance for gross margins on product sales in 2006 is 78 to 79%. Gross margins are expected to increase through the second half of 2006, primarily due to the realization of manufacturing efficiencies, product mix, and tiered pricing for Wellbutrin XL. Research and development expenses are projected to be within a range of 105 to 115 million in 2006. Selling, General & Administrative expenses are forecasted to be in the range of 230 to 240 million in 2006. Biovail anticipates cash flows from operations to be in the range of 400 to 460 million in 2006.

For more specifics pertaining to our guidance for 2006, please refer to the news release that Biovail distributed earlier this morning.

This concludes my comments. I will now turn the call back over to Doug for his closing remarks.

Thank you, Charlie.

As discussed during our call, Biovail had considerable success during 2005 from many aspects of its business, from financial success, to product development success, to strengthening and organizing our business units to enhance performance and efficiency. However, make no mistake. Management of Biovail is not resting on its past achievements, nor is it complacent. We are motivated, and we have the same -- (technical difficulty) -- we had in striving to grow our businesses and our strategic alliances today as we did ten years ago when our revenues were less than $100 million.

As we look at 2006 and as reflected in the guidance we provided today, we see numerous opportunities to strengthen and grow our business. While our business, like other business, has certain risks to it, we see numerous ways to capitalize on our unique strength by leveraging our drug-delivery technologies. We are evaluating multiple potential businesses, products and technology opportunities. Biovail also has the financial capability to execute a number of these opportunities and is very confident in our ability to execute in 2006.

So ladies and gentlemen, that concludes my comments for this morning. I will now turn the call over to the conference call operator for questions.

Thank you, sir. We will now take questions from the telephone lines. (OPERATOR INSTRUCTIONS). Dimi Ntantoulis, UBS.

Good morning. I have a few questions. First, maybe you can give us some color on the Ultram ER guidance of 75 to 85 million. How much of that is included with respect to inventory stocking versus anticipated pull-through demand? It looks like there's a fair amount of inventory safety built in there, but if you could give some color there.

Secondly, with respect to Biovail Canada, were there inventory shipments in the fourth quarter related to Glumetza? Those revenues looked higher than they've been recently. Then for Q1 in Biovail Canada, again can you give us a sense in terms of inventory loading related to the Wellbutrin XL launch?

Than just finally, could you perhaps remind us of the Glaxo economics with respect to Wellbutrin XL in Europe?

All right, good morning. (LAUGHTER). I think I may have captured most of these questions. Some of these Charlie is going to talk about as it relates to some of the inventory levels and the safety stocks and so on, so maybe Charlie, you could talk a little bit about Ultram ER and the basis for the guidance that we provided for 2006.

Dimi, our number is based on the market forecast that we received from J&J, plus their assumption of approximately a month supply in the trade. Then they're safety stock levels are in there, which I won't disclose because they are not disclosing that information on their end. But our numbers are based on those three factors.

Can you give us a sense of sort of -- is it sort of one-third a quarter that's inventory related? Can you give us any color there, Charlie?

No, not at this point.

I think there were a couple of questions, Dimi, on inventories related to Biovail Canada and Glumetza and the last few months of the year and Wellbutrin in the first months of the year. Charlie, could you make a comment?

Yes, our inventories were normal at the end of the year. I think part of your question is just sort of in terms of some of the stocking issues with some of the competitors in the marketplace. At this point, you know, those types of increase in demand that we are experiencing are really happening in this year.

No, Charlie. Sorry, maybe I wasn't clear. My question with respect to Biovail Canada, you are obviously launching Wellbutrin XL in April -- I think you -- (multiple speakers). So presumably you have already started shipping inventory to the trade sometime in March?

Correct.

So my question is, with respect to your Biovail Canada revenues, how much was inventory trade shipped of Wellbutrin XL in Canada that will affect Q1 I guess is what I'm asking?

Dimi, we don't break out BPC by product. As you know, there was stocking of course from Glumetza in the fourth quarter and there will be stocking for Wellbutrin XL in the first quarter for BPC as it relates to the launch of the product in the early part of the second quarter, but we don't break down into specific product and what the launch quantities are and stocking, etc.

Okay.

Then maybe your last question was just [GSK] economics for Wellbutrin XL in Europe? We haven't disclosed exactly what that is, but it is not a tiered pricing structure as it is in the U.S. marketplace for the European market. It's a fixed percentage of their net sales.

Have you ever -- you've never disclosed what the arrangement was? I seem to think it was sort of high teens/low 20s. But has that not been disclosed -- (multiple speakers)?

I don't ever recall disclosing what it is, no. No, just that it's a fixed amount.

David Lickrish, HSBC Securities.

Good morning, guys. Just a couple of quick questions this morning for you. First off, Doug, how far along are you now in terms of sort of the restructuring and you've made several changes since you've come on board? I'm wondering if there are any additional changes that you think you still need to make. I wonder about using the drug-delivery technologies that you currently have. Is there not an opportunity here to further leverage that based by doing some generics and outlicensing them, like you've done with Teva in the past?

I also wanted to confirm if you've had any discussions with forest labs about acquiring the rights to the beta blocker in -- (technical difficulty) -- into Canada -- whether or not there's any plans to sort of pursue that, to help foster revenues for BPC.

Then finally, you might have mentions this already. Have there been any discussions or what's your disposition towards settlements on Wellbutrin XL with some of the would-be generics?

Good morning, David. Firstly, let me say a few words about the restructuring and so on of where we are in that regard. (indiscernible) had started, as you know, sort of mid-last year as a result of our look at the U.S. business, which was our most acute priority. So we introduced the concept of general manager run, P&L-driven business units at that time in our commercial organizations with a particular focus on the U.S., but we made some adjustments in Canada and so on.

As sort of a second wave of fulfilling that concept, we are looking now at their other two areas -- our legacy area, of course, which we're planning to do something with in 2006, and it was time to bring in leadership to help accomplish many of the bits and pieces that needed to be done before that can be achieved; secondly and I think very importantly, taking a look at our R&D structure and business and trying to create a linkage much more to the possibility of the projects and the feasibility studies and so on that exist there and to try and pull some of the key drivers of that business together, which are sort of dispersed through the organization, things like commercial assessment of those opportunities, or things like partner management, strategic management, which we think are very important to pull together within that structure to create a much more focused business orientation.

A quick comment as it relates to generics -- I mean, these are things we talk about all the time. As a primary focus for Biovail, our primary focus is extending lifecycles and adding significant value to compounds utilizing our drug delivery technology. Secondarily, of course, eventually all of these become generics anyway, but it's not a primary focus for us.

With respect to Forest Canada, I can't comment specifically on any negotiation with any specific company. All I would say, David, is we pay a lot of attention to companies that have significant new products being introduced in the U.S. market that do not have a commercial capability in Canada. That's one of our key business development strategies, because we feel we have a unique strength in Canada -- commercial strength in Canada that is second to none. You need to do second to none because every other major operation is a subsidiary of a large pharmaceutical company. So we spend a lot of time talking to that possibility.

Lastly, you asked a question about settlements and so on. Of course, we are aware of what's been going on in that arena, but we can make no comment whatsoever in terms of any discussions that we are having with any one of the (inaudible) discussions. So that's all I can say on that, David.

Okay. If I could just very quickly ask two quick questions?

David, I'm going to beg for your forgiveness but there's a number of analysts that want to ask questions. If we could have one or maybe two questions from each analyst, if there's time again, we will certainly circle back but we've got to get to some other analysts, so hopefully we've got time at the end, David, for your follow-up.

Fair enough.

Operator, next question, please?

Thank you. The next question is from Doug Miehm, RBC Capital Markets.

Thank you. Just with respect to settlements again, but not as it is to generic Wellbutrin, on the regulatory side, could you make any comment with respect to how that's progressing and if we're looking at something in 2006, or months or -- can you give us some further detail on that?

I think what I can say is what I've said previously. Biovail continues to cooperate in every possible way to provide every piece of information that any regulatory group is looking at, asked for, and to be as cooperative as possible in as timely a way as possible. There's no one more anxious than myself or the management team to have these matters resolved and behind us. I certainly would hope that they would be resolved in 2006, but as you will appreciate, it's not fully within our hands. All we can do is be as quick and responsive as possible when they make a request.

Okay. Then given that Anchen has filed for summary judgment and given the timing on the Abrika situation going through the same process, what is your outlook for when that ruling could come out, relative to the September court date?

I think you're asking about the Anchen summary judgment and the September court date, and the possible timing of a resolution. Is that what your question is?

That's correct, yes.

Let me pass that over to Ken Cancellara, just to give us a comment on that.

Good morning, Doug.

The summary judgment motion, as you know, has been recently filed n Anchen by Anchen effective March 17. Because there's a protective order that makes the entire file under seal, we obviously can't make any comment on (inaudible). However, the date that has been described in the summary judgment motion, which currently stands at April 10, is not the date when the hearing will actually occur. We are, at this time, working with the court to have a proper scheduling order for that hearing. That news isn't out yet and we just don't know when that schedule will be -- (technical difficulty). The trial for the Anchen case is still scheduled for September 12 of the year.

Okay, thank you.

Ken Kulju, Credit Suisse.

Yes, good morning. I wanted to just get a little better feel for the '06 guidance. Obviously, Ultram is a nice, incremental kicker for you in '06 and you are continuing to forecast the growth in XL. I wanted to get a little bit of a flavor for what you're seeing with the other operations. That would be my first question; it's a little better granularity on '06. Could you also update us on the status of the legacy products business, contemplated spinoffs, alternatives? Thank you very much.

Okay. We can say a couple of words kind of about guidance. Obviously, as you mentioned, Wellbutrin XL and Tramadol are very significant drivers in our performance in 2006. But they are certainly supplemented by expected gains in Zovirax and our U.S. business, which we expect to continue to grow. I mean, that group has done really a tremendous job for a product that contains -- that has a market share of plus 68%, so actually to grow that share by 3 or 4 points is really a fantastic accomplishment. In addition, that group will be promoting a series of products. Although it's not included in our guidance, we also have a variety of discussions ongoing with respect to other opportunities for that business group.

The second part of your question just slipped my mind here. Oh, you had a question on legacy. I mean, you know, I think, as I mentioned earlier, our addition of Greg Gubitz to this is moving this process along and accomplishing the requisite bits and pieces that have to be done before we take this forward, you know, the preparation of offering documents and licenses and so on. We expect some time certainly this year, probably sometime in the second half of the year. No particular change in the plans of the structure of that spinoff at this point, so that's about all I can say on that, Ken.

All right, very good. Thank you.

Elliot Wilbur, CIBC.

It's Kent McCrae for Elliot Wilbur. Thanks for taking the question. I'm going to ask an earlier question just a little bit differently. I was wondering if you could just confirm whether or not you've actually met with any of the parties on Wellbutrin XL for settlement talks. Then given how quickly the litigation is moving forward, are they actually in fact willing to settle?

Then secondly, any color you can give us on the timing of the various tiers for Ultram in 2006 would be much appreciated.

I will take the second question first. There are no tiers for Ultram in 2006; it's a fixed supply price -- 27.5% of that selling price, so there are no tiers.

(indiscernible) the first question, I'm not going to make any comment whatsoever whether I've -- of any discussions that have or have not taken place. As I mentioned before, it's not appropriate to do so.

Amy Stevens, Susquehanna.

Good morning. Thank you for taking the question. Just a few quick issues -- in terms of the business development activities that you discussed, I was wondering if you could give any color in terms of the types of opportunities that you've looked at -- or are looking at, whether or not these are line-extension-type opportunities, whether they would focus more in Canada or are you focused on having anything that you'd be selling yourselves in the U.S., or is that kind of out? I guess that's related to my second question, which is sort of long-term expectations in terms of sales, selling products in the U.S. -- whether that is -- how you view that -- on the table, off the table; understanding that you're copromoting Ultram ER to women's health specialists. Is that something that you would anticipate doing more of, projects like that?

Then in terms of BPC, you know, your discussion of Tiazac XT, the impact of that in 2006 I guess is what I'm asking about. If you are introducing Wellbutrin XL, would that be sufficient to offset whatever losses might be associated with Tiazac?

Really the last question is back on settlements. Does your '06 guidance include any possibility of -- that gross margin figure that you gave, that assumes of course no settlement. So you're assuming no settlement as well as no introduction of any generic competitor on either Cardizem LA or on Wellbutrin XL. That's it.

I'm taking the questions in the order that I remember them. Firstly, the answer to your last question with respect to Wellbutrin and so on, the answer is no; it does not take into account (inaudible) full-year and the successful year of Wellbutrin sales and there's no prior assumptions in there.

Then jumping back to sort of the first part of the question on business development, you know, we have a focus that is -- you know, we built a fairly strong new group of outstanding professionals who have been extremely active. As you recall, in the first half of '05, the activity was really focused on the U.S., (indiscernible) transaction and so on. But as that has been implemented, we've reoriented the focus on sort of four areas. We talked about one earlier, which is products for Canada, because we are in a unique position to commercialize those products effectively in Canada for companies that don't either have the capability to do it or don't have the space in their sales organization to do it and so on. We many of those activities and discussions ongoing.

We also have a significant focus on our U.S. commercialization group and this spans multiple opportunities from simple things such as effective co-promotes to the in-licensing of products or the acquisition of products that are supplemental to the therapeutic areas that are of interest to us.

We also have a significant focus on sort of technology-based companies that have products. When I say technology-based, I'm talking drug-delivery technology based that are supplemental to us, that will expand our technology base, that provide the opportunity through those technologies to improve our IP position and our exclusivity of the products we develop. We have quite a few of those ongoing. (technical difficulty) -- various outlicensing activities for products that we develop that we think might be commercialized better by others.

I mean, in the long-term, what I'm talking about there is really a reflection of the long-term as well, because we made a strategic decision in 2005 that Biovail would partner in companies -- with companies that have (inaudible) partner it's primary care products that come out of its pipeline with companies that have the huge infrastructure and commitment to that, as opposed to building it ourselves. However, as part of that, we recognize that there are many, many opportunities in the specialists markets that we would participate in the U.S., and we will continue to do so. So the answer is yes. Things like the Ultram copromotion or comarketing arrangements are something I think we might very well see more of. I think I covered all the questions that you asked.

The last question you had was on Cardizem LA, and our guidance assumes no generics on that as well.

Then just BPC Canada, Tiazac XC impact, will it be offset completely by --?

Tiazac XC is a positive contributor to Canada, as is Wellbutrin XL, so both of those will contribute significantly to Canadian growth and -- (multiple speakers) -- of course (inaudible) just being launched.

Thank you very much. That was very helpful.

Christine Charette, BMO Nesbitt Burns.

This question is for Ken Cancellara. I know you can't give us specifics as to when the scheduling order for the summary basis would be -- summary judgment would be done, but can you give us a general sense in that specific court how long it has taken historically or just historically in different courts?

My second question is regarding potential settlements. I know you don't want to speak specifically about this case but can you give us a sense of the settlements that are being done out there? We were a couple of years without settlements. I think the FTC was preventing them; they seem to not be preventing them any more. Can you give us a sense of what you're seeing and what's possible in terms of doing?

I will deal with -- Christine, good morning. I will deal with the first portion, and perhaps Doug and I can both contribute to the second question.

On the timing, Christine, it's not a situation where there is a normal historical timeline that (inaudible). It's much a fact-dependent type of result. I can give you the criteria that normally are used for the purpose of determining the length of time needed to complete the motion. They involve, for example, issues like how many expert and how many expert declarations need to be drafted and need to be filed (indiscernible) summary judgment motion material. They require for example criteria like are [depositions] necessary of these experts for the purpose of determining whether the evidence that's been filed (inaudible) is full. It depends as well on the court docket and how busy that particular judge is or will be based on his or her docket. It depends on whether there are civil and criminal cases on that judge's docket, because criminal cases always take a priority to civil cases. So it's a moving target, Christine. It's difficult to look historically at any one of these and predict with any certainty what the time lapse will be before the summary judgment motion is finally incurred.

One thing is certain, and that is that this motion really cannot occur on April 10 because there's much evidence that still has to be finalized and completed in the quarter before the actual hearing is scheduled.

Can you give us a range?

It's difficult for me to give you a range, given all the variables that I've just discussed with you. It's really very, very difficult for us to be able to do that now. I can tell you, however, that there has been an application to the court for the purpose of scheduling this hearing and we should know shortly when those dates might be.

I wish I could be more definitive; I just can't. There's just too many variables that contribute to uncertainty right now.

Are we dealing with weeks or months?

We can be dealing with weeks or we could be dealing with months, depending on the variables that I've just indicated.

As to the second question that you asked, you can see by recent announcements for a number of companies that deals are possible. The most recent, of course, deal that was recently announced was the Bristol-Myers deal.

The difficulty, Christine, I mean, in predicting the potentiality of any deal that Biovail may or may not be involved in is that there are sensitivities that deal with antitrust issues that the SEC has prescribed in its factions like the Sherman Act and so on. So rather than predict now the kind of discussions that may or may not occur with these companies, we would need to obviously determine, if such discussions were to be fulfilled, the kind of non-competitive or non anticompetitive issues that we could put on the table. Really, it's impossible for us to talk about right now what may (inaudible).

Okay, thank you.

Hari Sambasivam, Merrill Lynch.

Yes, thank you. Two questions, one on Wellbutrin. Doug, you mentioned that I think the timing on the Wellbutrin (indiscernible) I think has been delayed from earlier this year to the latter half of this year. Is this a clinical issue of some kind, or is it a regulatory issue? I am just wondering whether you could clarify on that.

Secondly, on Wellbutrin, I'm wondering whether you can give us a sense of how long of an exclusivity you have in major jurisdictions in Europe.

The second question really relates to the legacy products and the structure that you have chosen. What I'm wondering is how much of an ownership in the structure will you have, or how much of a proceeds could shareholders expect? I'm just wondering. If you have something, how would you actually monetize that particular ownership in that particular structure in legacy? I mean, could you use some of that to sort of pay down debt or are you expecting any sort of a proceeds to the Company at all from the structure?

Okay, good morning, Hari. I will talk about the Wellbutrin issue first and then maybe I will ask Ken and maybe Charlie to comment on the legacy question. I don't think I can give you much information on the exclusivity of Wellbutrin in Europe. We could maybe get some information for your off-line but I don't think I can answer that question.

Wellbutrin (indiscernible) shift towards the NDA to the middle point of this year. This is just strictly classic formulation science issues. It's not clinical issues; it's not big problems that have occurred. But as you do these formulations and so on, sometimes two-thirds of what you're trying to achieve, you have to tweak the formulation a little bit and then you do some work. We have some work ongoing now. But that's basically what has resulted in the delay from the last time that we talked, but we still think that the new entity is going to have significant value for Biovail and potentially for partners. Maybe I can ask Ken just to make the comment on the legacy question.

Sure. The easy answer, Hari, is that no firm decision has been made with regard to what type of structure legacy may or may be or what the distribution may or may not be. It's premature to suggest that a decision has been made. Obviously, there's a number of potential structures that we've identified and have communicated, but no firm decisions have been made in that regard. It's early days even from an (indiscernible) perspective of Greg Gubitz just joining and just really starting that process. Work has already been done but really now grabbing ahold of that process and driving it. Doug indicated the timing in the second half of this year, so we might have some more visibility.

I think the initial thought, which I believe I could confirm to you, is that, upon a distribution, assuming it occurs and when it occurs, is that the Company, Biovail, would no longer have any ownership interest in those assets, and those assets would be distributed or spun out entirely to the existing or at that time the existing shareholders of Biovail Corporation. Again, it's premature to determine if there would be any type of cash, if you will, flowing between the two companies.

Thank you.

Andrew Swanson, Citigroup.

Thanks very much. I just had a quick question on the SG&A side. I think SG&A dipped down to around 42 million in the third quarter, which we thought I get was related to this sliming down, the restructuring of the U.S. business. We were sort of thinking about it as a run-rate going forward, and it looks like your SG&A guidance for 2006 suggests a much higher run rate.

You know, higher levels of SG&A spend certainly are not holding you back from putting up good numbers and good guidance. So is it just really investment spending on your part or could you just provide a little more color about where some of that money is going? Thanks very much.

There's a couple of things in there. Stock-based compensation is in that line, that big piece of it, as well as our spending for SOX and also legal expenses with all of the litigation that we have for this upcoming year. So those are the main things that are driving that number.

Thanks very much.

Cosme Ordonez, GMP Securities.

I have two questions regarding Ultram ER. You mentioned that you will be receiving 27.5% of Ortho-McNeil's selling price. Is this an average for the year? When do you expect to move into a higher tier? I know that you've mentioned that the ranges goes up to 37.5.

My second question is can you give us some color on the marketing campaign, including additional activities or potential clinical trials to promote Ultram ER in the U.S.?

Yes, good morning. I can answer a couple of those questions. The supply price for 2006 is 27.5% (indiscernible). It rises to 37.5% for 2007 and 2008 and then it declines thereafter but we haven't been specific as to what that is. But it's a fixed, flat rate for all of 2006 and then rises very significantly in 2007 in January.

Then the second question is are there support-type trials, works, extensions? And yes, there are. We have some joint committees with Ortho-McNeil where we review these and discuss what can add competitive advantage and what's necessary to know in the marketplace, so I'm not going to go into any specifics on those because we regard the design of those and the targeted endpoints as being proprietary, certainly in the marketplace. But yes, we have a very cooperative and mutually sort of beneficial approach to the commercialization and the support of this.

Thank you.

David Lickrish, HSBC Securities.

Thanks for taking the follow-up. Just a couple of quick questions -- first off, I don't know if you mentioned it before but Greg Szpunar's departure, how disruptive is that? You talked about maybe realigning a little R&D. Obviously, that would have been something that he I think would have coordinated.

Also, in the press release, and you might have referenced it in your comments but again I didn't hear the whole call, you talked about cooperation with the SEC and the OSC, but you didn't mention the OIG. I didn't know. Can you update maybe the status of that in any way?

Okay, Dave, a couple of quick comments on Greg and then I will ask Ken to just give a quick update on the OIG. We certainly are disappointed to see Greg leave but I think it's important to remember that Biovail has 25 projects ongoing; it's got over 200, 250 dedicated scientists and technicians effecting those projects. I think a company like ours is sort of not dependent on any one individual for its ongoing success, particularly in its R&D success.

I think you'll see some interesting changes as we go forward and do some of that realigning, that organization and bringing some business skills and capabilities into it to ensure the decisions that that group makes are driven by important, key drivers for the success of Biovail. That's part of the point of the restructuring.

I will ask Ken to maybe give you a quick comment on the OIG.

David, the same comment that Doug used in respect to (indiscernible) cooperation with the [OSC] and the SEC equally applies to the OIG. We've bent over backwards to provide every bit of information that the OIG has requested.

But there's no update in terms of any kind of resolution there?

There is no update other than we hope we will (inaudible) closure of these issues very soon.

Thank You. This concludes our question-and-answer session. I would like to turn the meeting back over to Mr. Howling.

Well, thanks very much. I'm going to ask Doug Squires to close the call.

Thanks, Ken. Thank you all for participating this morning. I hope it was interesting and illuminating on Biovail's strategy and our outlook for 2006. I'd like to take this opportunity to express my personal thanks to all of the Biovail employees who have worked so hard in 2005 and contributed to the excellent results that we reported this morning and that I look forward to working with you throughout 2006 to deliver what we think is going to be another outstanding year for the Company. Thank you very much.

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