Bausch Health Companies Inc (BHC) 2007 Q3 法說會逐字稿

Your meeting is ready to begin. Good morning, welcome to the third quarter 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 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 Standard time on Thursday, November 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 3240214 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 the Safe Harbor Provisions of Canadian Provencial Securities laws.

Forward-looking statements involve risk and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied 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 press release dated November 8, 2007, that is available on the Company website, as well as the filings with the U.S. Securities and Exchange Commission, and the Canadian Securities Administrators, including the risk factors detailed in its most recent Annual Report on Form 20-F/A, Item 3d. The Company does not undertake to update any forward-looking statements.

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

Thank you, Operator. 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 third quarter and first nine months 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, and Gilbert Godin, Executive Vice President and Chief Operating Officer. They will all be available to participate during the question and answer session with research analysts immediately following our remarks. As always, we will try to answer as many questions as possible, while limiting the call to approximately one hour. Other participants are encouraged to follow up with the Company at the conclusion of this morning's call, by dialing 905-286-3000 and asking for Investor Relations.

Doug, please go ahead.

Thank you, Nelson. Good morning, everyone.

I would like to begin this morning by commenting on the current state of the pharmaceutical industry, which I would characterize as being in a state of significant uncertainty. Heightened regulatory hurdles, reimbursement challenges, pipeline gaps, product safety issues, product development obstacles, sales on marketing infrastructure costs, and so on, all combine to challenge companies who develop and commercialized new medicines. Biovail is certainly not immune from these complex issues. And the year 2007 has had its own specific challenges for our Company.

I am pleased to report that despite these challenges, we have once again executed against our financial and operational objectives for the three months and nine months ended September 30th 2007. In the third quarter of 2007, Biovail generated total revenues of $188.9 million, and GAAP earnings per share of $0.41.

Year-to-date, the Company has recorded total revenues of just under $639 million, and earnings per share of $1.41. These results reflect our ongoing efforts to maximize efficiencies within the organization, while maintaining a healthy investment in our R&D pipeline. Now our efforts with respect to cost containment in the past 12 months have resulted in significant overall reductions to nonessential expenditures. Thus far in 2007, we have realized substantive savings in the Company's selling, general, and administrative expenses.

SG&A expenses for the first nine months of the year are down 25%, while the third quarter 2007 SG&A expenses are down 33%, compared with the corresponding periods of 2006. Our business model has continued to serve us well throughout 2007, and it provides us with the flexibility to pursue a number of initiatives that should enable us to drive business growth.

Our balance sheet remains solid with cash balances of $412 million, marketable securities of $34 million, and no debt. This financial strength gives us the resources to aggressively evaluate and pursue a number of potential acquisition opportunities, and we are active on this front. Our pipeline, which is key to our long-term growth outlook, continues to progress forward and we have made some important strides in 2007. Including the addition of a number of new and exciting pipeline programs, including the two we have just acquired rights to from Pharma Pass II, and the calling of a number of lower value high-risk programs.

Now let me now take a couple of minutes to provide you with an update on a number of these programs. On October 24, Biovail announced that it submitted a complete response to the FDA that addresses all the issues raised on the nonapproval letter for BVF-033, Biovail's novel formulation of bupropion. Further to discussions in our meeting with the FDA in mid-August, and in accordance with feedback received from the FDA as part of our ongoing dialogue, Biovail's submission included a new analyses of the data included in the original NDA for BVF-033, but did not include any new clinical data.

While we have not yet heard from the FDA regarding the official classification of our complete response, we believe this submission warrants a Class one designation, which would carry with it a 60-day review period. As we said before, we believe the data package provided to the FDA is sufficient to support the approval of BVF-033.

With respect to the commercialization of this product, late stage partnership discussions are ongoing and we fully expect to have a commercial partner in place for the product's anticipated launch in early 2008. On the intellectual property front for BVF-033, we currently have 14 patent applications under review by the U.S. Patent and Trademark Office, in addition to one allowed patent that has been issued and that will be listed in the FDA's Orange Book upon product approval. As well, Biovail anticipates submitting at least one additional patent application to the U.S. PTO later this year.

BVF-033 remains a key component of another important downstream pipeline product, BVF-045, a combination product that incorporates our bupropion salt with an undisclosed antidepressant agent. We have also made strides in developing intellectual property protection for BVF-045, and anticipate the submission of patent applications in the coming months, which could further add to the value of this product and it's attractiveness to potential partners. We are currently in active discussions with multiple potential partners with respect to this product.

Another priority for Biovail is the ongoing development of its pain management franchise. The latest milestone in this regard was reached last Thursday when we announced that Ralivia, the Canadian brand name for Biovail's once-daily Tramadol formulation has been officially launched in Canada. Ralivia is Indicated for the management of pain of moderate severity of patients who require continuous treatment for several days or more.

Of note, Ralivia is the only once-daily Tramadol formulation available in Canada that has also been approved by the U.S. FDA, and the only one with 21-months of U.S. patient experience during which time approximately 1.6 million prescriptions have been written. These advantages clearly differentiate Ralivia and provide BPC's sales representatives with a compelling message for Canadian physicians.

Same with Tramadol, we are nearing completion of enrollment in the Phase III safety study for BVF-0146, a combination product that incorporates Biovail's once-daily Tramadol with an undisclosed non-steroidal anti-inflammatory drug. Preliminary data are being actively reviewed, and we continue to discuss the risks and cost sharing opportunities for this product with potential partners. As with most of the combination products in our pipeline, our objective is to engage a partner prior to the initiation of large expensive Phase III efficacy studies required, to support FDA approval of BVF-146.

In keeping with our ongoing commitment to driving organic growth to an yielding focus on research and development, we announced yesterday that the Company entered into an agreement with Pharma Pass II for two development stage products, BVF-068, a product for the treatment of a central nervous system disorder, and BVF-247, a novel formulation of a cardiovascular agent.

Biovail has acquired the worldwide rights to develop, manufacture and market these products. In return, we will pay an up-front fee to Pharma Pass, and we are contingently obligated to make additional milestone payments for each product, including upon the filing of an NDA with the FDA, and upon FDA approval. The agreement also stipulates that Biovail make tiered single-digit royalty payments on net commercial sales of the product. These two products target large global markets and have the potential to address safety issues inherent in the currently marketed formulation, an increasingly important focus for our pipeline efforts.

In early August, we announced that Biovail had 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. Earlier this fall, we met with the FDA to discuss the development program for this product. That meeting resulted in a number of issues being raised by the FDA, that impact for this product in the U.S.

We are currently evaluating the FDA's feedback, and the product's path forward in the U.S. With respect to other geographies, however, we believe BVF-324 represents a significant opportunity, particularly in a number of European countries, and accordingly we are actively evaluating the development requirements in those markets as well.

Turning briefly to other products under development, we continued to make progress on several undisclosed feasibility programs within our pipeline, and on four undisclosed ANDA programs, which includes three first-to-file opportunities. We remain on-track to file one ANDA before the end of the year, and three all potential first-to-file opportunities in 2008.

In accordance with Biovail's dividend policy, the Company's Board of Directors has approved the payment of a dividend of $0.375 per share on November 30, 2007, to shareholders of record as of November 20, 2007.

Before I hand the call back to Nelson, I would like to say how pleased I am with Biovail's financial operational performance for the first nine months of 2007, in the face of what has been a period of significant challenge. You have heard me say this on many occasions but it bears repeating. Biovail is fully committed to research and development, and to the development of next generation drugs that meet unmet market needs. Although we are taking an aggressive line on cost containment, we intend to preserve funding for our high priority pipeline programs.

I would also like to remind you that the comprehensive settlement entered into by Biovail with several drug companies pertaining to the generic settlement of Wellbutrin XL, has mitigated the otherwise significant impact the loss of market exclusivity would have had on our financial and operational performance in 2007. Beyond the obvious and very significant near-term financial benefit to the Company, the settlement may also provide a window of opportunity for Biovail and its commercialization partner to maximize the market potential of BVF-033.

Under the terms of the settlement agreement, the generitization of the 150-milligram strength of Wellbutrin XL could occur on May 30, 2008, or potentially sooner if specific triggering events occur, including an adverse decision with respect to the appeal of the Anchen summary judgment ruling. The hearing in that appeal was held September 5, and we continue to strongly believe that the lower court erred in granting summary judgment to Anchen, as there are material facts of dispute that warrant a trial.

Another potential trigger for an early launch of generic 150-milligram is upon new prescriptions for BVF-033 exceeding 35% of the volume over a 3-week executive period generated for Wellbutrin XL, 150-milligram. Given this potential window of opportunity, we are working diligently on a number of fronts to secure FDA approval for BVF-033, and pursue a commercial launch occurs very quickly thereafter.

Nelson, this completes my remarks. Thank you.

Thanks, Doug. I would now like to call on Ken Howling to provide additional information on the Company's financial performance for the third quarter and the first nine months of 2007. Ken?

Thanks, Nelson. Good morning, everyone.

On a consolidated basis, total revenues for the three months ended September 30, 2007 are $188.9 million, compared with $282.3 million for the third quarter of 2006, representing a decline of 33%. Total revenues for the first three quarters of 2007 were $608.9 million, down 16% from the $760.1 million for the corresponding period in 2006. The decreases in revenue for the third quarter of 2007 and for the nine months ended September 30, 2007, can largely be attributed to lower sales of Wellbutrin XL, as a result of the introduction of generic competition for the 300-milligram dosage strength of this product in late 2006.

Third quarter 2007 net income was $65.9 million, compared with a net loss of $60.1 million dollars for the corresponding 2006 period. For the nine months ended September 30, 2007, net income was $227.5 million, compared with $93.7 million for the same period a year earlier. Biovail recorded diluted earnings per share of $0.41 in the third quarter 2007, compared with a net loss per share of $0.37 for the same period in 2006. EPS for the first nine months of the year was $1.41, versus $0.59 for the corresponding period a year ago.

With respect to specific items affecting results in the third quarter of 2007, GAAP net income and EPS figures were impacted by a $2.1 million legal settlement and other items, in aggregate negatively impacted net income and EPS in the third quarter of 2007 by $1.6 million, and $0.01 respectively.

Product revenues for the three months ended September 30, 2007 were $178.3 million, compared with $270 million in the third quarter of 2006. Product revenues for the nine months ended September 30, 2007 were $607.1 million, compared with $725.3 million for the nine months ended September 30, 2006. Again, the significant declines can in large part be attributed to lower product sales for the 300-milligram dosage strength of Wellbutrin XL.

Wellbutrin XL revenues were $53.5 million in the third quarter 2007, compared with $123.3 million for the same period a year ago. For the nine-month period ended September 30, 2007, Wellbutrin XL generated revenues of $168 million, compared with $302.2 million for the same period 2007.

With respect to Ultram ER which was launched in February of 2006 by our marketing partner, Ortho-McNeil, Biovail recorded revenues of $13.8 million in the third quarter 2007, compared with $18.6 million in the corresponding period of 2006. This decrease reflects lower inventory levels at OMI for the product, and the backorder and shipments expected in September, which did not occur until October. In addition, the third quarter of 2006 was favorably impacted by the fulfillment of backorder as a result of the June 2006 recall of certain lots of the product.

In the first nine months of 2007, Ultram ER generated revenues of $63.3 million, compared with $34.6 million in the corresponding period in 2006. Year-over-year performance was also impacted by higher prescription volumes, an increase in Biovail supply price from 27.5% to 37.5% of Ortho-McNeil's selling price, and a price increase in January of [2007]. In the third quarter of 2007, Ultram ER captured 6.2% of total prescription volume of the Tramadol market, including generics.

Turning now to the Zovirax franchise. Revenues were $31 million in the third quarter of 2007, and $103.5 million for the first nine months of the year. These revenues represent increases of 12% and 27% respectively, compared with $27.8 million and $81.3 million in the prior year periods. These increases reflect a timing of wholesaler inventory purchases, and the implementation of price increases in 2007. Total prescription volume for this Zovirax franchise decreased 2% in the third quarter of 2007, compared with the third quarter 2006. In the third quarter of 2007, Zovirax ointment and Zovirax cream held a combined 73.8% share at the top of the herpes market.

Revenues in the third quarter of 2007 for Biopharmaceuticals Canada were $14.7 million, compared with $13.7 million in the prior year period. Revenues for the first nine months of 2007 for BPC were $42.6 million, compared with $53 million in the corresponding prior year period.

The year-over-year decrease reflects the continuing impact of generic competition for Wellbutrin SR and Tiazac. Total prescription volume for Wellbutrin SR and Tiazac decreased 62% and 51% respectively in the third quarter of 2007, versus the comparable 2006 period. Partially offsetting these declines was the continued growth of Tiazac XC, for which prescriptions decreased 33% compared with the third quarter of 2006. Also noteworthy was the strong performance of Wellbutrin XL, which captured 34.5% of the bupropion prescriptions in the third quarter of 2007.

Cardizem LA generated revenues of $14.4 million in the third quarter of 2007, compared with $14.3 million for the corresponding 2006 period. In the nine months ended September 30, 2007, Cardizem LA generated revenues of $61.1 million, compared with $44.1 million in 2006, a 38% increase that reflects the fulfillment of back orders of the 120-milligram and 180-milligram strength tablets in the first quarter of 2007. The amortization of deferred revenues associated with the May 2005 transaction, positively impacted Cardizem LA revenues by $3.8 million and $11.3 million in the third quarter and first nine months respectively of both 2006 and 2007.

Biovail's portfolio of off-patent branded pharmaceutical products, or legacy products, generated revenues of $30.6 million for the third quarter of 2007, compared with $38.7 million in the third quarter of 2006, a decrease of 21%. In the first nine months of 2007, legacy products generated revenues of $101.2 million, compared with $110.9 million in the first nine months of 2006, a decrease of 9%. This performance is largely attributable to lower sales of both branded and generic Tiazac, that can be attributed to increased generic competition, and partially offset by price increases of our other legacy products implemented in 2007.

Excluding Tiazac, legacy revenues were up 6% in the first nine months of 2007, versus the corresponding period in 2006. With respect to Biovail's generic products, revenues for the third quarter of 2007 were $20.3 million, compared with $33.7 million in the third quarter of 2006. The decrease reflects lower prescription volumes due to increased competition, and the impact of an $8.5 million increase in the estimate for future returns, rebates and chargebacks associated with these products. In the first nine months of 2007, revenues of $67.5 million compared with $101.1 million in the corresponding 2006 period, reflecting a loss of market share and price adjustments by Teva.

Gross margins based on product sales were 72% in the third quarter, and 73% in the first nine months of 2007, compared with 79% and 78% in the corresponding 2006 periods. The decline in gross margins in 2007 reflects the fact that 2007 revenues for Wellbutrin XL remain at the lowest tier of pricing as per the supply and distribution agreement with GSK. The inclusion of Biovail's one-third share of the costs associated with GSK's license agreement with Watson Pharmaceuticals, related to the 150-milligram dosage strength of Wellbutrin XL, and lower gross margins associated with the Company's generics portfolio. These items were partially offset by price increases implemented across a number of product lines, and the increase in Biovail's supply price of Ultram ER of 27.5% of net sales in 2006, to 37.5% in 2007.

Research and Development expenditures were $30.7 million in the third quarter of 2007, 16% higher than the $26.4 million for the corresponding period of 2006. R&D expenditures were up 32%, $88.8 million for the first nine months of 2007, compared with $67.1 million for the same period a year earlier. The increases in spending levels reflect increased spending for BVF-033, our new bupropion salt, BVF-146, our combination of Tramadol and a non-steroidal anti-inflammatory, BVF-012, our enhanced absorption alcohol resistant-formulation of venlafaxine, BVF-324, a novel product for the treatment of a prevalent sexual dysfunction, and a number of other feasibility programs.

SG&A expenses for the third quarter 2007 were $33.7, million compared with $50.2 million in the third quarter of 2006. This 33% decrease reflects the December 2006 restructuring of the Company's U.S. commercial operations, Lower net legal expenses after insurance recoveries, lower stock-based compensation expenses, and overall cost containment initiatives. SG&A expenses for the first nine months 2007 were $129.6 million, compared with $173.4 million for the first nine months of 2006, a decrease of 25%.

With respect to the balance sheet, at September 30, 2007, Biovail had cash balances of $411.9 million, marketable securities of $33.7 million, no long-term obligations, and no outstanding borrowings under its credit facility. Biovail currently has $27 million invested in auction rate securities that are AAA-rated and pay cash interest. Given ongoing liquidity issues, in the market for these securities, Biovail has recorded these securities at their estimated fair value of $24.3 million, and has recognized an unrealized loss of $2.7 million in other comprehensive income. These securities are now classified as noncurrent assets on the Company's consolidated balance sheet.

Cash flows from continuing operations were $43.4 million in the third quarter of 2007, and $261.5 million for the first nine months of 2007, compared with $81.4 million and $286.9 million in the corresponding periods of 2006. Operating cash flows in the third quarter of 2007 reflect a decrease of $37.2 million in accrued liabilities, primarily related to the settlement of the $16 million price adjustment related to chargebacks for the Company's generic products, and the payment of $14.4 million, related to litigation settlements accrued at year end.

Net capital expenditures were $10.6 million in the third quarter of 2007, and $23.6 million in the first nine months of 2007. These expenditures can be partly attributed to the ongoing expansion of the Company's corporate headquarters in Mississauga, Ontario, and upgrades to the Company's manufacturing facility in Dorado, Puerto Rico. As Doug mentioned earlier, Biovail will pay a dividend of $0.375 per share on November 30, 2007, for shareholders of record on November 20, 2007.

With respect to the financial guidance for the balance of 2007, Biovail is not changing its guidance for total revenues of $800 million to $850 million. The Company is also maintaining its guidance for diluted EPS of $1.70 to $1.80, excluding specific items, and for cash flow from operations of $320 million to $340 million. As previously stated, Biovail's revenue guidance is based on a number of variables including current prescription and business trends, the success of our marketing strategic marketing and distribution partners.

Guidance for 2007 does not include the impact of any potential acquisitions or dispositions, the introduction of new generic formulations of the Company's other key products, any new supply and distribution agreements, restructuring, settlements or other specific charges. Further, Biovail's 2007 guidance assumes that a generic version of Wellbutrin XL 150-milligram will not be launched in 2007. For more comprehensive information pertaining to Biovail's financial and operational performance for the third quarter and first nine of months 2007, please refer to the news release distributed earlier this morning.

That concludes my review of Biovail's financial performance. I will now hand the call back to Doug Squires to make his closing remarks. Doug.

Thank you, Ken. To summarize, let me reiterate that in the face of significant challenges, Biovail remains a very strong company. The challenges faced to date in 2007 notwithstanding, the work ahead is certainly significant. From every member of the executive team to every employee on the manufacturing floor, we are all committed to making Biovail a better company. We have set the bar high, and we intend to keep it there.

We recognize that to maximize a Company's potential we need to continue to allocate our capital wisely, and to maintain our significant investment in R&D and our development pipeline. Our pipeline is heavily skewed to programs that go beyond convenience and compliance benefits, as we increasingly target enhancements to safety and/or efficacy in our development efforts. We have bolstered our pipeline in 2007 with several new products, both from our internal R&D efforts, and through development agreements with third parties. The Pharma Pass II agreement announced yesterday is the latest example of our success in this regard.

Intellectual Property considerations are also at the forefront of our R&D efforts, moreso than ever before in the Company's history. For these and other reasons, I am very confident in the strength of the pipeline, and in the market potential of our priority programs. As we said before, it is also true that the majority of our pipeline programs will not reach the marketplace until the 2010 timeframe. However the ongoing cash flow generation of our business model, in addition to our strong balance sheet provides us with the flexibility to pursue a number of growth initiatives. To this end, we are actively exploring a number of external opportunities that would both supplement our near-term financial outlook, and/or be additive to our drug delivery technology portfolio. Our primary objective as always is to create shareholder value.

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

Thank you, sir. We will now take questions from the listeners. (OPERATOR INSTRUCTIONS)

Thank you for your patience. The first question is from Doug Miehm, RBC Capital Markets. Please go ahead.

Good morning. Three questions. Number one, maybe, Doug, you could just go over the Ultram ER situation with respect to recent trends over the last five to six months, we seem to have stalled. What changed in thinking?

Second thing is, I'm curious as to why you haven't heard back yet on 33 the salt, and then Ken, you did mention the possibility of dispositions. Is that a high likelihood, or I shouldn't expect that? Thanks.

Okay. Good morning, Doug. Just a couple of questions. We thought we would hear back on the classification in response to 033, and we haven't. We expect that any time now, and as I mentioned during the comments, we expected to be a Class 1, since there is no new clinical data in that filing.

With respect to Ultram ER, you know it is a frustration that we don't see a rapid upturn in prescriptions and the total ampules due. I met with OMI the other day, and they are as committed to this product as they were the day of launch. I know I have said that before, but they reiterated it to me again, and this is an important product to them, to the salesman's commission and company performance, not just for '07 but continuing into '08 and '09.

They continue to develop new programs to try and inflect that curve. There is new sample packaging going out. There is now non-TV DTC going out that seems to be successful. We remain hopeful that this continued effort is going to inflect that growth in market share.

The opportunity is still very significant for us, and of course we are alone as the only once-daily Tramadol in the U.S. marketplace. So the effort is still very strong.

Ken, do you want to take Doug's third question.

Sure, Doug, at this point there is no intention of disposing any assets. That is just a remark that we make to ensure that investors recognize that the guidance provided excludes a lot of things, that being one of them.

That is great. Thank you.

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

Thanks very much for the question. I just have a couple. First to follow-up on the last question, Doug, are you expecting Class 1, based on no new studies or based on conversations with the FDA, or is it a combination of both?

Randall, it is really a combination of both, but fundamentally it is a result of discussions and a reanalysis of what we had already submitted at the bottom of that view. We would be very surprised if it was a Class 2.

Once that happens, is it fair to assume that we should expect a potential partnering deal at any point, based on the fact you clearly need to get a partner in place, and having a partner in place ahead of approval certainly would help with timing?

I think it is fair to expect that we will have a partner in place as soon as possible, whether it is before the approval, or at the approval, or just after the approval, to ensure that this product launches as quickly as possible.

Is this still an multi, and opportunity for a multi-pipeline product deal?

Yes. I would have to say yes it is. I am not saying it will be. I am just saying that that is one of the possibilities.

Great. One more question for Ken. Given the quarter, given that we are heading to the fourth quarter, obviously, there is still a pretty big range on top line.

I missed it if you reaffirmed your bottom line guidance, but I guess the question with some better visibility on the reversal in Ultram ER going into next quarter, some spending cuts obviously in SG&A, and whether those are sustainable at that level or not. Why not tighten up guidance in terms of outlook for the next quarter?

Just taking a cautionary stance. There are still a number of moving parts and a number of variables that are difficult to predict. A lot of our products are sold through third parties. Therefore we have a little less visibility than some that have a direct touch point into the market.

Should we think about that low $30 million range for SG&A as the normalized level going forward?

We don't breakdown the P&L by line item with respect to guidance. I think the cost initiatives that we implemented at the end of 2006 and early part of 2007 are pretty well in place.

There was nothing quarter specific, in terms of one-time cost savings that wouldn't emerge or not emerge going forward?

I don't believe so, no.

Thanks very much, guys.

Thank you.

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

Doug, you mentioned on BVF-146 the data is being reviewed. What data is being review, is that just a simple PK study? Do you have the formulation in place, or is this actually a clinical trial where--?

Marc, good morning. This is a clinical trial. This is clinical data that is being reviewed. It is not simple PK bioequivalence data.

Can you give us a sense of okay, we are going to know whether we are moving forward soon, or you already know you are moving forward on it?

You will know if we are moving forward relatively soon. We are in the process of evaluating 2008 and 2009 in a variety of programs that we have. We would certainly like to partner this product. As we mentioned before, on some of our large programs on major Phase III, particularly in the combination area, we would like to partner earlier.

Because that gives us the flexibility to do more development projects. These are like sine waves that add up. If you have 2 or 3 major Phase III programs happening at the same time, it is very difficult for us to fund them in totality ourselves. So partnering is very important in that process.

One other question, that is on the generic revenues obviously we see the absorption of the chargeback rebate that Teva is expecting. How often does Teva give you this type of feedback, is it once a year? Is this the type of thing we can expect every quarter? Or is this, okay, you know, we have tightened it up and we know what is going on, and we feel good we are not going to get another one this next quarter?

I think we get rolling forecasts, et cetera, from Teva, with respect to their intended purchases of product from us, but with respect to shelf stock adjustments, some of the chargebacks that they process in a quarter, we get, they get some visibility but it is also difficult to predict if or when a shelf stock adjustment is going to be made.

So we take a number of factors into consideration which we have done this quarter. We think we have tightened up our estimates and modified the estimation that we utilize to try and predict these things. We believe we have done that now, but some of these items you just can't predict. Shelf stock adjustments being probably at the top of that list.

Operator, next question.

Thank you. The next question is from Prakash Gowd, National Bank Financial.

Thanks. Good morning. I have two or three questions. First on one BVF-324, you mentioned that the FDA had raised some issues, and provided some feedback. Wondered if you might be able to give any more color on that? Were they safety related issues? And what needs to be done to perhaps address those?

Sure. Good morning. The meeting focused on what would be necessary to develop a full NDA to this product to ensure approval. Because this is in a relatively unique category. I am not going to get too specific on what they said. The only people that play in this potential space, and they want to find out what the FDA thinks they can go talk to them as well.

The issue really was around how you measure the condition, the validated end points, the agreement on what those end points are, and so on. Now that can be a complex area so we are discussing that feedback with a variety of outside consultants and potential partners, to see if that is a huge hurdle, or a moderate hurdle for us in the U.S.

As mentioned in my remarks, however, I do think the rights to this product are global, and we have also some pretty good indications that there is a very substantial market in Europe for this product, and the development processes, and end points and so on, are looked at somewhat differently. So we are evaluating that as well. Sort of one way or the other there is a significant opportunity there.

So from that, can we maybe assume then that maybe a first half '08 start of the Phase III might be a little unrealistic at this point?

Well, I would almost want to hold my answer to that one as we look at the European situation, because if we believe that the European development is of what we believed could have been in the U.S., we might very well start those trials in '08 for Europe.

Then on DPC, are you able to talk at all about the relative positioning of Ralivia versus the other Tramadol products on the market, maybe just some color on what you view as the opportunity there? Also on DPC, can you comment on how you feel about the outlook for potential end licensing on co-promotional opportunities?

Sure. Hang on a second. As it relates to Ralivia. Ralivia is one of two other once-daily Tramadols that will be competing for the marketplace in Canada. With roughly similar labeling with some minor differences, and those differences are in fact in favor for Ralivia, and I think should provide some marketing benefits. The reality is, the reason we are bullish about Ralivia, I don't think there is any one that can stand a candle to us, in terms of our ability to promote this product or any other product in Canada. We are very confident in our sales and marketing organization, being able to really convince the physicians to write Ralivia, and I think we will see that in the coming months.

With respect to external activities for bringing in products into Canada, it is sort of a follow-on to that comment, because we are active in discussions with multiple companies on products for Canada, and the rationale of course, is that this is a very potent sales and marketing organization, and you don't have to build it. You can borrow it, and be very effective. So I think we will see some things in the coming months of 2008, because it is a major focus of ours, to bring products into this big engine.

How would you characterize your discussions with those potential parties?

How would I characterize? I would characterize them as ongoing, and there are multiple discussions so it is hard to say. Some of the are later, some of the are earlier. Some of them in the capabilities presentation stage. There are a variety of them. Some of them are North American based, some of them are European based, and so on.

Last question very briefly on Ultram ER, in terms of reimbursement changes, I assume there hasn't been anything just yet, but is it possible that we could see some potential changes that maybe are more favorable on the reimbursement side in the next six to 12 months? How are you feeling about that?

That is a hard question for me to answer specifically. I think fundamentally, what is going to drive growth and market share is getting the right physician, targeting the right physician, because when they hit, when OMI representatives hit the right physicians, who have the types of patients that can benefit from Ultram ER, they write them. Add the issue is really finding where those physicians are, getting them the right message, getting them the right tools, to get the patients started on the right dose titration pack, and that sort of thing.

There has been so much focus on that. I think that is fundamentally the key. You have to get the prescription throughput, which helps change reimbursement issues. Reimbursement issues just don't change in and of themselves. You have to drive prescriptions. I think that is really the focus.

Thank you very much.

Thank you. Your next question is from John Maletic, Scotia Capital.

Just a question on the acquisition front. You had mentioned that you are looking at a number of opportunities. Has anything changed from the overall market from when you instituted your new dividend policy, that makes you more, say bullish on the level of opportunities out there, and are there any specific tangible opportunities you are looking at right now?

I don't know if anything has fundamentally changed in that timeframe within the basket of companies we are looking at. We are trying to target companies that are complementary to our technologies, that have revenues, that have late stage development products, and so on, and that are not ludicrously valued in the process. And fit with our strategic levers in the company, and the business plan and the business model. That is what we target.

I don't really want to comment on the immanence of anything, other than to say that we are in decision with a number of parties and these discussions can range from acquisition in total of a company, to acquisition licensing of technologies, to some of the types of deals we have announced in the past few months, with companies like Pharma Pass II, or Ethypharm, or the private company that we did the sexual dysfunction product for.

On the European front, do you have any updates with respect to Wellbutrin first of all, and then the potential for getting Ultram into Europe?

Yes. Those are both active programs for us. In terms of Wellbutrin, you know, the product was approved by a centralized process. Multiple countries have been approved. That is ongoing as an opportunity for us.

It is not a huge dollar opportunity but it is a very significant unit opportunity, and absorbs a lot of overhead in our plans and so on. We hope to somewhere in the very near term get Ultram ER into Europe as well. We are not at that point to announce anything yet.

Okay. Then finally, I know you probably can't comment on this specifically, but on the issues that have been raised about Wellbutrin generics in the U.S., are you getting any feedback from Glaxo, with respect to patient reaction to this that might give you a bit more confidence about the level of generic penetration going forward?

I really can't comment too much on that. You know, I know what you know in terms of having read what was reported on that as a general comment. This is something that were are continuously concern about, and other companies are concerned about, because the technologies that we have, particularly for extended release products are complex, difficult, and very important to be consistent over time, because you have got a lot of drugs there that have got to be released slowly. If it starts to get released fast, that is not going to be good. As a general comment on the issue, it is something that I think should be paid attention to, when there are reports of potential problems. Other than that, there is not much more I can say.

Okay, thanks.

Sure.

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

Good morning. Most of my questions have been answered. But I just had one quick question regarding the appeals of non-infringement regarding Anchen, specifically you mentioned the potential for an adverse decision in that appeal affecting the timing of the generic. What I just wanted to know regarding that, is the potential for further appeals, you know, they have heard your appeal on September 5. There was a hearing.

If that were to be an adverse decision, is that the trigger point, or do you have opportunities to pursue that appeal further? Just related to that any timelines when you might hear decisions from the courts, or is this really kind of open ended? I will leave it there, thanks.

Good morning. As far as the timeline is concerned, it is certainly open ended. This could occur in September next year for all we know. We are pretty bullish about the appeal. We felt that there was a very, very strong case for overturning that judgment. It is a complicated thing so it is not something that we expect to be ruled on very, very quickly. But indeed, if we lose the appeal, that is a point at which a generic company could enter the marketplace, and there is little further legal opportunity for us in that regard.

Okay. Great. Thank you.

Thank you.

Thank you. Your next question is from christine Charette, BMO Capital Market. Please go ahead.

Hi, thank you. The conversion rate on Ultram has been disappointing, I think it is lower than what anybody anticipated. We can argue as to what the reasons are for that, but I think it would be hard to deny that one of the major reasons is reimbursement in a market that has mainly genericized.

In light of that, how do you view the potential conversion from XL to salt, given that it looks like you will have maybe three or four months to convert before it goes to general, less than that, if you lose the appeal, or if a decision is made on the appeal, and how does, do you look at a different conversion rate if the market is fully genericized by the time you get there, does three or four months make a difference, can you just give us some idea of how you look at that, and how your partners look at that?

Good morning, Christine. That is certainly true. There is disappointment on that conversion rate. To a certain extent, I think everyone expects it to be higher. I still think the story is not fully written yet on that product.

As it relates to the salt, and I will make some general comments but I think they are both reflective of how we look at it, and how our potential partners look at it. The salt has some nondisclosed benefits that we think are significant, and add value to this product, in both a genericized market and a partly genericized market, that said and notwithstanding that observation, it is certainly preferable to launch this in a marketplace that is not fully genericized, particularly when the part that is not genericized represents the starting dose for the treatment of depressed patients.

So the longer that one has obviously the better. I would say the potential partners still look at the timeframes that you are aware of, and still feel that there is a very significant opportunity here. This would need obviously, a weighty partner to drive the messaging, and the growth of market share. I can't comment too much specifically on rates per se, but that is generally how we look at it.

Thank you. And just some further questions on SG&A. Your cost cutting measures really occurred at the beginning of the year, yet the quarter-over-quarter decline is quite dramatic. I suspect that legal expenses have been a big part of your SG&A. Was there a big drop in legal expenses in Q3, and going forward given that you are now looking at a patent case on Ultram, do you think that will change going forward?

Well, I think the cost containment measures were certainly contributive to by legal, but they were pretty well across the board. Because we are being very conservative and restrained on our discretionary spending. Our head count and FTE growth and management and so on across the company. I approve all head count additions, and so on, so yes, legal made a significant contribution to it, but it was pretty well across the board. Ken, do you want to make any additional comments?

I agree with what Doug said, it is stock based that also has had an impact, and share units also has an impact.

Last question is can you give us an update on the SEC investigation status, potential timelines to solving this, resolving it?

I can give you as much of an update as I always gave.

Tried. (laughter)

We continue to cooperate in every possible way with this investigation, and respond in the most timely manner possible for any requests for information, or whatever, but the timeframe is out of our hands. I personally have to believe that we are approaching the end of these investigations. We are looking at time periods that are getting quite distant now as we move into 2008, so I have to believe that we are approaching our conclusion. But I can't say for certain, because I don't control it, so it is just my hope and expectation which just seems to be reasonable.

Thank you.

Thank you.

Thank you. Your next question is from Hari Sambasivam of Merrill Lynch. Please go ahead.

Thank you. In the Canadian dollars and currency issues, just given the decline in the U.S. dollar, could you just maybe explain as to how you are thinking about capital expenditure, plant utilization, et cetera, what happens to say for example, Canadian-based manufacturing are you thinking about sort of keeping these plans? You do a lot of sort of manufacturing here. Could you maybe talk a little bit about that?

The second question is a broader question for Doug. Just from your technology platform, you have sort of nailed your colors to the oral-controlled release area. I am just wondering as you sort of mature the Company, is this adequate just to have this technology platform, or do you really need to sort of a look somewhere else at this point in time and broaden the net on delivery a little bit more than just simply oral-controlled release? Just curiosity as to where you are going with your technology in the longer term?

Good morning. Let me just answer the last question before the currency one. I think one of our great strengths is the breadth and depth of our oral drug delivery technology, however, I agree with you that, and we are evaluating multiple other technologies in the drug delivery space, because being very strong in one area nonetheless is limiting to those products that are taken orally.

There is a tremendous amount of activity as you know, and other delivery technologies that we think are very interesting. So that is a very significant part of our focus as we look at acquisition and licensing opportunities in the technology area.

In the currency area, maybe I will ask Ken to make a comment, and then I will make a comment on it.

I think when we look at plant utilization and tie that into currency movement, up until recently, the Canadian dollar has been fairly stable versus the U.S. dollar, we are looking at making an investment in manufacturing facility, or establishing a manufacturing facility, we make that decision thinking, you know, very, very long term, 10, 15, 20-year commitments to commit to a manufacturing facility, so over that broad period of time, we do look at currency and consider it, but generally speaking the Canadian dollar over a 15 or 20 year period has been relatively stable. So it would have much less impact in that from that perspective.

I was going to say basically the same thing, Hari, so I won't add to that. These are long-term capital investments when we make them, there are multiple reasons that go into them. Multiple reasons why we established our plant in Steinbach Manitoba, and although currency might be part of the picture, it is definitely a Tier two issue as we look at those types of investments.

Thank you.

Thank you, Hari.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back to Dr. Squires.

Thank you very much. Thank you all for attending this morning. We appreciated your time and the opportunity to answer your questions. I would just like to close by extending my personal thanks to all of the employees of Biovail, whose dedication and hard work has resulted in the many accomplishments for the Company in 2007. Thank you very much!

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!