Bausch Health Companies Inc (BHC) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the second quarter and first half 2007 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 7:00 p.m. eastern daylight time on Wednesday, August 15, 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 3230521.

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 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 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, believe, 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 press release dated August 8, 2007, and the press release entitled Biovail enters into license and development agreement dated August 8, 2007, that are available on the company Web site as well as its filings with the U.S. Securities and Exchange Commission and the Canadian Securities administrators, including the risk factors detailed in the most recent annual report on form 20, SA, item 3D. The company does not undertake to update any forward-looking statements.

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 will moderate today's call.

Thank you, operator, and good morning, everyone. On behalf of Biovail, thank you for joining us. On this morning's call, we will provide additional insight into the financial results and operating highlights for the second quarter and first half of 2007. Joining me on today's conference call are Dr. Douglas Squires, interim Chairman and Chief Executive Officer of Biovail Corporation; Ken Howling, Senior Vice President and Chief Financial Officer; Gilbert Godin, Executive Vice President and Chief Operating Officer; and Wendy Kelly, Senior Vice President, General Counsel, and Corporate Secretary. They will all be available to participate during the question-and-answer session with research analysts immediately following our remarks. 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 morning's call, by calling 905-286-3000 and asking for Investor Relations. Doug, please go ahead.

Thank you, Nelson. Good morning, everyone. I am pleased to report that for the three months and six months ended June 30, 2007, Biovail has again executed well against its financial objectives. Despite some challenges in our generics business, we generated revenues of $203 million, net income of just under $68 million, and diluted earnings per share of $0.42 in the second quarter of 2007. Clearly, the refinements that we have made to our business model in the past year continue to serve us well.

On June 19 -- sorry, July 19, 2007, Biovail was very disappointed and, indeed, shocked to receive a nonapproval letter from the U.S. Food and Drug Administration of BVF-033, our novel once-daily salt formulation of buproprion. The central issue related to the approvability of BVF-033 raised in the FDA's letter was the design of the pivotal bioequivalent study required to support the NDA. Biovail's NDA included a single dose fed and fasted bioavailability study, a single dose dose proportionality study, and a multiple dose bioequivalent study comparing a new salt to buproprion hydrochloride. This pivotal multiple-dose study showed bioequivalence of the two salts of the parent buproprion and the three metabolites on the three required pharmacokinetic parameters at steady state. The nonapproval letter states that a single dose comparative study should have been conducted instead of a multiple dose study, as if this were an abbreviated new drug application.

Biovail completely disagrees with this position. It is our strong view that the design of our bioequivalence program is consistent with past practice. It should be noted that the approvals of Wellbutrin XL and several other bioavailable products were based on the same design. It is also our strong view that the design of this program is consistent with FDA published guidance and the code of federal regulations.

Indeed, CFR320.23B states that food drug products will be considered bioequivalents drug products if their pharmaceutical equivalents or pharmaceutical alternatives whose rate and extent of absorption do not show a significant difference when administered at the same dose of the active moiety under similar experimental conditions, either single or multiple dose, end of quote. In another section of the CFR for controlled release formulation, it states that the purpose of an bioavailability study is to determine that, quote, the drug product's steady state performance is equivalent to a currently marketed noncontrolled release or controlled release drug product, end of quote.

It should also be noted that not only was this NDA accepted for review, but was purportedly in an appropriate pivotal study. In about 30 interactions with the FDA since the time of the submission, the inappropriateness of this study was never mentioned. In fact, the FDA made several requests for new information on the study, requested a reanalysis of the metabolite levels, and in fact, conducted a site inspection of the clinic where the study was conducted. All of these actions are inconsistent with the FDA's view that the pivotal study submitted in our NDA was not the relevant study to conduct. Biovail contends that the comparative PK data submitted in its NDA renders the application approvable and we will be discussing our rationale with the FDA when we meet with them. This meeting is scheduled for Tuesday of next week, although we will likely not get their feedback for a few weeks thereafter.

Let me reiterate that Biovail remains confident in securing the approval of BVF-033, and will work to achieve this objective as quickly as possible in order to maximize the benefit of the Wellbutrin XL settlement entered into earlier this year. Further, it should be noted that BVF-033 was always intended to be a scapel product for Biovail, a key component of other downstream pipeline products, including BVF-045, a combination product that incorporates BVF-033 with an undisclosed antidepressant agent. We've made recent strides in developing intellectual property protection for BVF-045 and we anticipate the submission of patent applications in the coming months, which could further add to the value of this product and its attractiveness to potential partners.

While BVF-033 remains an important program for Biovail, it is only one of numerous high-value programs we are working on, some of which we've talked about publicly, many of which we have not for competitive reasons. In keeping with our pipeline focus and our commitment to invest in research and development to grow the company, I am pleased to announce today that Biovail subsidiary has entered into a license and development agreement with an undisclosed privately held drug development company for the global rights to BVF-324, a novel product for the treatment of a prevalent sexual dysfunction. A multi-billion dollar global market for a huge clinical need exists for novel treatment options. The agreement allows for the licensing of clinical data, intellectual property, and the rights to develop, manufacture, and market BVF-324 globally.

In return, Biovail has paid an up front fee and is continually obligated to make additional milestone payments including upon the initiation of the first Phase 3 trial of the product and upon the first commercial sale of the product in the United States. The agreement also stipulates that Biovail make tiered, single digit royalty payments on net commercial sales of the product. Importantly, BVF-324 is protected by a method of use patent that extends upon 2020 and we expect to file additional patent applications as we progress the product to the clinic. A meeting with the FDA to discuss the development program for the product is scheduled for this fall and based on our current development plans and following upon the outcome with our meeting with the FDA, we anticipate the initiation of Phase 3 clinical studies for BVF-324 in the first half of 2008 which could lead to an NDA filing in mid-2009. We are also in active discussions to acquire a number of other development stage products and have multiple agreements pending.

It is impossible to predict the success or timing of completion of these discussions, we fully expect to have at least one or hopefully more consummated in the coming months. With regard to other products under development, work continues on BVF-146, a combination product that incorporates Biovail's once-daily Tramadol formulation with an undisclosed non-steroidal anti-inflammatory drug or NSAID. Phase 3 safety studies were initiated in October 2006, and enrollment is over 1100 patients and they're in completion. While not an efficacy study, we are seeing indications of efficacy in this open label study. Development work is also progressing for BVF-012, an enhanced absorption alcohol resistant formulation of venlafaxine . We have submitted patent applications for this product, and are in discussions with potential commercialization partners. Additionally, we've made significant progress on several feasibility programs within our pipeline and on a number of ANDA programs for which we are targeting first-to-file submissions.

In July 2007, Biovail received approval from a Canadian therapeutic products directorate with respect to a supplemental new drug submission for Tiazac XC for the treatment of angina, and by September 2, 2007, we expect to hear from the TPD with regard to our new drug submission for BVF-127, our once-daily tramadol formulation for the management of moderate to moderately severe chronic pain in adults. Let me take a couple of minutes to briefly summarize the status of a couple of ongoing regulatory investigations. In May, the company received a wells notice from staff of the U.S. Securities and Exchange Commission and on July 6 submitted a written response to the Wells notice to the SEC denying the allegations.

Also in May, the Ontario Securities Commission approved the terms of a settlement agreement with Biovail's former chairman, Gene Melnick. This settlement is separate from the OFC's ongoing investigation into Biovail. The company continues to cooperate fully with the OSC in its ongoing investigation and the company cannot predict the outcome nor the timing of when this matter may be resolved. In terms of patent infringement litigation, on July 24, we entered into a settlement agreement with [Avrica] Pharmaceuticals related to their ANDA for a generic formulation of Wellbutrin XL. Both parties agreed to walk away from the action. With respect to our appeal of the Amgen court decision, a hearing is currently scheduled for September 5, 2007.

Turning now to corporate governance, effective June 30, 2007, the company's Board of Directors appointed Williams Wells as chair of the governance committee and lead director and myself as interim Chairman of the Board following the retirement of Eugene Melnyk as Chairman of Biovail Corp. The appointment of Mr Wells as the lead director position during this period of transition is another example of Biovail's continued emphasis on strong corporate governance. Mr. Wells, who joined Biovail's Board in 2005 is currently the Chief Financial Officer of lAW Block Companies Limited. I would also like to point out that the kBoard has expanded its search for additional independent directors. Given the strong financial performance of the company in 2007, in addition to cash balances of nearly $470 million and the ongoing cash flow generation of the company's business, Biovail's Board of Directors has no intention of revising its current dividend policy, which contemplates the payment of $1.50 in annual dividends per common share paid in quarterly increments of $0.375 at the discretion of the Board.

In accordance with this policy, Biovail's Board has approved the payment of a dividend of $0.375 per share on August 31, 2007, to shareholders of record as of August 20, 2007. Before I hand the call back to Nelson, let me say that I find it gratifying to report that Biovail has achieved strong financial results for the first two quarters of 2007 in the face of what many would agree has been a period of significant challenge. We will work diligently to get BVF-033 approved as quickly as possible, recognizing that the opportunity for this product as a stand-alone is highest if launched well in advance of the genericization of the 150 milligram strength of Wellbutrin XL. We will have a better sense of where we stand after we get the FDA's feedback from our meeting with them next week. Back to

Thanks, Doug. Ken Howling, Biovail's Senior Vice President and Chief Financial Officer will now provide more indepth information on the company's financial performance for the second quarter and first half of 2007. Ken?

Thank you, 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 guidelines. All earnings per share information discussed in the conference call today will be presented on a diluted basis. With the three months ended June 30, 2007, Biovail generated strong second quarter revenue, earning end cash flows from operations. On a consolidated basis, total revenues for the second quarter of 2007 were $203 million compared with $255 million for the corresponding periods in 2006. For the first half of 2007, total revenues were $450 million compared with $477 million in 2006. These results were driven primarily by the strong performance of Ultram ER, the Zovirax franchise, and Cardizem LA and offset in declines by revenue for Wellbutrin XL,, Biovail Pharmaceuticals, Canada and the company's portfolio of generic products. Revenues for Wellbutrin XL declines significantly in the second quarter of 2007 to $53 million compared with $114 million for the same period a year ago. In the first half of 2007, Wellbutrin XL generated $114.5 million in revenue compared with $179 million for the same period in 2006. These declines were directly attributable to the December 6 introduction of the generic competition for the 300 milligram strength of Wellbutrin XL. In the second quarter of 2007, Ultram ER generated $19.6 million in revenues compared with $900,000 for the corresponding three-month period in 2006, which is net of a $7.8 million return provision related to the June 2006 recall of certain dosage strengths of Ultram ER. For the six months ended June 30, 2007, Ultram ER generated $49.6 million of revenues compared with $16 million for the proceeding year, which followed a February 2006 launch. The sales performance of this product for the quarter reflects higher prescription volumes, an increase in Biovail supply price from 27.5% to 37.5% of Ortho-McNeil's net selling price, and a January 2007 price increase.

In the second quarter of 2007, Ultram ER captured approximately 6.3% of total prescriptions for the Ultram brand, including generics. Now turning to Zovirax, revenues for the second quarter of 2007 were up 21% to $35.2 million compared with $29.1 million for the prior-year period. For the six-month period ended June 30, 2007, Zovirax generated $72.5 million in revenue, a 35% increase over the $53.6 million in the first half of 2006. The increase in revenue reflects the timing of wholesale or inventory purchases and a January 2007 price increase. The Zovirax brand captured 73.3% of the topical antiviral market for herpes in the second quarter of 2007. The genericization of Tiazac and Wellbutrin XL continue to have a negative impact on Biovail Pharmaceuticals, Canada, which generated revenues of $14.1 million in the second quarter of 2007 compared with $19.5 million in the second quarter of 2006.

For the six months end June 30, 2007, revenue for BPC were $27.9 million compared with $39.3 million in the first half of 2006. Partially offsetting factors in the second quarter include the continued growth in Tiazac XC, which now accounts for 31.6% of total prescriptions written for the Tiazac brand, and Wellbutrin XL which was launched by the BPC sales force in April 2006, and continued to gain market share capturing 31.3% of total prescriptions written by the Wellbutrin brand. Biovail continues to access a number of acquisition opportunities to expand BPC's commercial portfolio. Revenues for Cardizem LA in the second quarter of 2007 were $22.7 million compared with $11.5 million for the corresponding period in 2006, an increase of 97%.

For the first six months of 2007, Cardizem LA generated revenues of $46.6 million compared with $29.9 million in the first half of 2006. These increases can be attributed to the resolution of manufacturing issues related to the 120 milligram and 180 milligram strengths of the product. Biovail's portfolio of legacy products generated $34.9 million for the second quarter of 2007 compared with $36.7 million in the second quarter of 2006. In the first half of the year, revenues were $70.6 million compared with $72.3 million in 2006. This performance primarily reflects lower sales of branded and generic Tiazac to forest and the expected year-over-year declines in total prescription volumes for these mature product, offset by price increases implemented in January of this year.

Revenue for Biovail's portfolio of generic products distributed by Teva Pharmaceuticals was $11.3 million in the second quarter of 2007 compared with $32.8 million in the second quarter of 2006. In the first half of 2007, Biovail's generic products revenue generated -- excuse me, products generated revenues of $47.1million compared with $66.4 million in the first half of 2006. The decline in second quarter of 2007 reflects $15 million price adjustments primarily related to a higher level of chargebacks Teva received from wholesalers. While this level of chargebacks in the second quarter was unexpected, Teva has advised that chargebacks in the second half of the year are not expected to be at this level. Gross margins based on product sales were 71.4% and 74.1% in the second quarter of and first half of 2007, respectively, compared with 75.9% and 76.8% in the corresponding 2006 periods. The Teva adjustment impacted margins by 2.2 and 1.0 percentage points in the second quarter and first half of 2007, respectively.

SG&A expenses for the second quarter of 2007 were down 31% to $46.3 million compared with $66.7 million in the second quarter of 2006. For the first half of the year, SG&A expenses declined 22% to $95.6 million compared with $123.2 million in the corresponding period of 2006. These reductions mainly reflect Biovail's restructured approach to commercializing products in the United States. Research and development expenditures were $28.4 million for the second quarter of 2007 and $58.2 million for the first half of 2007 compared with $18.4 million and $40.7 million for the corresponding periods in 2006, respectively. On the bottom line, U.S. GAAP net income was $67.8 million or $0.42 per common share in the second quarter compared with $85.3 million and $0.53 in the prior-year period.

With respect to specific items in the quarter, on April 5, 2007, the company transferred all of its common shares of EpiPharm to a private French company. In consideration for those shares, the company received gross proceeds of $39.4 million in cash, as well as a $5.6 million convertible debt and common shares of [ inaudible ] equivalent to 5% stake. The company recorded a gain on disposal, net of costs, of $15.7 million. In addition, Biovail recovered $1.6 million of contract cost provisions, primarily associated with the Wellbutrin XL agreement as a result of additional sample purchases by GSK in the quarter. As described in today's press release, the extinguishment of our senior subordinated notes resulted in a charge of $12.5 million. This amount includes the early redemption premium of $7.9 million and a $4.6 million write-off of deferred financing charges.

Biovail also incurred a $900,000 charge associated with the December 2006 restructuring of the company's U.S. commercial operations and a $500,000 equity loss associated with its investment in Western Life Sciences. These charges positively impacted EPS by $0.02 in the second quarter of 2007, and negatively impacted EPS by $0.03 in the second quarter of 2006. With regard to the balance sheet, at the end of the second quarter of 2007, Biovail had cash balances of $469 million and no long-term debt. Further, the company currently has no borrowings against its $250 million revolving term credit facility. Cash flows from operations were at $98.3 million in the second quarter of 2007, impaired with $110.8 million a year earlier. Net capital expenditures in the second quarter of 2007 amounted to $7.4 million.

As Doug mentioned earlier, Biovail's board has approved the payment of a dividend of $0.375 per share payable on August 31, 2007, for shareholders of record on August 20, 2007. This concludes my review of Biovail's financial performance for the second quarter and first half of 2007. I will now turn the call back to Doug Squires for his closing remarks. Doug?

Thank you, Ken. In closing we continue to see underlying strength in Biovail's business. There's nothing wrong with, and I believe there is everything right with being the best in the world at what you do. In our case, that's applying drug delivery technologies to develop, manufacture, and commercialize novel medicines that address unmet medical needs. Our long-term track record in this regard is an impressive one with close to 30 products commercialized. Going forward, we will endeavor to maintain our leadership position in the field of drug delivery, while exploring opportunities to leverage our development and manufacturing expertise with new products, as we've done with BVF-324 agreement we announced this morning.

I can confidently say that our pipeline today has been greatly strengthened and we are targeting of having ten major programs under the way by the end of the year in the therapeutic areas of pain management, CNS disorders, sexual dysfunction, and cardiovascular disease. In addition, we have four ANDA programs ongoing, which we believe may provide multiple first of file opportunities. My enthusiasm for our pipeline is supported by its recent assessment by a world renowned independent consulting firm that was tasked with reviewing and stress testing our commercial outlook and forecast for these programs. Their review included interviews with physicians, specialists, and peers, and concluded, and I quote, we believe that your overall portfolio will form the basis for a strong platform for the company going forward, since most candidates either address real unmet marketplace needs or represent compelling and material improvements to existing therapies on the basis of safety and efficacy, rather than merely convenience, end of quote.

However, the success as discussed this morning notwithstanding, the uncertainty associated with BVF-033 has important implications for our near-term outlook. And while I can confidently hold our pipeline against those of our specialty Pharma peers, it is also true that the majority of our development programs will not reach the market in 2008. In the interim, while we continue our efforts to receive approval of BVF-033 as quickly as possible, we will use the ongoing cash flows from our existing businesses and our strong cash balances to continue to fund our business development and R&D strategy. Let me be clear on this point. Biovail intends to continue to invest heavily in its research and development pipeline. Further, we will be very prudent in our spending and will look to control cost and identify further efficiencies within our business.

Ladies and gentlemen, this concludes my remarks. I will now return the call to the conference operator for questions. Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS). Our first question is from Doug Miehm from RBC Capital Markets. Please go ahead.

Thanks and good morning. First question has to do with the generic outlook. Would you say that these chargebacks are fully a function of with a appears to be going on with the procardiac CC generics relating to market share, or is it something else? Can you just give us a better view on what you think the rest of the year will look like in this regard? Thanks.

Good morning, Doug. I'll ask [Alex Ken] to respond to that.

Thanks, Doug, and good morning. In our discussions and conversations with Teva, it would appear that the chargebacks were related, primarily, due to the timing and the timing and the processing of chargebacks . As you know, many of the distributors have a March 31 year end. They work their inventories down in the first quarter, they work down to a more normalized level in the second quarter. It seems that the level of chargebacks in the second quarter was significantly higher, not only higher than the first quarter, but almost double what the average run rate had been in prior historical quarters, so our understanding based on these discussions with Teva is that it has its an anomaly. It's the timing of the chargebacks, the processing of an significant amount of those chargebacks and they do not expect those to be the run rate, if you will, in the second half of the year. So we would expect them to be more normalized, at a level more associated with our historical levels

And it has has nothing to do with loss of share for [Adilad] or Procardia?

Some of it might be timing specific, and we'll meet with Teva to better understand specifically what products they are, but in our initial discussions with them, it's clear based on the level that a lot of it has to do with timing.

Okay, great. Secondly, can you comment on prescription growth with respect to Ultram, what we're seeing over the last couple months given the flattening out? And finally, could you just wrap up with respect to the FDA, if they come back on the 14th or a couple weeks later and they don't budge, can you give us your view on time lines and what you may be thinking of doing at that point? Thanks.

Sure, Doug. Just a comment on the Ultram ER. It is true that scripts have flattened out a little bit and we talked a lot with OMI about that. This is an unusual market, one of those rare circumstances where a new brand has got some significant benefits gets launched into semi-generacized market. They believe it is simply an issue of timing, buying patterns. They believe this product is going to meet their forecast in '07, and it did in '08, and it's as important to them as it was at the launch period. It has the same sales force on it, the same incentivization program.

They're developing new direct-to-the consumer programs other than TV to try and get that right patient into the physician. They're following on with the expanded sample pack we introduced or they introduced earlier in the year with a dose titration pack which will be introduced shortly, which should help, so we haven't lost the faith on this. We still think it's going to hit their forecast and be an important product for us and them both this year and next. Yes, a question about the FDA, I'm not going to get too specific about what we're going to do subsequent to an FDA position that they take, we don't know if they're going to take. Obviously, the one thing that we could do would be to run -- this is a very simple study for us to run, but we really believe that we have a quite strong and indeed compelling scientific argument to make as well as a regulatory argument that this product is approvable as it stands. We'll see what happens as a result of that meeting and sort of get more information post that discussion.

Thanks very much.

Thank you, Doug.

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

Hi, this is actually Sarah on for Randall. Would you be able to address guidance for the remainder of '07 and maybe touch a little bit on your outlook for 2008 and also on your previous R&D guidance of $500 million through 2010, please?

Just a couple of comments. Our guidance for 2007 stands. We're not changing our guidance and we're quite confident in that. We're not going to comment on 2008 guidance at this point, it would be premature for us to do that. Although, as I mentioned, we have many things in play and we'll see what happens with BVF-033 and the FDA and so on, but we will get more specific on that later in the year. And I think the question with respect to R&D and the amount we're going to spend by 2010 has remained unchanged.

Could you also just address for the remaining second half of 2007 what the waiting will be for earnings, keeping your original guidance, can we assume it will be evenly spaced out over the two quarters?

We don't provide quarterly earnings guidance, as you know. So the answer is, no, we're not going to provide a weighting for you between the two periods. Our EPS guidance is $1.70 to $1.80 on a full-year basis.

Thank you.

Thank you.

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

Good morning and thanks for taking the call. Doug, just a couple of quick questions. I guess a lot of us are focused on the pipeline and future sources of revenue. You talked about the Ultram combination and said program. You've got, I think, from your comments, 1100 people enrolled in an open label study right now. I wonder if you can provide some details with regard to when you're going to move that forward into efficacy studies. And also back to your original comments, about ten programs being under development, including four ANDAs. Could you describe for us some of the milestones we could use to gauge your process, anything we should be looking for? And Biovail has historically shied away from acquisitions. I wonder given your current policy and your strong cash flow if there's an opportunity for you to look at some tempered acquisitions, or is that part of the strategy of present?

Good morning, David. First question on tramadol nonsteroidal. Current plans are looking at a Q1 start of the other programs to support the NDA. In terms of ten programs that we talked about, well, some of the milestones are that we intend and hope that we'll have a couple of launches in 2009, maybe three launches in 2010.

The ten programs that we're talking about are a very insignificant portion of those have very high sales potentials for partners. They range from $300 million a year to maybe $2.5 billion a year. So they're high-value. Eight out of the ten would be greater than $0.5 million a year. And I think you'll see, as I mentioned, we've got some discussions ongoing with other potential partners analogous to the one we just announced involving products and the later stage development that we can add some of our technologies to and companies that have technologies that we can add some of our development skills too. So hopefully we will have some of those coming to fruition. Just a -- you asked a question about --

Acquisitions.

And acquisitions are always on our radar screen. We sort of have talked about this before, focusing largely in three areas, the first area being what we just talked about in terms of bringing in opportunities that are late stage that we can leverage our technologies. Companies that have technologies and products, later stage products associated with those technologies, we don't have within our target list as well as opportunities to leverage our strong position in Canada.

Okay. So with the development programs that you're talking about, will you be announcing, maybe just headline results, if not specific details in terms of your progress, you completed the study, now preparing to enroll Phase 3, in terms of those --

We're definitely going to be pushing the envelope of our disclosure on this. With the caveat that's always the problem, as you know, Dave, and that's that some of these bits of information are competitively very important in terms of companies. You look at us and try to understand us, other companies look at us and try to copy us so we have to be very prudent in terms of the degree of that disclosure, but we're certainly going to try and give as much information as we can so the value of that pipeline can be understand.

Okay, thanks.

Sure.

Thank you. The following question is from Christine Charette of BMO Capital Markets. Please go ahead.

Hi, thank you. I have several questions regarding Cardizem LA. You reported sales are stronger than what [ inaudible ] trends would justify. I understand that the inventory rebuild was done in Q1, so could you give us some colors to why the numbers were so strong in Q2? Secondly, even if you adjust for the Teva chargeback on cost of goods, the cost of goods seem to be higher than they have been, even if you compare it to Q1. So can you give us some idea of what we can expect in the future? Is this a new cost structure? And the same on SG&A, although SG&A has come down quite dramatically, it is higher than what a lot of people believe it should be for a company that does not have a commercial infrastructure in the states. Can you give us some idea of how you view SG&A and whether or not this level of spend is required? Lastly, can you give us some idea of when your ANDA filings would become visible to us, as to when we would know what products they are and whether or not you're first to file?

Okay. Let me take a couple of those and then I'll ask Ken to comment on that. Just a comment on SG&A, we pay a lot of attention to SG&A because it's a significant component of our business. We do have a large commercial infrastructure in Canada that I don't think should be ignored when drawing comparisons and a fairly modest one on the sales and marketing side in the U.S. to manage this quite large business. But we've brought some of those -- the U.S. ones down dramatically, some of the Canadian ones as well, and also the associated infrastructure down quite significantly. That's embedded in some of those numbers. I think the other thing that I would just comment on is that the past year or two has had fairly high league costs associated with our G&A and we certainly anticipate those coming down quite considerably on a go-forward basis as some of these matters get resolved.

So we're going to -- and then broadly, we pay a lot of attention, management pays a lot of attention to spend and appropriate spend and rigorous spending, recognizing that we're a growing concern and we also have to be prepared to maximize the opportunities that come to our pipeline and other activities and have a level of professional infrastructure that can do that. You had a question about ANDAs. We have a series of ANDAs planned and we will probably not be disclosing what they are until we file and when we file for competitive reasons. Ken, there's a couple of questions I think from Christine on Teva and CLMA.

On Cardizem LA, 120 milligram, 180 milligram dosage strengths still were subject to a manufacturing issue, at least backorders carried into the second quarter of the year and those backorders were filled in the second quarter. That drove it to some extent, as well as price increases, at least when you compare Q2 of '07 versus Q2 of '06, there were price increases as well driving Cardizem LA. With respect to the cost of goods sold, have been if you adjust for the chargeback amount, you are right, cost of goods sold are below the historical level, certainly the levels that we saw in 2006. The primary reason for that, Christine, is that Wellbutrin XL 300 milligram dosage strength, of course, over the course of the year and as Wellbutrin XL get into the higher tiers, the margins on that were considerable. As we go into -- or are in 2007, without the contribution of Wellbutrin XL 300 milligrams, it is putting pressure on the cost of goods sold.

Can you give us an idea of when you will be filing your ANDAs?

Well, I don't think we've given too much clarity on that. I think we may have said in the past we expect to file one by the end of the year and then the remainder will be coming out in the next few years.

Thank you.

Thank you, Christine.

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

Thank you. Doug, just a couple of questions on the sexual dysfunction product. I'm just kind of curious about the commercialization pathway for this, considering that you don't have a sales force, are you anticipating at some point in time building up a specialty sales force to sell this product, if it comes to fruition, or is this an outlicensing candidate? Second question also relates to the type of end licensing. This one, obviously, has a bit more intellectual property protection than some of your other pipeline compounds. And I'm just wondering is increased protection, increased R&D expenditure on end licensing compounds the sort of norm that we should be expecting for pipeline products being licensed in the next little while?

Thank you, Hari. On the first question, with respect to current plans for commercialization of the sexual dysfunction product, current plans would be to partner in the U.S. market directly and Canada and partner elsewhere, since it's a global arrangement. And that was the intent from the beginning of the licensing process. And you're quite right, in terms of intellectual property and our focus on that, certainly one of the major strategic initiatives of the company and of our IP group and of our development group is to find ways, either in the licensing arena, as this one is, or indeed in the development process of providing as much intellectual property around the product, its use, and it's technical hurdles as possible, of course, because the life cycles in our business are short and we want to find ways to lengthen them as much as possible. As it relates to licensing specifically, that's very important to us that we have something just beyond the Hatch-Waxman exclusivity for any product we would bring in to further develop.

I guess on a related question, should we also expect more extensive R&D commitments to these end license products, Doug? I'm just wondering, you'll obviously have a large phase recommitment for this product, but when we look at future end licensing, should we be thinking about products that are in earlier stages of development?

I think that's always possible, Hari, but I think we try -- we don't seclude exclude them, but our preference is to have ones in the later stages. So that's -- a Phase 3 component is often a component of these because we're trying to move into the -- the strategic direction we're trying to move away from is modest improvements related to convenience and moving away from that into products that either treat an unmet medical need that's very significant or improve a product in a very significant way either in efficacy or safety. And to do that often requires the clinical development of a product in Phase 3 and a fairly substantiative NDA. And that of course adds cost and then we have to prioritize which product has the biggest bang for us and so on. But I think that's directionally where we're going.

Thank you.

Thank you, Hari.

Thank you. The following question is from John Maletic of Scotia Capital.

Good morning. Just a follow-up question on the pipeline. Without divulging any specifics, could you give us a sense of what the distribution is for the ten programs you mentioned as far as stage of development? Are they relatively evenly distributed, or can we expect a bulge of programs entering the clinic at some point?

There's a diversity of programs within that, some of which require Phase 3, some of which require tactical formulation-type development and so on. So there's a reasonable spread among those programs. I think 2008 and 2009, there'll be some significant clinical programs, as we talked about. Hari pointed out moments ago, so we're paying attention to that. But with those programs comes high return and high value in the years of commercialization. So I don't think I can get too much more specific than that, John.

Okay. And then Cardizem LA, I apologize if you've already addressed this, but has the inventory backlog situation kind of worked its way through, or can we still expect a bit of a boost in the next quarter?

I think the inventory has pretty much worked its way through.

It was resolved in Q2, John.

Okay. Thanks.

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

Thanks very much. Just a couple of quick questions. First, based on your comments on BVF-033, it sounds like you have a relatively clear pathway for still bringing that product to market, but in the unlikely event that you're not able to bring that product to market over the course of the next 12 to 18 months, can you comment on the sustainability of the dividend under that scenario? And secondly, from a broader perspective, based on your experience with Ultram, which of course the FDA ultimately overturned its initial decision there, and based on your experience here with BVF-033, where again, it almost sounds you've been blindsided by the agency, are you taking a step back and thinking about your relationship with the agency and your own regulatory department? Is there any sort of an issue here that needs to be resolved that can ensure a more direct path to approval of future products? Thanks.

Sure. Andrew, I'm going to take the last question first in terms of the relationship with the agency. I think the relationship with the agency is very good. We actually have a very strong regulatory department with professionals that have been in their positions for a long time and are very, very familiar with our therapeutic area and with the people involved and so on. It's hard to understand what happened with this product. I don't ascribe any malevolence to it. It's just an odd interpretation of the regulations occurred, and we're in a strong position to put forward to them. We'll see what eventuates. We're extremely confident this product will be approved. The issue in my comment is ultimately when. The sooner it's approved, the higher value it has as an individual product. The later it gets approved, that value is less. I don't think there's any question it will get approved. I don't think our dividend is dependent on the approval of this product in any event and our board feel very strongly that the dividend is sustainable and we'll increase its sustainability.

If I could just follow-up briefly, could you comment on the impact on the nonapprovable letter on partnering discussions. Was there essentially a deal that was ready to go that was contingent on approval that will still be in place when that day ultimately comes, or does this translate into any kind of a setback in the negotiation process?

I'm not going to too specific on the state of the partnering discussions and so on and so forth. All I can tell you is an interesting factoid. One of the partners spent a lot of time looking at our NDA. As a matter of fact, wanted to own the NDA and never was a regulatory person of that potential partner, never did they raise the issue, my goodness, why did you do a multiple dose study instead of a single dose study. So having a nonapproval letter doesn't help in finalizing those agreements, but by and large, we feel it will be approved. The question is ultimately, as I said before, when, and that can influence a partner's view of the opportunity.

Thanks very much.

Sure.

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

Good morning. I have two questions. First, just regarding the inventories in the quarter, I think in the first quarter you made some comments about increased inventory levels on Zovirax. Just wondering generally speaking, across product line, any notable changes we should be aware of on the inventory levels of some of those products? I think you discussed the LA, but just specifically on Zovirax and others. Secondly, broadly speaking, you talked earlier about the Canadian commercialization capacity. What are you looking at in terms of product launch schedule over the next 12 months? And also from a business development point of view, how active are you in terms of looking to bring in new products there? I'll leave it there. Thanks.

I'll take the last question first. We're extremely active. We have dedicated people that spend their full-time trying to access products and opportunities for Canada. And we expect to be successful in those and that initiative is very targeted, very specific, focusing on companies in the United States that have no commercialization capacity in Canada and who have significant products on the market or are about to be on the market in Canada. It's targeting select European companies that have no presence in Canada and certain therapeutic areas where we have great confidence and great capability. That's a very significant area of focus for us and very optimistic that we'll be successful. In terms of launches coming up, I think the most near-term launch will be tramadol ER, which it's approval is pending and I think will be approved shortly. Ken, do you want to comment on the inventories?

I do. Joe, we provide in our 6-K filings detailed information with respect to wholesaler inventory levels on a product-by-product basis. I don't have that chart in front of me. Given the fact that we've got distributors sales agreement -- distribution sales agreements, service agreements in place, that inventory level is fairly constant within a two-week to six-week level of inventory by contract. I can't recall, I think there was about a two-week swing in Q2, but as I say, we hope to have our 6-K filed later this week, Monday at the latest, and you'll see product-by-product specifically what those inventory levels were.

Okay, great. Thanks, guys.

Thank you. Your last question is a follow-up from Christine Charette from BMO Capital Markets. Please go ahead.

Hi. Thanks. Can you give us some ideas of your discussions, what your various partners on various topics, first one is, how would the restructuring change affect the sales effort behind Ultram ER. Regarding Teva, what exactly is going on with Procardia and Adelad and the loss of market share? And regarding Wellbutrin XL, what can we expect to see in Europe? And regarding the SEC investigation, you replied in July, can you give us your expectation of time frame for the next step there?

Okay. Just a comment on the SEC. As you know, the time frame is not in our hands. We have responded to the [ inaudible ] is being received and hopefully is being reviewed and at some point we will have a response on the SEC and we will continue our discussions with them. It's our hope and it's my fervent hope that we can resolve this matter as soon as we can because it's been looking at periods from five, six years ago and we would like to get this resolved hopefully soon, but we don't control the time line.

A couple of comments on the -- let's say -- I think you asked a question about restructuring the J&J announce and the potential impact of that on our partner. The restructuring there did not tough the sales forces that are promoting Ultram ER. And in conversations with OMI executives, they're very aware of what happens when a restructuring is announced, that stases that permeates an organization because of job security and so on. Virtually within days of not hours of that announcement, they had a communication plan in process that went right down to the full sales organization to inform them that they were not affected, that everything remains the same, and so on.

So I think that if there was any affect at all, we expect it was extremely modest. There was a question -- I couldn't write fast enough Christine, there was a question on Wellbutrin XL? Europe, those registrations are proceeding. We'll be providing bulk tablets to Europe, they'll finish at a certain price, they'll finish in package. And there was one other question? With respect to Procardia and what Teva may or may not be doing, it's not a question I don't think is appropriate for me to with respect to what they're thinking competitively, maybe one that you should follow up with Teva on.

And regarding Wellbutrin XL in Europe, what's your expectations of quantities you will be shipping? Is it going to be meaningful to Biovail or is it going to be limited?

We haven't given specific guidance on the amounts and so on, but you do recognize that it's not going to be particularly high, let's put it that way, because of the supply price and so on. The supply of bulk goods to European markets that are lower priced and so on. In and of itself, it's not the type of agreements that we would do if we were doing it de novo. It's modest, it's helpful, but it's not hugely material.

Thank you.

Thank you, Christine.

Thank you. I would now like to turn the meeting back over to Dr. Doug Squires for closing remarks.

Thank you very much, opener -- Operator. I want to thank everyone for attending. I want to address the employees of Biovail, I want to express my personal thanks for the dedicated efforts and hard work that has resulted in a very good quarter for Biovail. We appreciate that. Thank you very much and we look forward to the latter half of the year and success. Thank you.

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