Bausch Health Companies Inc (BHC) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter and full year 2006 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 worldwide web at www.Biovail.com. [OPERATOR INSTRUCTIONS] As a reminder, a replay of this conference call will be available until 7:00 p.m. Eastern Daylight Time on Thursday, March 22, 2007. 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. The access code for the replay is 3215271 pound.

On behalf of the speakers who follow, investors are cautioned that the presentations and responses to questions may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and which comprise forward-looking information within the meaning of 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 and 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, guidance, and other statements which contain language such as guidance, belief, anticipate, expect, 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 and guidance press release dated March 15, 2007. That is available on company website as well as in filings with the U.S. Securities and Exchange Commission and the Ontario Securities Commission including the risk factors detailed in its most recent annual report on Form 20-F item 3D. The Company does not undertake to update any forward-looking statements. Investors are also advised to consult the description and reconciliation of non-GAAP financial measures related to the net income and earnings per share excluding specific items detailed in the Company's March 15, earnings and guidance press release.

At this point, I would like to turn the call over to Nelson Isabel, Vice President, Investor Relations, and Corporate Communications for Biovail Corporation. Mr. Isabel, please moderate today's call.

Thank you, Operator, and good morning, everyone. On behalf of Biovail, thank you for joining us. On today's call we will provide additional insight into the financial results and operating highlights for the fourth quarter and for the full year 2006. Joining me on today's conference call are Dr. Douglas Squires, Chief Executive Officer of Biovail Corporation; Ken Howling, Senior Vice President and Chief Financial Officer; Gilbert Godin, Senior Vice President, Technical Operations and Drug Deliveries; and Wendy Kelley, Senior Vice President, General Counsel, and Corporate Secretary. They will all be a available to participate during the Q&A session with research analysts immediately following our opening remarks.

As is our policy, we will try to get to as many questions as possible while limiting the call to approximately one hour. Other participants are encouraged to follow-up with the Company after this mornings call by calling Biovail at 905-286-3000 and asking for Investor Relations. Doug, please go ahead.

Well, thanks, Nelson. Good morning, everyone. Thank you for joining us. In 2006, Biovail continued to strengthen the foundation upon which it is growing the Company, and once again, Biovail executed against its stated financial and operational objectives, and generated record revenues and robust cash flow from operations. Our record financial results which saw Biovail surpass $1 billion in annual revenues for the first time in company history helped us end the year with with over $830 million in cash. These resources have provided the Company with the means to pursue a number of strategic initiatives including the redemption of $400 million of senior subordinated notes due in 2010, which will be effective April 1, 2007. Our strong performance in 2006 further made it possible for us to pay $80 million in dividends and to declare a special dividend totaling $80 million that was paid in January 2007.

It also enabled us to introduce a new dividend policy that contemplates tripping the payment of our regular annual dividend to $1.50 per common share, paid on a quarterly basis and subject to Board approval. Clearly, the past year also presented Biovail with many challenges. Most notably, a summary judgment ruling in the Anchen case, and the resulting loss of market exclusivity for the 300 milligram dosage strength of Wellbutrin XL in the United States. Although these developments were disappointing, the genericization of medicines is an inevitable reality in the pharmaceutical industry.

On March 5, we announced that we have entered comprehensive settlements related to Wellbutrin XL with Anchen Pharmaceuticals, Impacts Laboratories, Watson Pharmaceuticals, and Teva Pharmaceuticals. The settlements include among other things the dismissal of Biovail's patent infringement actions against each of impacts on Watson that related to their abbreviated new drug applications for generic formulations of Wellbutrin XL. Under the terms of the settlements with defined exceptions, none of Teva, Anchen, Impacts, and Watson, may market a generic version of the 150 milligram strength of Wellbutrin XL until 2008.

These settlements are important to Biovail for a number of reasons. First, they eliminate the uncertainty associated with the ongoing litigation, and they immediately reduce our legal expenses. A significant indirect benefit of these settlements are that they provide a buffer for our Bupropion salt formulation to potentially be launched into a higher value market, a benefit that has not gone unnoticed by prospective partners. Furthermore, the settlements resolve many legal actions and provide financial benefit to our forecast for our Wellbutrin XL business for 2007 and 2008. Our Chief Financial Officer, Ken Howling, will provide you with more detail concerning this during his remarks later in the call.

In the face of these developments I am pleased to tell you that Biovail's business model has remained strong. The changes that we have made in the past couple of years have allowed us and should continue to allow us to generate strong cash flow and to pay an attractive dividend to our shareholders without compromising our ability to invest in research and development which we at Biovail continue to view as the cornerstone of the Company.

As previously discussed, Biovail is going back to basics, and is strengthening its committment to R&D as its primary growth strategy. In December, we announced that Biovail would no longer maintain a U.S. based specialty sales organization, and keeping with the strategy announced by the Company in May 2005 a to engage strategic partners to commercialize products to their primary care market, we now enter into supply distribution agreements with strategic partners to target both the specialist and the primary care physician groups in the U.S.

As a result, we have terminated our co-promotion efforts for Ultram ER and Zoladex. With respect to Zovirax in December 2006, we announced a five year exclusive promotional services agreement with [Sio] Pharma whereby Sio salesforce now promotes the Zovirax franchise to U.S. physicians. This approach to promoting our products to the U.S. market provides operational flexibility and a more cost effective manner in which to commercialize our products.

I would like to point out that these changes to the Company's commercialization strategy do not impact Biovail Pharmaceuticals Canada. The relevant strides of the Canadian pharmaceutical market which differs vastly from the U.S. continues to make it more feasible for us to maintain a direct salesforce that effectively targets both specialists and high prescribing primary care physicians. And we will continue our business development efforts to identify opportunities to add new products, to BPC's portfolio, thus leveraging what we believe is the most potent, independent pharmaceutical Company in Canada.

In reiterating and strengthening our committment to the development and large scale manufacturer of novel medicines and plying Biovail's state-of-the-art drug delivery technologies, we are targeting a $500 million investment in research and development through 2010 to drive business growth to the efficient execution of a number of core programs. More specifically, there are three key focus areas for Biovail's pipeline activities. Enhanced formulations of existing drugs, the development of combination products that incorporate different classes of drugs, and difficult to manufacture generic products.

I would now like to take this opportunity to introduce Gilbert Godin, Senior Vice President, Technical Operations and Dug Delivery for Biovail. Having joined the Company in April 2006, Gilbert is responsible for Biovail's product development capability as well as its manufacturing and contact research services. He will provide you with some insight into the integral role these areas will play in 2007 as well as provide you with an update on where things stand with selected programs in our development pipeline. Gilbert.

Thank you, Doug. Good morning, everyone. Research and development is the life blood of Biovail. The Company's core competency lies in the development and large scale manufacturer of pharmaceutical products that deploy one or more of our advanced drug delivery technologies from our comprehensive portfolio, technologies that have enabled us to overcome significant product development challenges. Within Biovail, our more than 1,100 people who work directly on product development in our manufacturing network. The Company is fortunate to have many outstanding formulation scientists in multiple formulation centers as part of our team. The Company has just completed the comprehensive review of our drug development pipeline and these scientists are actively working on a number of exciting product opportunities, some of which I will highlight in a moment.

Importantly, our in house contract research division provides us with a key competitive advantage by allowing us to quickly progress our products from the concept stage to formulation and through early clinical development. Another core competency for Biovail is our expertise in commercial scale manufacturing of products incorporating our drug delivery technologies. Our track record in this regard is impressive. We currently operate three world class manufacturing facilities in Steinbach, Manitoba, Dorado, Puerto Rico, and Carolina, Puerto Rico. We have now completed our previously announced expansion and optimization of our manufacturing facility in Steinbach that has enabled the Company to better meet current and anticipated demand for its product, for its portfolio of products. This is our third such expansion of Steinbach in the past five years and it has resulted in the addition of approximately 65,000 square feet, bringing the facility up to approximately 245,000 square feet of state of the art manufacturing space.

Let me take a few minutes to provide you with an update on several of our previously disclosed pipeline programs. Development efforts continued for BVF 033, a new salt formulation of Bupropion that Biovail believes might provide unique safety benefits. A new drug application for this product was submitted in September of 2006 with a resulting PDUFA date of July 28, 2007. In mid November 2006, our new drug submission to the TPD for BVF 127, a once daily extended release Tramadol for the management of moderate to moderately severe chronic pain in adults was accepted for review. The TPD's action date is September 2, 2007. Other products under development include BVF 146, a combination product that incorporates Biovail's once daily Tramadol formulation with an undisclosed non-steroidal anti-inflammatory drug, or Ansett and for which Phase III studies were initiated in October 2006. BVF 045, a combination product comprised of Biovail's Bupropion salt with another undisclosed anti-depressant agent and BVF 012, an enhanced absorption, alcohol resistant formulation of venlafaxine. We are currently in partnership discussions with a number of companies for the commercialization rights for all of these products.

Additionally, further to an agreement with Ethypharm, we're developing four products, BVF 087 and BVF 065 which target large markets in central nervous system disorders, BVF 239, a cardiovascular product and BVF 300, a product targeting the gastrointestinal disease market. We anticipate that at least one regulatory filing will be made later this year. This concludes my comments. Back to Doug. Thank you Gilbert.

As you can see a great deal was accomplished in 2006. Total revenues for Biovail were a record $1.07 billion in 2006 compared with $935.5 million for the corresponding period in 2005, an increase of 14%. Net income for 2006 was $203.9 million compared with $236.2 million for the 12 months ending December 31, 2005, and GAAP diluted earnings per share for 2006 were $1.27. This compared with $1.48 in 2005. Excluding specific items, for which we'll provide additional details in a few minutes, diluted EPS in 2006 was $2.70 compared with $1.86 in 2005, an increase of 45%. And in keeping with our revised dividend policy that I mentioned earlier, Biovail's Board of Directors has approved the payment of a $0.375 quarterly dividend payable April 3, 2007 to shareholders of record on March 26, 2007. Ken Howling will provide more in depth information with regard to Biovail's financial and operational performance for the fourth quarter and the full year in just a few moments.

In 2006 our marketing partner, GlaxoSmithKline proactively moved forward with plans to build new markets for the Wellbutrin brand in Europe. Regulatory filings were made in a number of countries and in January 2007, GSK received approval for Wellbutrin XR in the Netherlands. It is also important to note that Wellbutrin XR which Biovail will manufacture, is considered approvable by the regulatory agencies of 21 other countries under Europe's decentralized procedure. GSK anticipates receiving additional regulatory approvals throughout 2007 and the medicine could be available to patients as early as next month.

A highlight for Biovail in 2006 was the launch in late February of Ultram ER, the first once daily formulation of Tramadol hydrochloride to receive market approval in the United States. Despite slower than expected market uptick, our Marketing partner, Ortho-McNeil remains fully committed to Ultram ER. In the last several months, OMI has undertaken a number of initiatives to accelerate prescription growth for Ultram ER including an unbranded direct-to-consumer advertising campaign, a discount card program, and an increase to 30 tablets from seven, in the size of samples to allow patients to be optimally titrated to the higher dosage strengths. To this end, the most recent weekly prescription data for Ultram ER is encouraging and may be the first indication that the new strategic initiatives are taking effect.

OMI has informed us that they had received on Tuesday of this week comments from the U.S. Food and Drug Administration's division of Marketing, of Drug, Marketing, Advertising and Communications on their proposed direct to the consumer advertising campaign for Ultram ER. Among the comments raised were concerns relating to fair balance as it pertains to the potential risks given that the product is an opioid analgesic. OMI is evaluating this feedback and will discuss this with DDMAC in the coming weeks.

Turning now to Biovail Pharmaceuticals Canada, the recent introduction of generic competition in Canada for Tiazac and Wellbutrin SR continued to have an impact on BPCs performance, however, Biovail remains firmly committed to BPC and a key priority for 2007 will be to continue to identify opportunities to add new products to BPC's portfolio. With respect to various regulatory matters, Biovail continues to cooperate fully with the U.S. Securities and Exchange Commission, the Ontario Securities Commission and other regulatory agencies. Recently the U.S. Attorney's office for the Eastern District of New York informed Biovail that it was conducting an investigation into the same matters that the SEC is currently investigating. Their timing of when these matters may be resolved cannot be predicted and the Company will continue to fully cooperate.

Before I turn the call back to Nelson, let me reiterate that the investments we have made and will continue to make combined with the transformations that we have made during the past 24 months to the ways we conduct our business have played and will continue to play a major role in Biovail's financial and operational performance. As a result, going forward, we believe that Biovail is extremely well positioned to maximize the opportunities and manage the challenges with which we are presented. This concludes my remarks and I'll turn it back to Nelson.

Thanks, Doug. I'd now like to call on Ken Howling, Biovail's Chief Financial Officer, who will provide more in depth information on the Company's financial performance for the fourth quarter and full year 2006. Ken?

Thanks very much, Nelson. 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 in the conference call today will be presented on a diluted basis.

On a consolidated basis total revenues for the fourth quarter of 2006 $307.6 million compared with $287.6 million for the corresponding period in 2005, an increase of 7%. Total revenues for 2006 were $1.07 billion up 14% from the $935.5 million for the 12 months ended December 31, 2005. Again, this marks the first time Biovail has surpassed the $1 billion Mark in annual revenues. Biovail's U.S. GAAP net income for the fourth quarter of 2006 was $115.3 million, compared with $119.7 million for the corresponding period of 2005. Fully diluted GAAP earnings per share for the fourth quarter of 2006 were $0.72, compared with $0.75 per share for the same period in 2005. For the full year 2006, net income was $203.9 million compared with $236.2 million for 2005. GAAP diluted EPS for full year 2006 was $1.27 versus $1.48 for 2005.

For a reconciliation of U.S. GAAP financial measures and the non-U.S. GAAP financial measures I'm about to discuss, please see our earnings release dated March 15, 2007, which we released earlier today. With respect to specific items that affected financial results, GAAP net income and EPS figures for the fourth quarter of 2006 were negatively impacted by a $15.1 million charge related to the December 6, -- excuse me, December 2006 restructuring of the Company's U.S. commercial operations, an $11.7 million payment representing the Company's share of the costs associated with a litigation settlement between GlaxoSmithKline and Watson, a $2.7 million litigation settlement related to the Company's licensing in 1999 of Adalat CC products from Mylan Corporation, an additional $1.9 million provision related to a contract loss provision in the Wellbutrin XL agreement with GSK and an additional $1.6 million charge related to a lost profits provision in the Company's agreement with Kos pertaining to Cardizem LA. These items negatively impacted fourth quarter 2006 net income by $33.1 million and diluted EPS by $0.21. Accordingly, net income excluding specific items and EPS excluding specific items in the fourth quarter of 2006 were $148.4 million and $0.93 respectively.

In addition to the items in the fourth quarter of 2006, GAAP net income and EPS figures for the full year of 2006 were compacted by a $147 million non-cash writedown of intangible assets, a $46.4 million charge related to the GSK contract loss contingency, a $8.4 million charge related to the lost profits provision in the Kos agreement, a $500,000 equity loss in the Company's investment in Western Life Sciences, and a $1.1 million asset impairment charge related to Nutravail and partially offset by a $4 million gain related to the termination of the pharma agreement.

In aggregate, these items negatively impacted net income and EPS in 2006 by $228.9 million and $1.43 respectively. Accordingly, net income excluding specific items -- EPS excluding specific items in 2006 were $432.9 million and $2.70 respectively.

Product revenues for Wellbutrin XL were up 7% to $148.1 million in the fourth quarter of 2006 compared with $137.7 million for the same period a year ago. For the year-ended December 31, 2006, total Wellbutrin -- total revenue for Wellbutrin XL was $450.3 million compared with $354.2 million in 2005, an increase of 27%. This strong performance in 2006 was mainly the result of strong prescription growth combined with price increases applied by our marketing partner, GSK. In the fourth quarter of 2006, Ultram ER generated a $19.2 million in revenues. Product sales for the full year 2006 for Ultram ER which was launched by Biovail and marketing partner Ortho-McNeil in late February of 2006 were $53.7 million. The sales performance of this product in 2006 was impacted by a $7.8 million returns provision as a result of a voluntary recall for certain dosage strengths of the product.

Revenues for the fourth quarter for the Zovirax franchise were $31.1 million, a 12% increase compared with the corresponding period in 2005. For the full year 2006, revenues for the Zovirax product line increased 17% to $112.4 million versus the previous 12 month period. Revenues in 2006 were favorably impacted by price increases and reductions in wholesaler inventories in 2005.

With respect to BPC, revenues declined 43% to $15.7 million in the fourth quarter and 31% to $68.7 million for the full year of 2006 compared with a corresponding prior year period. The declines can be directly attributed to the impact of the introduction of generic competition for Tiazac and Wellbutrin XL, which were only partially offset by steadily increasing sales for Tiazac XE and Wellbutrin XL. With respect to Cardizem LA, revenues declined 8% to $12.4 million in the fourth quarter of 2006 and were down 1% to $59.3 million for the full year of 2006 compared with the corresponding periods, prior year periods. The declines were primarily a result of manufacturing issues for the 120 milligram and 180 milligram dosage strengths of this product. Biovail has returned to full production of these strengths.

Cash flow from continuing operations were $235.6 million and $522.5 million for the fourth quarter and full year 2006 respectively compared with $223.4 million and and $501.9 million in the corresponding periods of 2005. These increases reflect higher gross profit on Wellbutrin XL and Ultram ER product sales, lower salesforce marketing costs, and higher interest income. Net capital expenditures were $6.1 million in the fourth quarter of 2006 and $44.8 million in the full year of 2006. The increases reflect the expansion of our Steinbach manufacturing facility which is now essentially complete.

At the end of December 2006, Biovail's cash balances were $834.5 million with no outstanding borrowings under its revolving term credit facility. As we announced on February 28, 2007, the Company has called for the redemption of all its outstanding 7 7/8 senior subordinated notes due on April 1, 2010. As per the indenture governing the notes the Company will be required to pay a $1.969% premium for the early redemption of the notes which will be effective April 1, 2007. The redemption is expected to be neutral from a cash earnings per share perspective in 2007 as the significant savings in interest expense will be offset by the call premium and lower interest income on cash balances. For more comprehensive information pertaining to Biovail's financial and operational performance for the fourth quarter and full year 2006, please refer to the earnings release distributed by the Company earlier this morning.

With respect to guidance, as a result of the comprehensive settlement reached with a number of generic pharmaceutical companies and following an assessment of all aspects of the Company's internal projections and previously issued financial guidance, Biovail has made a number of revisions to its 2007 projections. In particular, Biovail has reflected the positive benefit of the settlement as well as the negative impact of the absence of an authorized generic of Wellbutrin XL from the market for a period of six months from the first generic entrant and the Company's contribution to the cost of the license that GSK acquired from Watson. Further, given prescription trends since November 2006, among other things and based on OMI's revision to their demand forecast, Biovail is reducing its internal Ultram ER revenue projections for 2007. The net impact of these factors is such that Biovail is reiterating its 2007 guidance for total revenues of $800 million to $850 million. Diluted EPS of $1.70 to $1.80 excluding specific guidance and cash flows from operations of $320 million to $340 million.

As before, Biovail's revenue guidance is based on a number of variables including current prescription trends and business trends and the success of our strategic marketing and distribution partners. Biovail's 2007 financial guidance assumes that a generic formulation of the 150 milligram strength of Wellbutrin XL is not launched in 2007. In addition, 2007 guidance does not include the impact of any potential acquisitions or dispositions, the introduction of new generic formulations or the Company's other key products, any new supply and distribution agreements, restructuring, settlement or other specific charges. Further, EPS guidance does not include the impact, if any, of the implementation of Financial Accounting Standards Board Interpretation Number 48, also known as FIN 48. This concludes my comments. I'll now turn the call back to Doug Squires for his closing remarks.

Well thank you, Ken. In closing, let me take a moment to highlight what I believe will be Biovail's key areas of focus in 2007. First, the continued achievement of regulatory milestones. We expect to hear from the FDA with regard to our NDA for our new Bupropion salt late July and from the PPD for our NDS for once daily Tramadol by early September. We anticipate at least one regulatory filing later this year and we expect to begin and/or progress with clinical trials for several other compounds.

Second, the pursuit of strategic partnerships. Not only will we engage partners to commercialize our products throughout the world other than Canada but we will continue to explore opportunities to partner products in our development pipeline at earlier stages in the process. The strategy should enable the Company to increase the number of ongoing programs and accelerate a number of programs that are currently under development. It may also allow us to manage our overall R&D spending more effectively and efficiently going forward. As I mentioned earlier, we are in active discussions with a number of companies for the commercial ablation rights for our near term pipeline products.

Third, the continued pursuit of enhanced operational efficiencies through reductions and variable non-essential spending while allowing for a material increase in R&D spending. This disciplined approach should further enhance the cash generation capability of our business model and allow Biovail to pursue its growth strategy while paying an attractive dividend. The events of the past year notwithstanding, let me reiterate that Biovail is on very solid ground, the Company's strong cash position has further provided Biovail with the resources to pursue a number of growth strategies to continue to build the Company and to return value to our shareholders. Ladies and gentlemen, this concludes my remarks. I'd like to turn the call over to the conference call Operator for questions. Thank you.

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

Good morning. A couple questions, maybe first for Gilbert on the pipeline side. With respect to the Company products that you did mention, including the Ethypharm one, it's obvious that the Trazodone [Inaudible] combination could be one of those drugs that you file this year, but you indicated at least one. I'm just wondering which of these other drugs would be furthest along in the clinical trial process and what makes you think that you can have more than one filed this year potentially.

Oh, actually, I guess it will only be partly specific to this question here, we have enumerated a number of programs and six of those are actually part of that category. We believe that one, potentially two of them will be ready for filing later this year. Now, disclosing any other detail may be too specific in terms of the nature of applying themselves and therefore I don't think I can disclose anything more than that.

Okay. And then with respect to Ultram, Ken, just trying to better understand the revenue generation for this product. 19 million for the quarter given scripts and it looks like there's a significant number of samples. Now you did go ahead and you had the new 30 tablet sample available. Does that impact Q4 numbers or am I just missing something in here in how you're generating that 19 million or so?

No, as always, there's a combination of pull through demand from the marketplace, stocking as well as samples.

Okay. Thanks, guys.

Sure.

Thank you. The next question is from Randall Stanicky from Goldman Sachs. Please go ahead.

Great. Thanks for taking the question. First on the outlicense and discussions, is this a possible 2007 event?

Good morning, Randall. Yes, it is a possible 2007 event.

Is that cost impact, obviously that would have implications on your cost structure. Is that factored into your outlook at this time?

We actually, in budgeting our major Phase III programs make a variety of different assumptions in terms of whether we will partner and how far we will go without partnering and so fourth and so on so it's a fairly conservative approach to the numbers so we make some assumptions about when it's likely or not likely and so on and build them into the R&D expense. Okay, got it. And then just on the SG&A, just on this topic, the SG&A in the quarter was up sequentially, the settlement was announced.

How do we think about the run rate going forward on that line item?

Well, I think the restructuring that was announced in December, you need to realize that the announcement in December did not impact the SG&A expense in the quarter, fourth quarter of 2006, so you haven't yet seen the benefit of that but obviously will impact favorably going forward, the restructuring charges were separated, and we're getting construction launched, but going forward, yes, we would expect a benefit, a reduction in that. We've not provided specific SG&A guidance, if you will, expense guidance for 2007, so I think clearly directionally it's going to go down but we haven't quantified what that would be and I wouldn't want to do so on a quarterly basis.

And that's helpful. Just last question on BVF 033, is there any contribution for that factored into your outlook for '07?

No.

So if that was to come on the market, if you were to announce a partner, that would be upside to the way you're thinking about the numbers for the year?

Yes, it would.

That's helpful. Thanks a lot, guys.

Sure, thanks.

Thank you. The following question is from David Lickrish from First Albany Capital. Please go ahead.

Good morning, guys, thanks for taking the call. A couple of quick questions here I guess just following up on the 033 program. I know previously you were trying to reformulate Wellbutrin XL in a 450 milligram strength. I was wondering whether or not this renewed formulation that you submitted to the NDA is going to allow you to increase the dosage strength and provide perhaps some greater titration flexibility? And the second thing I wanted to ask was I thought R&D was going to be a little bit higher during the quarter. I'm wondering based on your guidance of 500 million through 2010 how we should think about that ramping up from now through to that time, and then, well, I'll ask those and then maybe follow-up with one more.

Okay, just a quick comment on the salt. We've been, as you know, Dave, very discrete in what we've discussed about the salt and its potential benefits for a variety of proprietary reasons, so I'm really not able to comment on whether the salt is going to allow us to do different formulations or higher strengths or whatever and we'll disclose that as we get a partnership and as the product hopefully gets approved at the end of July.

Your second question, I think was with respect to the sort of R&D ramp up on a go forward basis, and I think you will see a prudent but significant expenditure in R&D in the coming years in '07, in particular. We haven't quantified it precisely of course, but we certainly include in that 500 million item some significant programs coming in the next few years.

Okay. And if I could just follow-up with a couple quick more here, the program that you mentioned, I think it was 239, is that the Co-Reg program and then finally, two questions I guess for Ken. You spent $44 million in CapEx this year. Do you require significant investments in 2007 just in terms of how that might impact cash balances and then finally generics were up strong quarter-over-quarter. Do you expect to see additional strength, is that a good run rate to use?

Yes, Doug, quickly on the 239 we haven't disclosed that compound at this point. Dave, and Ken do you want to make a comment on the '07 cap? A broad comment that there's no major facility expansions planned in '07, that probably will go down in '07 versus '06. Ken, do you have anything else to add on that?

Yes. I think the $45 million run rate for '06 is probably from a budgeting or forecasting perspective a reasonable number to assume in '07. There are some programs, some equipment programs in '07, particular the need to expand our head office here is one item, so the 45 to $50 million range is where we see CapEx spending. What was your last one, David? It was on generics I know, but what?

Generics were $41 million in the quarter. That was a lot stronger than I expected. Does that look like a reasonable run rate going forward or was there anything that was particular to the quarter?

Again, we moved away from line by line of product line by product line guidance so I don't want to be too specific. I think the best way to model is to look at prescription trends, there's with -- so we normalized inventory levels which is a reasonable expectation. I think you're going to have a -- tracking prescription trends there may be variability quarter to quarter but not much I wouldn't think annually other than following prescription trends and pricing trends.

Okay.

Thank you. The next question is from Marc Goodman from Credit Suisse. Please go ahead.

The first question is on SG&A. If we could just go back to that, obviously it's been bouncing a lot the past couple of quarters. Can you just talk about the change, second quarter, third quarter, third quarter, fourth quarter just so we understand what the big changes were, and then you had mentioned some efficiencies that you expected to get. Can you go into a little more detail on that and what kind of savings they are, and then the second question is just back on the Ethypharm product, can you just remind us of the deal you have with Ethypharm and how the economics work, and are these NDAs or any of them ANDAs? Thank you.

I'll take the first one, I guess, Mark. In terms of SG&A, I think in particular at least with respect to the fourth quarter 2006, there was an investment into the advertising and promotional aspects of Ultram ER that impacted the fourth quarter which we announced last quarter and that flowed through in the fourth quarter.

That whole investment was in the quarter so it was like 10 or 15, I forgot the number, but it was all in the quarter?

Yes, we never disclosed the number but,yes, that investment was made in the fourth quarter.

Okay.

So that's I think a primary driver or reason for the blip if you want to call it that in the fourth quarter.

So if we remove that we go back to 50 and that becomes a fund rate if it was in fact, like 15 million or something like that in the quarter?

Well, we've not disclosed the numbers so all I can say is that there's clearly a impact to the fourth quarter of 2006 that is not -- would not be representative in the prior or further quarters running forward.

What else would be in the 15 million variance?

There's a number of things, whether it's legal related, whether it's SOX related as we're finalizing our implementation of the Sarbanes-Oxley 404, that again, probably, at least the magnitude would not be the same as we move into 2007.

Okay and then the efficiencies?

Well, again, based on the public information it was a restructuring, a number of -- a significant number of people were reduced in terms of total overall headcount. You could probably do some modeling around that as well as the sales and marketing expenses associated with Zovirax, so again, it's reflected in our total guidance Marc, but we haven't drilled down and given that level of specific detail.

Thanks. Then on Ethypharm?

I'll just make a quick comment on Ethypharm. We've had a longstanding relationship with Ethypharm. We have an investment in Ethypharm. What we have talked about with respect to these products is a series of product developments that we negotiated there, a variety of their activities to go to a certain point and a variety of what we regard as high value therapeutic classes and we have not disclosed whether these are products subject to an NDA or an ANDA at this point, Marc.

Now you all haven't really talked about these products in awhile. I mean, I remember what this deal was done quite a few years ago, did the programs develop or were they going on the whole time and you just didn't talk about them?

No. These are largely new programs.

Oh, okay. Thank you.

Yes, thank you.

Thank you. The following question is from John Maletic from Scotia Capital. Please go ahead.

Good morning. Just a bit more on Ultram. I know you're monitoring the marketing situation closely but could you perhaps give us maybe a qualitative assessment as to the -- what reasons there might be for this slow ramp up, is it that just the nature of this product lends itself to a very slow and steady kind of word of mouth build or is there something in the marketing that you think could have a significant impact over the second half of the year?

I think it's a combination of many many factors. When we first looked at it, we looked at various analogs and we looked at [cutichronic] analogs and when we began to look at chronic analogs it changed the perspective of that ramp up rate and whether it was fast enough, slow enough, and so on. I think there are some significant differences and patients being treated for chronic pain as opposed to episodic pain and that means getting the right message and the right value proposition to the physician and to why this product that treats chronic pain once a day is of high value, and I think making sure that when the patient leaves his office, the physicians office with a prescription that -- and a sample that that patient is able to be titrated up to a dose that stabilizes that patient, reduces his pain, improves his quality of life before he fills the prescription, so that when the prescription is filled, they actually want the product as opposed to high co-pays and so on. High co-pays are being addressed in a multitude of ways on this product.

Just maybe a very broad comment on this, John. OMI is very committed to this product. They have the same resources on this product, people resources on this product as they had at the launch, very significant component of the representatives incentive is tied to Ultram ER success, so I think there are many things that can be done and that OMI is considering as we go forward. I think the change in the sample size is a great example of that, and last week's data, it's a point, but at least it's a preliminary indication that some of those programs are gaining some traction.

And how do you view the effect of the potential entry of a competitor in the back half of the year? Do you think this might actually be beneficial for the overall market by just raising the awareness of Tramadol?

Yes. I mean in general, we think having someone else in the marketplace talking about once a day Tramadol will be neutral to helpful, we'll see there's a PDUFA date and so on, and who knows what happens there, but in general we see it as more people talking about the benefits of once a day Tramadol to be helpful to our particular friend.

And then finally, just on BPC, you had mentioned that you had a number of -- or you were looking for replacements for Tiazac and Wellbutrin SR. Is there anything in the pipeline that could be imminent or are you still looking around?

I'm not going to comment on what's imminent or distant but all I can tell you is that we have a very very strong effort with fully dedicated very senior people and to presenting I think, compelling arguments as to why BPC would be the perfect partner for anyone that doesn't have representation in Canada. And has also been some recent regulatory changes with respect to exclusivity that sort of broadens the horizon for those types of products, and so it's a very major priority for us and we're dedicating the resources to it.

Thanks.

Sure.

Thank you. The next question is from Joe Walewicz from CIBC World Markets.

Yes, good morning. Most of my questions have been answered, but just quickly on -- just wondering, [Philo] was talking about some significant price increases on Zolax, just wondering if you could comment on legacy products, Tiazac, other products, whether there's been some -- just commenting generally on any price, notable price increases implemented at the beginning of the year, and then just following up on the Ortho-McNeil marketing strategy, going forward are you anticipating further investments in that? Obviously, Q4 there was a significant investment, just wondering if there was any plans, or if that's built into guidance, just looking forward if we're going to see anymore spending at that? I'll leave it at that, thanks.

The investment we made in '06 was a sort of a very targeted investment so we could double up the resources that were being put behind the product at a time that we would be receiving our maximum supply for us, for any unit that was generated by those activities. So I don't expect an additional investment being made in the foreseeable future. On the price increases any comments you want to make on legacy ? These are all essentially market driven and when we do the Zovirax for example, look at price increases for Zovirax, they are looked at very carefully . It depends on your formulary position and the impact of that and the sensitivity of scripts to price increases and then the decision is made and it depends on -- the other products depends on what's happening in the competitive environment in the marketplace. Ken, any additional comments

I guess we certainly as a company don't want to be directional in terms of speaking about price increases that may or may not occur in the future so I won't comment on that but historically, yes. At the late December or beginning of the year there were certain price increases on products that we control, a number of price increases related to the legacy portfolio, in particular, in terms of the generic portfolio or Wellbutrin XL or Ultram ER , et cetera. Those pricing decisions are not made by us, they are made by our marketing

Okay, great. Thanks, guys.

Sure.

Thank you. The next question is from Andrew Swanson from Citigroup. Please go ahead.

Thanks very much. I recognize that you're not giving line by line guidance but I was hoping just to sort of understand on the order of magnitude basis some of the moving parts here. $450 million in Wellbutrin revenues in 2006 and then the shift in guidance or maintaining guidance in '07 despite the shift in terms of including versus excluding generic Wellbutrin for the year. It's not impossible to imagine that that's $150 million revenue impact which I think implies $150 million cut to the guidance for the underlying business. Is that a fair characterization and if so, is it primarily Ultram or are there other factors that are leading to the weakness in the underlying business, thanks.

Well, first of all, I don't necessarily accept the weakness in the underlying business. I just would comment that when we look at our guidance, we're prudent, we're conservative, we try and look at the multiple components of a complex business, the Wellbutrin settlement was clearly beneficial to future Wellbutrin revenues, which we've built into the '07 numbers but there's other factors that go on during the year and of course, one of them that you mentioned was Ultram ER which was not and has not tracked to our expectations on a go forward basis, although we are encouraged on a backward looking basis but we are encouraged by the recent prescription trends that we saw early in March and we'll have to see if that carries forward. So I think it's just a reflection of being prudent until we believe there's some good traction with Ultram ER in the marketplace.

Understood. Could you also possibly comment on your confidence in your ability to maintain the dividend in a post-generic Wellbutrin XL world once we have generic formulations of all of the available doses? Thanks.

Sure, sure, confidence is very high. Otherwise we wouldn't be doing it. So we are very confident in the sustainability of the dividend and the cash flows that come from a variety of sources, legacy, generic, Canada, Wellbutrin, and even Ultram ER for that matter, and in a variety of forward-looking forecast models so our confidence is high. Ken, do you have a comment?

Oh, that's exactly the case. Obviously we believe that the fundamental underlying business can very much support the dividend or we would not have declared it, would not have the confidence in maintaining that policy.

Thank you.

Thank you. The next question is from Christine Charette with BMO Capital Markets.

Thanks. I've got a series of questions. The first one is Wellbutrin XL in Q4 was stronger than most had anticipated. You would have expected Glaxo and the wholesalers to start reducing their inventories in expectation of the generic launch does not seem to have happened. How should we be thinking about 2007 and how much impact of reduced inventories, the fact that the current inventory did not seem to go down in '06. Is that going to impact '07? Second question is Ultram ER I understand you don't want to give any specific guidance on products but can you give us some idea of what kind of increasing the curve here is underlying your assumptions, is it the same kind of increase that we saw in the September, October, November time frame before we saw the new sampling technique hurt prescriptions?

Third question is your PDUFA date for the Wellbutrin XL salt is coming up. In your view what is the optimum time to be able to partner this drug in relationship to how much exclusivity it's going to have and is this something we should expect before the PDUFA date? And a fourth question is regarding your SEC investigations, is this something that you expect to have settled in 2007? What needs to be done to settle this and how aggressively are you pursuing that?

Okay. Good morning, Christine.

Hi.

Maybe I'll take a couple, they may not be in the order you asked them. Maybe I'll deal with the SEC investigations. First, we would certainly hope these investigations are drawing to a close. No one is more anxious than I am to get these issues resolved and behind us. You do understand, of course, that it's not in our hand to completely affect that other than being continuously cooperative and rapidly responsive to any request or for information of whatever that comes, but recognizing that these are looking at periods that are quite awhile ago now, we would certainly hope that 2007 would be the year of resolution of these.

Comment on the PDUFA date for the Bupropion salt which as you rightly point out comes up I think at the end of July, without necessarily predicting what's going to happen, we are in active discussions and we would certainly like to partner early rather than late. I think there's a reasonable probability that that will occur to ensure on the presumption of a favorable FDA response, a launch as rapidly after that as possible.

The Ultram ER trajectory is a hard question for us to answer since we're not being very granular on a go forward basis in terms of what our individual product forecasts are, and as I say, it's a bit of an uncertainty because as you even pointed out yourself, there's a change in some recent prescription trends that one doesn't want to make too much of it until you see a series of multiple points on the same slope or an increasing slope, but it was something that we would have hoped to have seen around that time line based on our OMI's new initiatives that were essentially launched in the last few months and so if indeed these are working, you would hope to see what we see. It's just a little early, the next, three, four data points are going to tell the tale as to whether that's really got traction or it's just an aberration, we hope it shows, shows traction. Ken, do you want to maybe take a crack at the--?

I think maybe two comments, one with respect to a follow-up comment with respect to what Doug just said about Ultram EM. Fundamentally our internal forecasts with respect to that product as well as other products that are partnered is we look at the demand forecast, supplied to us by these partners, we in the case of all the partners but in particular with OMI. It's a very open relationship, it's very communicative relationship, we do spend time with them periodically to understand these demand forecasts and the assumptions behind it to get a good sense of confidence and applicableness of it, and obviously all of those factors get incorporated into our own internal projections.

With respect to Wellbutrin XL, I guess the short answer would be yes, meaning inventory levels at the end of the year are going into 2007 are factored into our thinking with respect to our internal forecasts for that product line as well. I think in Q4, there was a benefit of price increases, good prescription growth, and as I said, the short answer is yes, we do factor in inventory levels both at our partner and the wholesale level when we think about what our 2007 revenues may be for that product line.

Okay, regarding the Wellbutrin salt, what kind of exclusivity do you expect to get? Regarding Ultram ER, basically what I'm asking is not what's the current trend but what is underlying the numbers that you have given as guidance? You mentioned that you spent time understanding your partners orders and what goes -- what forecasts underline that. What is underlying your current guidance? Is it a kind of curve we saw in September, October or is it the kind of uptake that we saw in the first week of March? And regarding XL, I just want to clarify, did you get any inventory declines in Q4 or all that is going to happen in '07?

The trend line, if you will for Ultram ER is not something I'm going to comment other than to say that our internal forecast does not assume it's a flat run rate from its existing level, but I'm not going to be more specific in terms of what we think that curve is or how much growth there will or won't be et cetera, But it does not assume that it will be flat.

Quick comment on the Bupropion salt again I'm not going to be specific with respect to our IP strategy around the product except to say that it's something that we pay a great deal of attention to and it's obviously critically important both to us and to partners and to the ultimate exclusivity that -- and market protection the product, gets. And the last question that Christine asked, what -- I'm sorry, I thought maybe I missed something there, Christine.

The XL inventory is that all going to happen in '07? Or did you see any in '06?

With respect to the inventory levels, I think if you look at Q4 results and/or inventory levels that were in the channel exiting Q4, certainly, there were discussions under way with respect to settlements that were ongoing that was factored into the exit rate of inventory levels and therefore, any assumptions or changes to inventory levels would be more reflected in 2007 or as we get into 2008.

Thank you.

Sure, Christine.

Thank you. The last question is from Hari Sambasivam from Merrill Lynch. Please go ahead.

Yes, thank you. Doug, just a couple of quick questions on the plans for Ultram in the EU. Where are you in terms of your regulatory strategy in terms of getting this product filed and approved in Europe. Second question is you're going to have roughly about $400 million of cash after the redemption. What should we expect with the use of that cash? Is it mostly for end licensing type of activities or is there another return to shareholders from that cash that we should think about? And then finally, a broader question as you were rethinking your strategy in terms of R&D, you're currently focused on oral controlled release. I'm just wondering whether you've sort of cast the net a little bit further in terms of R&D to think about drug delivery from a protein point of view or depos and there's a whole series of things out there that Biovail currently does not participate in, so just wondering from an R&D perspective where you are in relation to those technologies?

Sure, good morning, Hari. A couple of comments here, firstly, in terms of Ultram and I'll make the comments in a more broad way in terms of rest of world territories. We're very active in that and we're approaching the end stage of some of those discussions and hopefully that will be coming, some of those announcements will be coming out shortly. In terms of our cash position post redemption of the notes and so on, that you mentioned which are still very substantial, we have a significant focus on a number of business development activities that we expect will utilize some of that cash that I mentioned one of them before which is a very strong effort on the acquisition of opportunities for our Canadian operation. And secondly, and it relates to your third question as well on the drug delivery side, we have a very strong effort in the acquisition of technologies and/or products associated with those technologies that are both within the space that we currently populate with the oral space, but also that are not within the oral space that would include things such as you had mentioned whether you're talking topical or inhalation or other forms to sort of broaden the technology platform that underlies Biovail's drug delivery business.

Thank you.

Thank you, Hari.

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