Bausch Health Companies Inc (BHC) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Q4 2007 Biovail Corporation call. 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, March 20, 2008. Callers from Toronto and other 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 3253431 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 under applicable Canadian Provincial Security laws. For the purposes of this caution, we refer to such statements as forward-looking statements. 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, and other statements which contain language such as 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 March 13, 2008, that is available on the Company website as well as its 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-S item 3-D. The Company does not undertake to update any forward-looking statement. During this call, reference may be made to non-U.S. GAAP financial measures. Reconciliation of any such non-U.S. GAAP financial measures to their U.S. GAAP counterpart is contained in the earnings press release issued earlier this morning.

At this point, I would like to turn the all 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 fourth quarter and full year 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 Kelley, 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. 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.

Well, thank you, Nelson. Good morning, everyone. I'd like to begin this morning by expressing my gratitude and thanks to all Biovail employees for their many accomplishments in 2007. A period of considerable challenge for Biovail. There's no denying that 2007 was a difficult year for the Company and its shareholders. However, despite the loss of exclusivity of Wellbutrin XL., a product that represented over 40% of our revenues in 2006, Biovail generated total revenues of $843 million and EPS excluding specific items of $1.86. Ken Howling will review our financial performance in more detail in a few moments.

We had a number of setbacks in the past 12 months, none more obvious than those associated with BBF-033, our new salt formulation of bupropion. On our last conference call, I talked at length about the regulatory situation with BBF-033, how the FDA's nonapproval letter for the product contradicted the agency's own published guidance and quote of federal regulations, how we were surprised by our complete response being designated as Class II despite there being no new data in the response. I won't rehash the issue as the reality is the FDA action date for BBF-033 is April 23, which is only five weeks prior to the date when a generic formulation of the 150 milligram strength Wellbutrin XL can be launched. Given the lead time required to launch a product in the U.S., it is clear, that the delay in securing FDA approval for BBF-033 has impacted the commercial potential of the product and has eliminated the possibility of it being launched under a switched strategy or as a line extension of Wellbutrin XL. Nonetheless, we are engaged in partnership discussions that could allow us to generate the best commercial outcome for Biovail under the circumstances.

As a reminder, the approval of BBF-033 independent of its commercial success is important for the development of BBF-045, a combination product that incorporates our bupropion salt. Setbacks experienced in 2007 notwithstanding, I think it's important to note that there were many accomplishments in the year. In the face of the introduction for generic competition for our flagship product, a reality all pharmaceutical companies eventually face we met or exceeded our financial objectives for the year. This achievement was made possible by the comprehensive settlement agreement entered into February 2007 with a number of generic pharmaceutical companies which mitigated the impact of market exclusivity would have had on our financial and operational performance in 2007.

As a reminder, under the terms of the settlement agreement, the genericization of the 150 milligram strength of Wellbutrin XL could occur May 30, 2008, or potentially sooner if an adverse decision is rendered with respect to Biovail's appeal of the Amgen summary judgment ruling.

I'm also pleased by our progress on the litigation regulatory front. In addition to the Wellbutrin XL settlement in the past four months, we've settled patent infringement litigation related to Cardizem L.A and have reached a proposed settlement in the Securities class action litigation that began over four years ago. With respect to the SEC, we've made important strides in the past several weeks and hope to have that action resolved in the near term. To this end, we've recorded a $10 million provision related to the potential settlement of this matter. With respect to other ongoing actions including those involving the U.S. attorney's office and the District of Massachusetts, and the OSC we're working actively towards resolving these issues.

As you are no doubt aware, all of these Regulatory investigations involve events that predate at rival of current senior management team, events that occurred in the 2001 to 2003 time frame. I can tell you with all sincerity that it is my fervent desire to put these issues behind the Company as soon as possible, and I'm exerting a significant amount of effort in this regard. Resolving these issues should immediately lower our legal expenses, eliminate the uncertainty associated with these contingent liabilities, eliminate the distraction these items have on management and allow us to focus fully on what is most important to me and every other member of Biovail's Board and senior management team. Further building and growing this outstanding Company.

Staying on the theme of lowering expenses, our efforts with respect to cost containment in the past 16 months have resulted in significant overall reductions to nonessential expenditures. SG&A expenses in the fourth quarter of 2007 were down 51% year-over-year and down 32% in 2007 compared with 2006. We continue to evaluate opportunities to improve operational efficiencies across the organization. With respect to corporate governance, in December 2007, we strengthened the Company's Board of Directors with the appointment of Lloyd Segal, a Canadian pharmaceutical industry veteran and currently the Chief Executive Officer of Thalian Pharmaceuticals.

Today I have the distinct honor to serve as the interim Chairman of the most independent Board in Biovail's history. We are continuing to search for additional independent directors. As you all know, Mr. Eugene Melnyk resigned from his Director and Officer positions at Biovail on February 25, of this year and is no longer involved with the Company in any management capacity. We acknowledge his contributions to the creation and early growth of Biovail. It's also important to acknowledge and understand that as President of BLF until three weeks ago, Mr. Melnyk was ultimately responsible for the Company's drug development pipeline and made all final project selection, project funding, intellectual property, and technology, product, and company acquisition decisions. With the departure of Mr. Melnyk, the situation has now changed.

We are now at a significant inflection point in the Company's ability to redefine its strategic direction and focus and implement meaningful change across the organization. To this end, Biovail's senior management is undertaking a comprehensive review of the Company's core strategies including its product development pipeline, global infrastructure, acquisition targets, commercialization strategy, litigation strategy, and capital structure. We anticipate further strengthening of Biovail senior management team through the addition of executives with operational scientific business and/or financial expertise. In addition, a committee of independent members of the Board of Directors has been established to facilitate these and other considerations as working with management and external advisors. We will endeavor to make these assessments quickly and efficiently and anticipate implementing significant changes this year. It is our intention to optimize all facets of the business model and to ensure that the Company's core competencies are fully maximized and that our investments are targeted toward opportunities that provide an appropriate return.

As we all know, the environment that specialty pharmaceutical companies operate in is undergoing substantive change. Cost containment, reimbursement pressures, regulatory and intellectual property challenges and many other factors run counter to companies that focus on minor product changes such as convenience and compliance. There is no question that the potential for value creation that we saw with once daily bupropion is rapidly diminishing. Companies that develop products that address high unmet medical needs through significant enhancements in safety and efficacy will succeed and be rewarded. We have discussed this point with you in the past.

In light of these challenges and as a reflection of our ability to now act quickly and decisively, Biovail's immediately terminating BBF-146, the once daily combination of Tramadol and a nonsteroidal anti-inflammatory drug primarily as a result of a reassessment of the commercial opportunity of the product. We are in the process of assessing new potentially higher value projects to add to our pipeline. I'll now pass the call over to Gilbert Godin, our Chief Operating Officer who will address some of the issues I discussed and their implications with respect to our pipeline. Gilbert?

Thank you, Doug. Good morning, everyone. Given the strategic review we are undertaking, I would like to speak broadly about our current high-level thinking on the pipeline. As we've said in the past, our pipeline efforts are increasingly focused on developing novel pharmaceuticals that provide clinically meaningful benefits to patient, be it on the safety side through the reduction in the incidents or severity of side effects or through the enhancement of the efficacy profile. Our experience with Ultram ER which was launched two years ago has made it clear that convenience alone is not sufficient to gain favorable formulary coverage, even when the product's efficacy is well confirmed by comprehensive clinical trials. Furthermore, while our commercial partner, Ortho McNeil has managed to generate a high level of prescription for Ultram ER, a high proportion of these are converted to and dispensed with the immediate release generic formulation at the pharmacy level, which suggests that even physicians' acceptance of a drug is not sufficient to guarantee its full commercial success.

Given the influence of third party payors in today's North American pharmaceutical market, formulary access is key to a drug's success. Beyond providing clinically differentiated products, there are other ways to gain this preferential access. Our strategic review will focus on exploiting these avenues, targeting products that address unmet medical needs that have longer exclusivity periods and that are less sensitive to reimbursement issues. Once we've overcome the scientific and regulatory hurdles associated with all new product development efforts, pipeline products that successfully address these criteria will have a much more certain and more attractive commercial opportunity. The products we develop may address smaller markets but will not be binary in outcome by being single partner dependant. We will endeavor to supply products wherever possible.

In terms of therapeutic targets, we will focus on those where unmet medical needs are most abundant. In a few therapeutic areas such as central nervous system disorders for example to a limited extent, we moved in this direction during the course of 2007. A good example is our license and development agreement for BVF-324, which is an existing molecule in a new indication, an undisclosed sexual dysfunction. That development program has method of use patent protection beyond 2020 and leverages of formulation technologies. The development path for this new indication is simplified by the fact that the molecule is approved and available in the marketplace with a well-understood safety profile. Yet, there are a number of significant elements that we believe could differentiate BVF-324 thereby creating a distinct branded asset that addresses an unmet medical need.

We are actively pursuing the European opportunity for this product and steps are being taken to prepare clinical and regulatory development plans in those markets. Beyond BVF-324, it's important to note that our current pipeline of product does contain products that we believe meet all of the criteria I mentioned a moment ago. We are not starting from scratch. We do not anticipate radical action in terms of project terminations. There are programs of potentially significant value within the current pipeline and development efforts will continue for those. There are others that don't meet all of our current criteria. But with development is essentially complete. These, too, will likely be continued. However, we will likely be terminating a number of other programs that don't fit within our current framework. As we have done and announced this morning with BVF-146. Of course, we will also be adding several new programs to the pipeline. I look forward to providing you more information on our pipeline evolution upon the completion of the strategic review we're undertaking.

For now, in addition to Doug's earlier comments on BVF-033 and BVF-146, I would like to provide a quick update on a couple of other active developments beginning with BVF-0112 an alcohol-resistant enhanced absorbent formulation of Effexor XR. The program is progressing through the last stage of its PK development and assuming the PK program is successful and contingent upon reaching agreement on filing requirements with the FDA we anticipate filing an MDA for the product in the third quarter of this year. We have made good progress on our formulation work for BVF-045 and we are actively engaged in partnership decisions, an essential component of any further development. BVF-045. is a combination product consisting of Bupropion and an undisclosed SSRI that requires a comprehensive clinical program that will only be undertaken in conjunction with a commercial partner.

Before I hand the call back to Nelson, let me now very briefly discuss our portfolio of difficult to formulate generic pharmaceuticals. This is a segment that offers a number of opportunities for Biovail to leverage its drug delivery technologies and one we will selectively be expanding. In late 2007, we submitted an ANDA for a generic formulation of a well-known CNS product. This is the first of four submissions that we anticipate making over the next 12 to 18 months pending successfully demonstrating bioequivalence. This first ANDA submission while modest in commercial potential was acquired opportunistically last year in a broader agreement with [EthiPharm]. At the end of the FDAs acceptance period, we were notified of two deficiencies in the CMC sections that we have since addressed and the application has now been refiled. We currently anticipate filing two other ANDAs this year and one in 2009 assuming there's successful development. This concludes my remarks. Nelson?

Thanks, Gilbert. I would now like to ask Ken Howling, Biovail Senior Vice President ad Chief Financial Officer to provide additional information on the Company's financial performance for the fourth quarter for the full year 2007. Ken?

Thank you, Nelson. Good morning, everyone. On a consolidated basis, total revenues for the three months ended December 31, 2007, for $203.9 million compared with $307.6 million for the fourth quarter of 2006 reflecting a decline of 34%. Total revenues for 12 months ended December 31, 2007, were $842.8 million down 21% from the $1.07 billion for the corresponding period in 2006. The decreases in revenue for the fourth quarter 2007 and for the 12 months ended December 31, 2007, can largely be attributed to the lower sales of Wellbutrin XL as a result of the introduction of the generic contribution for the 300 milligram dosage strength of this product in December 2006.

In the fourth quarter of 2007, Biovail recorded a net loss of $32 million compared with a net income of $118 million for the corresponding 2006 period. For the 12 months ended December 31, 2007, net income was $195.5 million compared with $211.6 million in 2006. Biovail recorded diluted loss per share of $0.20 in the fourth quarter 2007 compared with a net income per share of $0.74 for the same period 2006. EPS for the full year of 2007 was $1.22 versus $1.32 in 2006.

With respect to specific items affecting results in the fourth quarter of 2007, GAAP net income and EPS figures were impacted by total charges that negatively impacted net income by $104.4 million and diluted EPS by $0.65. Accordingly, net income excluding these items and EPS excluding these specific items in the fourth quarter of 2007 were $72.5 million and $0.45 respectively. For the full-year 2007 net income and EPS figures were impacted by total charges that negatively impacted net income and EPS in 2007 by $103.5 million and $0.64 respectively. Accordingly, net income excluding specific items and EPS excluding specific items in the full year of 2007 were $299.1 million and $1.86 respectively. Product revenues for the three months ended December 31, 2007, were $194 million compared with $296 million in the fourth quarter of 2006. Product revenues for the 12 months ended December 31, 2007, were $801 million, compared with $1.02 billion for the 12 months ended December 30 -- excuse me, December 31, 2006. Again, these significant declines can in large part be attributed to lower product sales for the dosage strength of Wellbutrin XL.

Wellbutrin XL revenues were $44.4 million in the fourth quarter of 2007 compared with $148.1 million for the same period period a year ago. For the 12 months ended December 31, 2007, Wellbutrin XL generated revenues of $212.3 million compared with $450.3 million for the same period in 2006.

With respect to Ultram ER which was launched in February 2006 by a marketing partner, Ortho-McNeil, Biovail recorded revenues of $23.4 million in the fourth quarter of 2007 compared with $19.2 million in the corresponding period in 2006. In the full year of 2007, Ultram ER generated revenues of $86.7 million compared with $53.7 million in the corresponding period in 2006. Year-over-year performance reflects higher prescription volumes, an increase in Biovail supply price of 27.5% of net sales to 37.5% of IMIs net selling price and the price increase in January of 2007 partially offset by a decrease in inventories held by OMI.

Turning now to the Zovirax franchise, revenues were $43.6 million in the fourth quarter of 2007, and $147.1 million in the full year of 2007. These revenues represent increases of 40% and 31% respectively compared with $31.1 million and $112.4 million in the prior year periods. These increases reflect the timing of wholesaler inventory purchases and the implementation of price increases in 2007. Total prescription volume for the Zovirax franchise decreased 4% in the fourth quarter of 2007 compared with the fourth quarter of 2006. In the fourth quarter of 2007, Zovirax ointment and Zovirax cream held a combined 73.1% share of the topical herpes market.

Revenues in the fourth quarter of 2007 for BPC were $19.3 million compared with $15.7 million in the prior year period. An increase of 23% that reflects year-over-year increases in total prescription volume of 108% and 33% of Wellbutrin XL and Tiazac XE respectively. Revenues for the full year of 2007 were $61.9 million compared with $68.7 million in the corresponding prior year period. The year-over-year decrease reflects the continuing impact of generic competition for Wellbutrin SR and Tiazac.

Cardizem LA generated revenues of $8.2 million in the fourth quarter of 2007 compared with $12.4 million for the corresponding 2006 period which reflects lower prescription volumes. For the full year of 2007, Cardizem LA generated revenues of $69.3 million compared with $56.5 million in 2006, a 23% increase that reflects the fulfillment of back orders of 120 milligram and 180 milligram strength tablets in the first quarter 2007 and price increases. Biovail's portfolio of off-patent branded pharmaceutical products or legacy products generated revenues of $35.7 million for the fourth quarter of 2007 compared with $28.9 million in the fourth quarter of 2006. An increase of 23% that represents the impact of price increases and the timing of wholesaler purchases.

In the full year of 2007, legacy products generated revenue of $136.9 million compared with $139.9 million in the full year of 2006. A decrease of 2%. This performance is largely attributable to lower sales of both branded and generic Tiazac due to increased generic competition and partially offset by price increases implemented in 2007.

With respect to Biovail's portfolio of generic pharmaceuticals, revenues for the fourth quarter of 2007 were $19.4 million compared with $41 million in the fourth quarter of 2006. In the full year of 2007 revenues were $86.8 million compared with $141 million in the corresponding 2006 period. The decreases in 2007 reflect a loss of market share, lower pricing, and price adjustment by Teva to its customers. Gross margins based on product sales were 68% in the fourth quarter and 72% in full year of 2007 compared with 83% and 79% 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 for the supply and distribution agreement with GSK until December 2007. The inclusion of Biovail's one-third share of the costs associated with GSKs license agreement with Watson Pharmaceuticals Inc. related to the 150 milligram dosage strength of Wellbutrin XL and lower gross margins associated with the Company's generic portfolio. These items were partially offset by price increases implemented across a number of product lines and the increase in Biovail's supply price with Ultram ER from 27.5% of net sales in 2006 to 37.5% in 2007.

Research and development expenditures were $29.3 million for the fourth quarter of 2007, 3% higher than the $28.4 million for the corresponding period in 2006. R&D expenditures were up 24% to $118.1 million for the full year of 2007 compared with $95.5 million for the same period a year earlier. The increases in spending levels reflect increased spending for BVF-146, the Tramadol/NSAID combo we recently terminated. BVF-033, our new bupropion salt, BVF-012, our enhanced absorption alcohol resistant formulation of venlafaxine, and a number of feasibility programs where expenditures were up 50% in 2007 compared with 2006.

SG&A expenses for the fourth quarter 2007 were $31.4 million compared with $65.1 million in the fourth quarter 2006, a decrease of 52%. SG&A expenses for the full year of 2007 were $161 million compared with $238.4 million in the full year of 2006, a decrease of 32%. The year-over-year declines reflect 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.

In 2007, we recorded a charge of $95.1 million related to legal settlements, of which, $83.1 million net of expected insurance recoveries pertained to the settlement of the U.S. securities class action complaint and $10 million to a potential settlement of the SEC investigation. With respect to the balance sheet at December 31, 2007, Biovail had cash balances of $433.6 million, marketable securities of $28.3 million, no long-term obligations and no outstanding borrowings under our credit facility. Biovail currently has $26.8 million of principal invested in auction rate securities, all of which were rated AAA at the time of purchase and which continue to pay cash interest. However, given declines in underlying collateral values, Biovail has been unable to liquidate its position and as such, the Company has recorded this portfolio at its estimated fair value of $18 million as of December 31, 2007. We have recorded an impairment charge of $6 million in the fourth quarter of 2007 and a $2.8 million unrealized loss in other comprehensive income. Biovail's discontinued additional investments in auction rate securities.

Cash flows from continuing operations were $79.3 million in the fourth quarter of 2007 and $340.9 million in full year of 2007. Compared with $235.6 million and $522.5 million in the corresponding periods of 2006. The declines largely reflect lower gross profit in the 2007 periods. Net capital expenditures were $11.4 million in the fourth quarter of 2007 and $35.1 million for the full year of 2007. These expenditures can be partly attributed to the recently completed expansion of the Company's corporate headquarters in Missisauga, Ontario, and upgrades to the Company's manufacturing facility in Dorado, Puerto Rico. Also today, Biovail announced that it will pay a dividend of $0.375 per share on April 3, 2008, for shareholders of record on March 27, 2008.

For more comprehensive information pertaining to Biovail's performance for the fourth quarter and full year 2007, please refer to the news release distributed earlier this morning or to our annual report on Form 20-F, which will be filed with a regulatory agencies next week. That concludes my review of Biovail's financial performance. I will now hand call back to Doug Squires to make his closing remarks. Doug?

Thank you, Ken. In closing, let me reiterate that in the face of significant challenges, Biovail remains a strong Company. While 2007 was a difficult year for our shareholders, Biovail's management team is not complacent in the face of the challenges facing us in 2008. The comprehensive strategic review we announced this morning is focusing on all key components of the Company and we expect it to result in significant change this year. Biovail's Board of Directors and entire management team are absolutely committed to enhancing shareholder value and to maximizing the potential of the Company. This concludes my formal remarks. I'd like to now turn the call over to the conference operator for questions. Operator, please?

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

A couple questions. Maybe for Ken Howling first. With respect to the changes are going to be made with respect to the R&D programs and the cuts we've seen on the SG&A side, the numbers we saw in the fourth quarter, would they be reasonable on a go forward basis or could these even be lower as we look out to the remainder of 2008. Then just secondly for Ken, would you care to comment at all on the dividend plan for 2008?

I'll take the first two. Maybe Doug will address the dividend question. With respect to R&D first off, Doug, and good morning, by the way. Our view is that pharmaceutical companies need to replenish their portfolio of products and need to do that by investing significantly in R&D programs. I would expect that as we go through the review of the pipeline in the portfolio that to the extent we kill programs, we will certainly replace them with other attractive candidates. I wouldn't want to suggest we have any intention of taking the throttle off the R&D spending if you will.

With respect to SG&A, I think it's important to note both in the fourth quarter of 2007 as well as the full year of 2007 we've had significant recoveries from insurance providers that have offset legal expense and therefore the SG&A levels that you're seeing both for the quarter and for the year have been favorably impacted by those amounts. Given the settlement of the U.S. securities class action lawsuit we have fully utilized. There was insurance policies, if you will, the ability to reimburse some of those costs. We will not have that benefit going forward. To put that in order of magnitude, it is public information that our total amount of insurance coverage for the periods under question was a $75 million. You also know that the U.S. Securities class action settlement was $138 million and that we utilized about $55 million to fund that settlement. Therefore, you get a sense that roughly $20 million or so was favorably impacting our SG&A in 2007 so we will not have that benefit as we go forward.

One of the reasons maybe jumping ahead to another question, one of the reasons why we decided at this point in time not to provide financial guidance for 2008 is given the fact that if we are successful in resolving some of these settlement matters, legal expenses should be favorably impacted, reflecting we won't have any insurance recovery in 2008. But if not, litigation expense, legal expenses could be considerably higher. So there's some moving parts there. Sorry can't help you more than that.

Okay.

Good morning, Doug. It's Doug here. Just a quick comment on the dividend. As you know, the Board makes a decision with respect to the payment of the dividend and we just announced payment today. I can tell you that the Board has no issues with the sustainability of the dividend. They feel strongly that it is sustainable. Obviously, as one goes into a comprehensive strategic review, all performance of the Company are under evaluation. I can't make much more comment than that.

Finally, for Gilbert, generics, would you expect the two to be filed this year to be first too file? Secondly, how far would you be willing to go to get access to more unique and innovative products? Would you be willing to take on quasi biotech products and take those expenses on your P&L or are you not contemplating that type of move? And I'll leave it there. Thanks.

Good morning, Doug. Your first question, we certainly hope to have at least one of those to be a first to file product. With respect to your second question, we're certainly looking at every way to broaden the scope of our portfolio in the sense that we described earlier, biologics however is a considerable leap, I think that Biovail has some technologies that still are definite component in making a contribution to the opportunities that we could uncover externally. So there's nothing definite about what I'm saying here. But I think that it's probably safe to say that a foray into biologics is unlikely. We're looking and focusing more open well identified therapeutic areas that can be yielding a rich pipeline that calls to our existing strength.

Thank you.

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

Just a couple of questions. First, on the strategic review, Ken or Doug, can you give us a sense of timing? I assume there's a time line or process involved here. Related to that, would it potentially involve a sale of the Company in any form?

Yes. Good morning, Randall. The time line I don't want to be precise in times of day or months but I can just maybe comment on it's immediate and we regard it as urgent for us to address. I would just remind you that in 2005, we did something similar, particularly as it related to our commercialization process in the United States in primary care, and by way of some form of previous benchmark, that was done in a very rapid manner from beginning to end, was a three to five-month process as I recall it. So there is -- our intent is not to have a long, protracted process. Now, the comment on the sale of the Company there is no process undergoing to attempt to sell the Company. But of course, in any type of process, you don't take anything off the table before you start. But that certainly isn't the focus of the endeavor.

So it's fair to say given that you're adding some management members to the team that the strategy just could shift but you're clearly focusing on current existing broader markets?

Yes.

And then Ken, just a follow-up. Just conceptually, why not provide some guidance for targets around top line given the moving parts inside the P&L?

Well, again, given the fact that there's a comprehensive review of everything as Doug said, everything's on the table. That can involve things from infrastructure to new markets to further investing in R&D. Again, until there's greater visibility and clarity, on what legal expenses may or may not be in 2008 we've just decided not to try and pick one metric or two and try and put out guidance at this time.

Just finally, in the pipeline rationale, it sounds like there could be some decisions, additional decisions made on programs, whether to go ahead or not to go ahead. Is there a process in terms of timing? I guess A, how do we think about that timing? And B, the process to update the market on decisions with respect to the pipeline?

Yes, there is a process under way to make those evaluations. There are many decisions to be made here because we have a very active pipeline. Some of the products within that pipeline very adequately fit the type of new model we're thinking of. Some of which that may not but are already developed and may have commercial value in and of themselves. At this point maybe not to the degree one would have thought before. So it's a very active ongoing process. I think the market will be hearing about these changes this year.

Is this a cancel, a go forward or no go forward or is it a potentially outlicensing partnering?

It's all about in some cases as we first announced it might be a cancellation, in other cases might be a partnering licensing. Others will be the addition of something new that we think more addresses the future market situation in which that product's going to find itself.

Thanks a lot.

Sure.

Thank you. The following question is from Joe Walewicz of CIBC World Markets. Please go ahead.

Just a couple questions. First on the gross margin side. Some deterioration there in the quarter. Just wondering if you could at least comment on sort of your outlook for that line item especially considering the 150 genericization this year, is this the new run rate, should we expect further deterioration. How should we think about that? And if you can on that regard. Second, you made some comments about price increases in the press release. Just wondered if you can comment since the start of the year, any other notable price increases for Ultram and other product lines? And I'll leave it there, thanks.

Sure. Good morning, Joe. With respect to gross margins as we reported today, 68% for the fourth quarter. I think 72 for the full year of 2007. There were a couple of things, particularly in the fourth quarter, that I guess I would characterize as one time in nature that unfavorably impacted the gross margins. Not that substantive. We did write off a piece of the equipment related to manufacturing. That did flow through the cost of goods line. More broadly, I guess in response not putting out guidance is a bit awkward. I think it's fair to say hat, and the market understands that our gross margins on Wellbutrin XL and in particular on the branded 150 milligram are favorable, certainly above our overall corporate gross margins and certainly upon the genericization of that item that will put pressure on the gross margins.

Just finally, you commented on the Zovirax inventory increases in the quarter are fairly substantial. Are there any other notable inventory movements we should be aware of or is that the only one you wanted to highlight for us today? Thanks.

Sure. Overall, I don't think there's a huge shift in wholesaler inventory levels. We do have distribution services agreements in place with our primary distributors. That more or less targets or the limits their ability to hold inventory in excess, or at where it's at at 1.5 months. I think overall, we saw movement again in anticipation of price increases of about 0.4 of a month at the end of 2007, and that was more or less across all lines. Ultram ER with Ortho-McNeil over the course of 2007 did work down their inventories. So I think if you look at the prescription growth for that product versus our revenue growth you'll see prescriptions grew at a greater rate than our revenues did as a result of their reduction of inventories. That's probably the most significant ones.

Okay. Great. Thanks.

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

Thanks. Most of my questions have been asked, but are you continuing partnership discussions while you're undergoing this review or are those being put on hold?

Good morning, Christine. Yes, we are continuing partnership discussions.

Can you tell me how your efforts or new absorption fits into your strategy of having products that have an added therapeutic benefit or an improvement in the profile rather than just convenience?

Yes. I didn't catch the first phrase you used?

Stick with the strategy, therapeutic.

Yes. Did you say enhanced absorption? I just didn't catch it.

Your new Effexor.

Sorry, I didn't hear the Effexor part, sure. If we were starting out today, would Effexor fit within this new paradigm we're talking about? Quite possibly not. However, the Effexor project is virtually complete and it has commercial value. It may not have commercial value for starting out, again, looking three or four years out but looking, 18 months out, we think it does have value. And will bring us some return. That's a project that's sort of complete. There's no reason to eliminate a complete project because it doesn't fit with a paradigm that you see evolving in the next couple of years. Whether we would focus on that type of product again, possibly not.

My last question is follow-up from Doug. Would you be willing to consider new NCEs or would you not go that far?

You sort of have to give a qualified answer to that. It depends on which stage the NCE development is at. I would think it would be very remote that we would consider and assume all of the preclinical risk of some chemical coming out of high throughput screening somewhere that has lit up some unusual receptors and we take it from that very early stage all the way through. Of course there's a place for NCEs in some of the strategies, if they're further on in the market, further on in their development, and some of that preclinical risk is behind them I wouldn't want to preclude that as a probability.

Thank you.

Thank you.

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

Two quick questions. Doug, you have got a fairly healthy balance sheet with a fairly significant amount of basically redundant cash. Could you give us a sense as to how much of this you intend to keep, and what you -- how you intend to deploy the remainder, whether it be a special dividend or a share buyback or whatever? Or whatever uses you may have for it? Second question I have for it is in terms of your technology, as you're evaluating your options, from a technology point of view, do you stick to oral control relief? What else does the Company have a strategic expectation where you can exploit that or does that include now bringing in new stuff? I'm just wondering about the amount of execution, risk involved in taking on a new technology, and how you can add value to a brand new technology that you might bring in. The third question that I have is related to litigation. There's a considerable amount of what I would characterize as noncore regulation, which is not related to drug development which is related at external parties, whether it be hedge funds or analysts or whatever. How do you characterize this or justify that with this particular strategic review at this point in time? Is this a considerable amount? Is it a small amount? What should we expect from those expenditures going forward?

Okay. That's a lot of questions there Hari. I'll just start maybe from the last one and work my way back just in the broad sense of litigation regulatory strategy. I would say, and as you note we stated that sort of legal litigation strategy is one of the components that's under strategic review here. I'm not going to comment on any specific ongoing litigation but as a general, I think posture of the Company, we would expect our legal expenses to be much more classical and focused on the normal pharmaceutical type litigation, IP defense and that sort of thing on a go-forward basis. Some karma down the technology base and we have a very broad and deep oral drug delivery technology base but we've said I think a number of times in the past and I think it's still true today that there are some opportunities that we find interesting in the technology, drug delivery technology space that may meet some of the requirements for high value niche markets that might be very interesting for Biovail. That's also part of the review. The utilization -- the balance sheet and so on is also a substantive part of this review, there's obviously half a dozen ways anyone can think of utilizing cash and the capital structure and so on under discussion. Broadly, we have talked about utilizing some of that cash in some of the M&A opportunities, sort of to link back to the technology opportunity. If we see the right opportunity there that expands our technologies, brings products relatively near term into high value niche therapeutic markets then we would certainly be attracted to that.

Thank you.

Thank you, Hari.

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

Just a couple quick questions with regard to the strategic review of the existing pipeline. Doug, do you think you have substantial opportunities within your internally developed program right now that you can accelerate the development of or do you think at this point in time you are going to need to do some M&A as a strategic imperative to bring in some additional products to generate some type line growth in sort of the two deep, three year time frame? Just trying to get a sense in terms of what stage of development some of those programs might be at? Secondly a question in your comments you made reference to I think it was a $10 million reserve related to an SEC investigation. Can you just give me some idea as to how you came one that number and how close we are to the conclusion of those investigations?

I'll take maybe the last question. First, I'm not going to get into great detail of how we came up with the $10 million number except to say that we think that's a reasonable expectation at this point. I think we're looking at a near-term resolution of that investigation. That's why it's there. That's good news, David.

I think it would be good for everyone if we can put those issues behind us.

Indeed. As we've talked about it and I can talk, I get tired of talking about it because I really want to have it as part of the history of this Company not part of the present. So we're working diligently on that. As it relates to pipeline M&A, current pipeline and so on we think there are some high value products within that pipeline. Clearly those products are not going to be generating substantial revenues in the near term. We've said this before as well that we are looking diligently at, with respect to M&A opportunities but not just to go out and buy revenues per se but to find, relevant meaningful adjacent technologies that would fit within that new paradigm that we have and hopefully that has something maybe a nearer term development that would help contribute to the top line earlier than some of our mid-term pipeline products will.

Fair enough. Thank you.

Thank you, David.

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

Thank you. My questions have been answered.

Thank you. The following question is from Prakash Gowd of NBF.

I was hoping to get a little bit more commentary on Biovail Pharmaceuticals Canada, specifically on how the recent launches are performing? And then how does BPC fit into your strategic review? I wonder if you can give us some ideas on your plans for the future of this division given that there appears to be still excess capacity in the sales force and maybe some commentary on how the landscape in Canada looks like for the in licensing and co-promotional products? Could we potentially see something transpire in 2008 or are there other plans for BPC that you're thinking of? Thanks very much.

BPC is a core component of Biovail and we regard it as one our very strong competitive strengths in the panoply of what Biovail is. This year is going to be -- is a very important year for BPC because of the launch of a number of new products in the early phases of launch. We are very optimistic about the launch of those products and early indications are that they are doing well so this is a real opportunity for a turn around of BPC which we've been suffering from the issues of generic predation for the past 12 to 24 months. So we're pretty bullish on that. We've talked before about the focus on bringing products into BPC and that's a very active, ongoing program with dedicated people attempting to bring in products, and I believe we will. I think we can make a compelling case that if you're considering Canada as an entree you should really consider BPC because of the competitive strengths. We're very bullish on building this capability in Canada and expanding it.

With respect to the in licensing and co-promotion opportunities, I'm sure you've had some ongoing discussions in the past. Can you comment on what the competition's like for those products? And is the reason we haven't seen anything recently simply because the pricing is inappropriate or is it because there's some more issues within Biovail that's preventing you from doing that?

I don't think there's any issues within Biovail. Some companies, it's interesting, we go down and make a capabilities presentation to a, let's say, amid-cap pharma or something. One of the risks we run when we do that is we make it so compelling that they think they should come into Canada themselves and some of them actually move away from outlicensing a product to us in Canada and move towards coming in themselves. So I think you will see products come into Canada through this process, yet it's impossible to predict the time. They are not like cans on an assembly line, there are bunches of bumps, and I think that you will see that in the hopefully this year and continuing.

All right. Thanks very much.

Thank you.

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

Well, thank you very much for attending this morning. We appreciate your attention. I'd also like to extend my thanks to all of our Biovail colleagues for all their hard, dedicated work in 2007. We all look forward to working with you to address the challenges and the opportunities in 2008. Thank you very much, operator.

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.