Bausch Health Companies Inc (BHC) 2008 Q1 法說會逐字稿

Welcome to the first quarter 2008 earnings conference call for Biovail Corporation. At this time, all participants are in a listen-only mode. This conference call is being webcast on the world wide web at www.Biovail.com. (OPERATOR INSTRUCTIONS). As a reminder, a replay of this conference call will be available of this conference call until 7 p.m. eastern daylight time on Thursday May 15th, 2008. Callers from Toronto and countries other than the United States should dial 416-695-5800. Callers from the rest of the Canada and the United States should dial 1-800-408-3053. The access code for the replay is 3259219 followed by pound sign.

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 upon such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.

Forward-looking statements include, but are not limited to, our goals, targets, strategies, intentions, plans, beliefs, estimates, expectations, outlook, guidance and other statements, which contain language such as "guidance," "believe," "anticipate," "expect," "intend," "plan," "will," "may," and other similar expressions. For additional information about the material factors or assumptions underlying such statements and about the material factors that may cause actual results to vary from those expressed or implied in such statements, please consult the company's earnings press release and the company's press release regarding the new strategic focus, both of which are dated May 8th, 2008, and which are available on the company Web site, as well as its filings with the U.S. Securities and Exchange Commission and the Canadian securities administrators, including the risk factors detailed in its most recent annual report on form 20F, item 3-D. The company does not undertake to update any forward-looking statements.

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

Thank you, operator, and good morning, everyone. On behalf of Biovail, thank you for joining us. On this morning's call, Biovail management will describe the company's new strategic focus as well as discuss the financial and operating highlights for the first quarter of 2008. Joining me on today's conference call are Bill Wells, Chief Executive Officer in Biovail Corporation, Gilbert Godin, Executive Vice President and Chief Operating Officer, and Adrian de Saldanha, Interim Financial Officer. They will all be available to participate during the question-and-answer session with research analysts immediately following our remarks. We will try to get to as many questions as possible while limiting the call to one hour. Other participants are encouraged to follow up with the company after this morning's call by dialing 905-286-3000, and asking for Investor Relations. Before I turn the call over to Bill Wells, I would like to advise everyone on the call that we will not be addressing questions related to the solicitation of proxies or to potential proxy battle in connection with our annual meeting of shareholders which will be held June 25th, 2008 at 10 a.m. eastern daylight time at the suites of Keene West in Toronto, Canada. Bill, please go ahead.

Thanks, Nelson. Good morning, everyone. Over the past few months, Biovail's board and management have worked to identify strategies to enhance shareholder value and drive sustainable growth. The board established an independent committee to oversee this process. The committee retained outside advisors to assist in the process and directed management to identify strategies that would allow the company to leverage its existing capabilities, focus them in high-value areas, drive efficiencies throughout the organization, and increase available capital. Biovail's strong financial position and the capital we expect to unlock through our initiatives can fund the implementation of the new strategic focus, fund investments in R&D and support the allocation of capital to shareholders through dividends and stock buy-backs.

Biovail's historic business model focused on reformulating existing drugs, is under stress in the current pharmaceutical environment. Third-party payors are gaining in prominence. Cost containment and reimbursement pressures are growing. Clinical hurdles for reformulated drugs are increasing, and intellectual property regulations have been tightened. Focusing on the development of products that primarily provide convenience and compliance benefits is not a winning long-term strategy.

To be successful, our focus had to change. While we will continue to leverage Biovail's core capabilities in drug delivery and formulation, we will now focus our efforts in the therapeutic areas of central nervous system disorders, a $70 billion global market where unmet medical needs are high. More specifically, we'll be targeting high growth niche markets within the CNS disorders, such as ALS, MS, Alzheimer's and epilepsy. These niche markets are characterized by an attractive commercial regulatory and reimbursement environment. In addition, we believe targeting the smaller focused indications will generally translate to lower development costs as the clinical trial programs required to support approval typically do not require large numbers of patients. Further, the specialty CNS focus scored best across several other selection criteria, including competitive intensity, number of compounds in development, and a concentration of small molecule drugs. A good strategic fit with our existing capabilities was also an important consideration.

However, we will need to build and strengthen additional capabilities. For example, we will be recruiting a new Chief Scientific Officer to guide our development efforts. We will also establish a new Scientific Advisory Board with deep experience and expertise within these specialty markets. We will need to build deep expertise within the therapeutic franchise of specialty CNS. The independent committee on the board and I believe that we will achieve our objectives. We will aggressively invest in high-value focused R&D programs, invest in product opportunities more likely to receive favorable reimbursement coverage, with longer exclusivity periods, drive efficiencies through the organization, create a sustainable platform for growth, and unlock capital. More specifically, as part of our new strategic focus, we intend to invest over $600 million on R&D through 2012. We will target both in-house reformulation efforts as well as opportunities to in-license or acquire development-stage products. Our in-licensing strategy extends beyond reformulations, and will include late-stage new chemical entities, or NCEs.

Transitioning our business to include NCEs is a natural evolution for a specialty pharmaceutical company. Many other companies in the industry have been successful in this regard. Our focus on specialty CNS opportunities will allow us to eventually build a small, specialized sales force to detail our pipeline programs to the relatively small number of specialist physicians that represent the bulk of prescription volume in these niche markets. An in-house sales capability will provide Biovail with the strategic flexibility to commercialize its own products in niche markets that are directly aligned with the company's developmental activities, something that was missing historically. As a result of our review, we have announced our intention to close our Puerto Rico manufacturing facilities. This decision was a difficult one, as it impacts approximately 250 employees, but it was the right business decision under the circumstances. These closures are intended to reduce the company's cost infrastructure and increase available capital.

In other functional areas, Biovail intends to enhance efficiencies in its research and development group while continuing to invest heavily in the company's product development pipeline, focusing on high-growth specialty CNS markets. Please note that our targeted R&D spend through 2012 of over $600 million is net of potential infrastructure and cost savings in our R&D group. Accordingly, while the average annual R&D spending is not changing significantly compared with prior levels, we expect the amount spent on actual product development will increase significantly. So while we are cutting costs across the organization, it is important to note that we intend to increase our investment in research and development projects, which will remain the lifeblood of the company.

Another area where we expect to reduce costs is in our legal expenses. As you know, Biovail's current management team has been working diligently to resolve various legal, regulatory and criminal matters arising from allegations of conduct in the period from 2001 to May 2004. We have made significant progress in this regard in the past six months and have settled a number of these extraneous actions. By that, I mean we settled a number of regulatory and litigation matters that are not related to patent infringement or otherwise considered normal-course legal matters related to the pharmaceutical industry. In December 2007, we entered into a settlement agreement related to our U.S. securities class-action litigation. In March of 2008, we settled an investigation by the SEC that originally began almost five years ago. And in April, we settled the Canadians securities class action litigation, whose claims mirrored those of the U.S. action. Final resolution of these matters should reduce associated expense, reduce the distraction on management, and increase available capital. By way of reference, to date, Biovail has incurred cumulative legal expenses and penalties of over $230 million or approximately $150 million net of insurance recoveries relating to these legacy matters.

Biovail intends to unlock over $100 million through the divestiture or monetization of certain noncore assets, including its investments in a number of drug development companies and by entering into sale and lease-back transactions in respect of its real estate assets. Also today, we announced that Biovail's board of directors reconfirmed the company's dividend policy, which contemplates the payment of $1.50 per common share in annual dividends, paid quarterly in increments of $0.375 per share. In line with this policy, Biovail's board of directors has approved the payment of a dividend of $0.375 per share, payable on May 30th, 2008, for shareholders of record on May 22nd, 2008. The ex dividend date is May 20th, 2008.

The initiatives I described will further support our financial strength and provide Biovail with the flexibility to invest in the company's growth while returning capital to shareholders. We also announced this morning that Biovail's board of directors has authorized a share repurchase program of up to 14 million common shares. Subject to regulatory approval, we intend to begin purchasing shares on the open market by means of a normal-course issuer bid through the Toronto stock exchange and the New York Stock Exchange. The bid would allow for purchases to be made during a one-year period or until such time as Biovail completes its program. We believe that a buy-back is in the best interest of the company and its shareholders and is a desirable use of funds.

Before turning the call over to Gilbert, I'm pleased to announce that five new independent candidates have agreed to be included in the company's proposed slate of directors for consideration at its annual meeting of shareholders. The five nominees are J. Spencer Lanthier , retired partner and former Chairman and Chief Executive Officer of KPMG Canada, Robert M. Power, former Executive Vice president of global business operations of Wyeth. Mark Parrish, former chief executive officer oF Health Care Supply Chain and Services, a subsidiary of Cardinal Health, Serge Gouin, chairman of Quebecor Media Inc., and David. H Laidley, retired Partner and former Chairman of Deloitte & Touche, LLP Canada. I'd now like to call on Gilbert Godin, Biovail's Executive Vice President and Chief Operating Officer, who will provide you with more insight into the first quarter of 2008.

Thank you, Bill. Good morning, everyone. I would like to begin my remarks this morning by quickly reviewing a few of the financial highlights in the quarter. Total revenues for the three months ended March 31st, 2008, were $208.5 million, compared with $247 million for the first quarter of 2007. This performance reflects lower revenues across most product lines, partially as a result of changes in inventory level in our commercial portfolio. In the first quarter of 2007, revenues were favorably impacted by an increase in wholesale inventory levels while the opposite was true in the first quarter of 2008. We believe these differences should attenuate as we progress through the year.

Biovail's top-line performance in the first quarter of 2008 also reflects a 15% year over year decrease in total prescription volume for our overall portfolio. This decline, due to a large extent to Wellbutrin XL and our legacy products, was partially offset by price increases that have been implemented across a number of product lines over the past year. In comparison to the fourth quarter of 2007, prescription volume was down 3%, which reflects the stabilization of market share for our generic pharmaceuticals. The first quarter 2008 net income in accordance with United States Generally Accepted Accounting Principles or GAAP was $56.4 million s compared with $93.8 million for the corresponding period of 2007. GAAP diluted earnings per share or EPS for the first quarter of 2008 were $0.35 versus $0.58 for the first quarter of 2007. GAAP net income and EPS figures for the first quarter of 2008 were negatively impacted by a $3.6 million loss on the impairment of investments, primarily related to the company's investments in auction rate securities, a $1.2 million equity loss related to an investment in Western Life Sciences venture fund, and an accrual of $7.9 million for the estimated contractual obligations to terminate the long-term safety study for BVF 146, the combination of once daily tramadol with an anti-inflammatory agent, which in aggregate negatively impacted EPS by $0.08.

Biovail's balance sheet remains strong. At the end of the first quarter of 2008, the company had cash, cash equivalents and short-term investments of $511.3 million dollars and marketable securities of $25.3 million. In addition, the company remains debt-free. For more comprehensive details pertaining to Biovail's financial and operational performance for the 3 months ended March 31st, 2008, please refer to the earnings news release distributed by the company earlier this morning.

As Bill mentioned in his remarks, we have decided to close our manufacturing facilities in Puerto Rico. We will transfer the manufacturing activities currently performed in Puerto Rico to our Steinbach, Manitoba facility, and we will outsource others, such as the packaging operations to third parties. The closures are expected to take 18 to 24 months to complete. They should not result in any supply disruptions and are intended to reduce the company's cost infrastructure and increase available capital. Other elements of the strategy include a change to the selection process and criteria for our pipe-line candidates. Projects will be generated organically or sourced externally through consistent objective criteria.

We will be transitioning from a primary focus on drug delivery to one where we will also develop novel products in specialty CNS markets. In all cases, there will be a clear focus on developing differentiated products with clear clinical benefit. The objective is, of course, to create longer-lasting assets and retain a greater share of the value created. This is not a radical shift for Biovail. The senior management of the company collectively boasts over 140 years of pharmaceutical industry experience, including in bringing numerous NCs to market through regulatory, clinical and commercial activities. We intend to leverage this collective expertise as we strive to become best in class in our specialty CNS markets.

Turning now to the company's current pipeline, on April 23rd, we announced FDA approval for Aplenzin, which was formerly known as BVF 033. It is noteworthy that this approval was granted based on the study that was originally deemed to be inappropriate in the FDA's June 2007 non-approvable letter. Aplenzin is alcohol-resistant, an important feature considering risks of alcohol consumption associated with major depressive disorders. Aplenzin's active product ingredient is a hydro bromide salt of buproprion. It was approved in dosage strength of 174, 348 and 522 milligrams which are equimolar to 150 milligrams, 300 and 450 milligram strength of buproprion hydrochloride, the active ingredients in Wellbutrin XL. Aplenzin 522 milligram is the only single-tablet product that contains the highest prescribable daily dose of buproprion. Aplenzin is currently protected by one granted U.S. patent with 14 other U.S. applications under review by the U.S. Patent and Trademark Office. It is clear that the delay in securing FDA approval for Aplenzin has impacted the commercial potential of the product. Nonetheless, we are engaged in partnership discussions that could allow us to generate the best commercial outcome for Biovail under the circumstances.

Independent of its commercialization as a stand-alone product, Aplenzin is a key component of BVF 045, a combination product for depression for which we are also in partnership discussions. Turning to our ANDA portfolio, we have filed one application with the FDA thus far in 2008, and anticipate a second filing in the coming months. A third ANDA could be filed in the next 12 months should our development efforts be successful. Before I turn the call back to Bill for his closing remarks, I'd like to express my optimism regarding the company's new strategic focus and look forward to updating you on new development programs on future calls. Thank you. Bill?

Thanks, Gilbert. Our new strategic focus will allow Biovail to develop additional expertise within our target markets. It will allow Biovail to more effectively compete for development-stage compounds to in-license, as we intend to develop the internal capability to commercialize the products in the U.S. Under the prior strategy, we were essentially middlemen when it came to in-licensing products. Our long-term objective and one I believe we can achieve, is to become the commercialization partner of choice for all development stage and emerging pharmaceutical and biotech companies in North America active in the area of specialty CNS. We intend to invest over $600 million in R&D through 2012, exploring both in-house reformulation opportunities as well as niche in-licensed and acquired NCEs. We also intend to optimize operating efficiencies across all functional areas of the company, and intend to return capital in excess of our business needs through ongoing to dividend payments to shareholders and stock buy-back programs.

We look forward to seeing you at Biovail's annual meeting of shareholders on June 25th, 2008, in Toronto. Ladies and gentlemen, this concludes my comments. I will now return the call to the conference call operator for questions. Operator?

Thank you, sir. We will now take questions from the listeners. (OPERATOR INSTRUCTIONS). There will be a brief pause while the participants register for questions. We thank you for your patience. Our first question is from Randall Stanicky from Goldman Sachs. Please go ahead.

Hi. Actually this is Bob Jones on for Randall this morning. How are you guys doing?

Doing well. Good morning.

Good morning. Just a couple of general questions. On the time line of, obviously, the new strategy focused for the CNS, can you give us any sense as far as what you guys had discussed internally as far as a time line for where we would actually see revenue or any potential commercialization coming from the new strategy?

Yes, certainly. First the strategy involves both the pipeline and also the restructuring of the business. The restructuring of the business is going to take approximately 18 months to 24 months, and so we should start seeing benefits from that beginning to flow in mid to late 2009. We will -- we will be looking to immediately start sourcing new compounds within our specialty CNS focus, and so we have folks actively working on that right now. We would hope that we should have results on that either within late 2008 or in 2009, but don't expect to see any meaningful contribution from the new products that we would be sourcing in specialty CNS until around the 2012 time frame. It's going to take some time to develop these new products. Now, our existing pipeline is robust, and we believe that there is significant value in our existing pipeline. We have been through it in a great deal of detail. We have done a lot of conservative modeling around the existing pipeline, and we will see contributions from that pipeline as we go forward in this interim period. Nevertheless, the most immediate impact that we will see is from the restructuring, which will provide additional capital and cash flow and will allow us to dedicate that to our new strategy.

And then you mentioned just on the pipeline. I know you also talked a little bit about potentially generating about $100 million from selling off some noncore assets from the pipeline. Could you maybe give a little bit more insight into what that might look like, what those assets may be?

Yeah. We're not contemplating selling products. What we're looking at there are assets like shareholdings we might have in some drug development companies, some of our real estate assets. I think we contemplate doing sale leaseback on some of our real estate as well. There may be other non-strategic pieces of our business that we would contemplate selling. But we're not currently focused on selling products. We are developing a comprehensive model, which will be a set of screens that we will be using for our new products that will be going into the pipeline. Those are both strategic screens and also financial screens, which I think will be quite a rigorous model. We intend to put the current pipeline through that model as well. There may be some fallout from that. Just don't know what that result is going to be at the moment. So we'll just have to wait and see.

That's helpful. Thank you.

Thank you. The next question is from Douglas Miehm from RBC Capital Markets. Please go ahead.

Good morning.

Good morning.

Bill, just a couple questions, again going back to the CNS side of things. You talk about potentially the licensing late-stage CNS products, and could you tell me exactly how you might achieve that, given that these are products that normally many companies would like to get their hands on, or are they for very niche areas that may be overlooked by pharmaceutical companies? I'm just curious as the how you think you can get your hands on them.

First I think you raised an important point, is that we are going to be targeting drugs and compounds which will likely have sales that are below the levels at which big pharma would be interested. So our sweet spot will probably be in the $100 million to $300 million in terms of total revenues for these compounds. I would much prefer to have a series of compounds more or less at that -- at that size in our portfolio, as opposed to going forward for one big hitter. I'm more of the kind of guy who likes to hit singles rather than trying to hit for the fences every -- every time. So we do see that there will be reduced competition for the types of opportunities that we're looking for. These types of opportunities are also typically going to be in the areas in which reimbursement is much less of an issue, because these are obviously very terrible diseases that we are going to be targeting, trying to -- trying to assist patients with.

And typically, the pricing in these areas is pretty robust pricing as well. So it is very much a niche strategy, a very focused strategy, looking to find areas in the market where we don't see a large amount of competition, and where we're not going to be going to head-to-head with big pharma. In addition, we want to have a very targeted small sales force which will be looking at these areas. The number of docs that are active in these areas is a relatively small number, and so they can be covered with a sales force which would be less than 100 individuals for the entire -- entire U.S. All of these factors lead us to believe that there will be reduced competition for compounds, and the screening that we've done so far -- we've done quite an extensive amount of work on it -- indicates that there's over 200 compounds which are under development in this area which are not currently being targeted by big pharma. So there is opportunity.

Okay. And then just a bit more specifically. You highlighted a few of disease areas, et cetera, et cetera. These are typically a lot higher risk areas as well, though. Is there something about the products that you've identified that make them a little less risky in these areas, or are we going to be facing the same sort of potential risks?

Well, clearly there's higher clinical risk associated with these products. However, the commercialization risk, we think, is going to be less, and reimbursement risk is going to be less. When we look at the overall risk profile compared to we're going to be doing today, we think the risk profile actually comes down by taking this focus. In addition, we think that we can take some of our existing core capabilities and reformulation and apply them to this area, and so that -- that would be obviously a much reduced risk in terms of when you're considering reformulation as opposed to new chemical entities. We also are going to be increasing our capabilities in terms of understanding the area. It's critical that we become subject matter experts in this area. We will be hiring a chief scientific officer with specific expertise, and will want to put together a first-class advisory board that will also have specific expertise to help guide us through some of the issues that we might face.

Okay. And then final question. Given your background, I thought you might be ideally suited to answer this one, but when you look at the moving parts in terms of R&D climbing -- well, will actually R&D climb significantly? We're at 125 already. Are you telling us it will be between 125 and 150 a year; and then as an adjunct to that, as we look out over the next 12 to 24 months, with those increasing costs, perhaps some cuts in other places, how do you see the company maintaining the dividend? Are you going to have to be paying out of cash? And then at the same time participating in a share buy-back program? Maybe if you could go through that in a little bit more detail. I'll leave it there, and thanks.

Sure. In terms of R&D, we're planning on spending $600 million through the next five years through 2012, on R&D. It's important to understand that we think that we will be able to get some significant reductions in overhead in the R&D organization, and those savings will be reallocated to program spend. So our actual program spend in R&D will be going up, although the total R&D number is going to look pretty comparable to the last couple of years. With regard to cash flow and financial resources in the company, as you know, we have over $400 million in cash on the balance sheet right now. We have no debt. We have robust cash flow, which is coming into the -- into the company. That cash flow is going to be augmented through the restructuring that we just talked about and by the asset sales that we talked about. We've done extensive modeling on this. We've also used some outside advisors to help us as we go through that modeling process, and we're confident that the company will generate enough cash to sustain its dividend to fund this share buy-back program, which is a very good use of funds from a shareholder perspective, and also to fund its R&D program as we go forward.

Thank you.

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

Hi. Thank you. When you talked about choosing CNS as the area you want to focus on, you talked about your decision-making process and a lot of external factors. Can you go over the internal factors that you considered, and can you give us some idea of what other factors you considered in why CNS went over it so we can get a sense of the internal capabilities? And can you give us a time line as to when you think that you'll be in a position to start building yourself?

Yeah. Let me address the last question first, around the sales force. We will not start building a sales force immediately. We obviously want to have a product pipeline before we start putting a sales force in place. I don't think that we will start building the sales force until probably 18 to 24 months out. That may be a little variable depending on how successful we are in getting products. With regard to the things we looked at when we were making this decision about increasing our focus in specialty CNS, one of the things we clearly looked at was our own capabilities.

Now, we've been active in CNS for a number of years. We have a number of products in the CNS space. So we do have some understanding of this market. We also think that our core reformulation and drug delivery capabilities can be brought to bear on the specialty CNS market and can create value there. When we look across our management team and say, "Okay. Now we're going to start looking at bringing in the late-stage NCEs, do we have the capability of doing this?" There's over 140 years of pharmaceutical industry experience in our senior management team, and these are individuals from a number of different companies across the industry, many of those companies household names, who have plenty of experience in shepherding NCEs through to successful completion and commercialization. So that experience is in house.

We also took a very careful look at the market, and we were looking for specific market characteristics. We wanted to see high growth. We wanted to see high unmet medical need. We wanted to see a high likelihood of reimbursement. We wanted to see attractive pricing on products, and we wanted to see a large number of opportunities in terms of in-licensing potential. So as we said, we identified over 200 compounds currently under development in this area that are not being targeted by big pharma.

Right. I understand the external factors. I understand that management has experience in the pharma industry. But I guess my question was more, what experience do they have in the CNS area? And if I can just go forward and ask questions about on the financial side, how we can think of modeling this. Your R&D expenses, are they going to be front-end loaded or back-end loaded in the next five-year period? When you're talking about the 30 to $40 million decrease in infrastructure costs, does that include R&D, or exclude it? And regarding your legal expenses, when you look at the $150 million that's net of insurance reimbursements, over how many years has that been, and has it been front-end loaded or back-end loaded or has it been fairly even over the last number of years?

Okay. Let's see. With respect to R&D, I would expect we would probably see a bump-up in R&D expense either in late 2008 or in first half of 2009, as we are trying to acquire some of these late-stage -- late-stage products. After that, I would expect R&D to be fairly flat as we -- as we go forward over the remaining five years. Within the 30 to $40 million of cost savings, yes, there is some portion of that which is related to our R&D organization, although we think there may actually be some additional opportunities there that we have not yet fully evaluated and are not completely included in that number. With regard to legal expenses, the legal expenses really have been incurred since the end of 2004, beginning of 2005. That spend, I think, has ramped up fairly rapidly at the beginning of that period, and has been pretty constant since then, although it is now starting to decline as we have settled a number of these -- a number of these cases.

And of the 30 to $40 million in infrastructure, how much of that is R&D related?

I don't have the exact number for you, but I would say relatively small proportion of it is R&D related.

Okay. Great.

Most of it is coming from our closing excess manufacturing capacity, which is, of course, the two plants in Puerto Rico.

Great. Thanks a lot.

Thank you. The next question is from Lennox Gibbs from TD Securities. Please go ahead.

Hi. Good morning. Thanks. Your comments notes several strategies for how you intend to rebuild the pipeline. Can you provide a sense as to the relative importance. Is reformulation likely going to continue to be the primary strategy supplemented by in-license NCEs? Where do you foresee the mix shaking out?

The reformulation of drug delivery is going to continue to be extremely important, but I think that the main focus will be on NCEs as we go forward. But that is going to be a transition. It's going to take us several years to shift that focus. I'd also like to get Gilbert in on this conversation. We has some great thoughts on it. So Gilbert, would you care to comment?

Yes, absolutely. Good morning, Lennox.

Good morning.

Actually, sometimes we're referring to NCEs as kind of a caption for a number of things. I think that what we internally understand here is that in some cases, this could relate to existing cap-outs that are commercialized in different jurisdictions, but none in the U.S. or North America. That is certainly -- we're paying a lot of attention to those. We're also looking at existing drugs that have shown promises in terms of pharmacological activity in new indications. That is certainly something that we are contemplating as well. But in all cases, what we're looking at is that there is a state of advancement that is beyond a certain proof of concept. We're not going into NCEs that are coming out of discovery and processing them through a whole slew of assessments. Adding to this is the reformulation capability that becomes, of course, a great life cycle management asset, and in some cases, that may be the very element that will give us the access to a subset of the market.

Okay. Now, I appreciate management's experience pharma experience, but NCEs represent a pretty huge shift for the organization. What build-out in R&D infrastructure do you think is required to facilitate NCE development beyond the SAB and the Chief Scientific Officer? What skill sets are you going to need to build-out?

Well, I think we are going to have to re-orient our R&D organization. We will continue to have the reformulation skills that we talked about, but we are going to have to develop new skills, and that means we will probably be recruiting some additional people to come into that scientific organization and providing the right funding to give them the tools to do the work that they need to do. Gilbert, would you care to comment?

Yes. Just a few words here. Clearly, the strategy going forward has decreased reliance on formulation and increased focus on clinical development. Without getting through too many details, we do have here a bunch of seasoned executives that have taken a multitude of NCEs to market. I think that what we will attend to here is a refinement as we focus more clearly on what will be the sweet spot of our CNS target. So there will be a sweet spot, and there will be, in the periphery, other opportunistic developments that we may contemplate as well. We think that we have all the capabilities to cover well the target, and we will concentrate an additional set of expertise in that very sweet spot that is more directed towards specific neurological field, and this will be internal and external compliments of the existing.

Okay. And then a final question, and that is no mention of acquiring in-market products in the release, but is this something that you would consider either to jump-start the specialty fields force or maybe to supplement utilization down the road?

Yeah. We will consider it. I think acquisition is going to be part of our strategy as -- as we go forward. We want to have the full suite of tools available to us, as we're building the business. I will say, however, that I have extensive experience in acquisitions and doing M&A. I like to take a very disciplined approach to that. My criteria are to -- obviously you have to have a strategic fit, but I also like to see the acquisition be accretive within a short time period. I define that as 12 months, and to not have too much pressure on the balance sheet. So while this is something that we clearly will be pursuing, we will do it in a very disciplined way.

Good. Thanks very much.

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

Hi. Good morning. Just want to get a just a clarification on the cost reductions, of that 30 to $40 million that you're expecting in savings, how much of that, if any, will be eaten up by the increase in R&D, or is that above and beyond what you're expecting to spend on R&D?

No. Our R&D expense will actually stay relatively flat versus the last couple of years. Within that R&D expense, we will see a higher proportion, however, being spent on program -- program development. We expect the -- almost all of the cost savings to drop to the bottom line over time.

Okay. Great. And then, on the pipeline, I realize that you're still going through a period of review here; but when might we be able to expect some updates with respect to some of the near-term opportunities, and specifically on BVF 045, when we might be able to see some more defined time lines?

I'm going to put Gilbert on the spot there. Gilbert?

Yes. Good morning. Actually, with the approval of Aplenzin, as I said earlier, this was kind of a jolt of good energy for us. It kind of revived a number of the partnering discussions, and consequentially, because of the interdependence between this product and 045, it was also something that was an important condition for those discussions not only to continue, but to be done in great spirit and strong expectation. So they are continuing. They were predicated on the approval of the new salt, and while the launch of that new salt is not necessarily a component, it was essential to get that. So we are hopeful to be in a position within, the next quarter or so to make a tangible update as to the status of those discussions. I think that we have stated all along that this is a program that we will now pursue on our own, and therefore, those discussions will be fairly conclusive in terms of the next steps that we may or may not pursue as it relates to 045.

Okay. And then the rest of the pipeline, when might we be seeing an update?

As Bill alluded to earlier, we will process our existing pipeline through the same steps of criteria and filters that we intend to use in the future. Right now, when you look at our current pipeline and parts of it are disclosed and parts of it are not disclosed, it's pretty much a reflection of the historical Biovail strategy in that it's heavily skewed towards reformulation that are essentially relying on PK modification. There are a few generic -- opportunities are being pursued here, but essentially they are technology driven. It so happens that probably half of them are also in the field of CNS. So again, in the next few weeks and months, as we define and push them toward our stream, we will make a decision as to whether those -- which one of those projects will continue, and in some cases, we're basically at the end of the road any way, so we'll have projects that will continue and bring them to conclusion. In other cases we may decide to accelerate those or terminate them.

So in the near term, is it mainly ANDAs that we should be expecting to see?

Right now, I think, as I commented earlier, we have a fairly clear horizon as it relates to the three ANDAs that I commented upon earlier today.

Okay. And then, finally, on the Aplenzin marketing discussions, can I take your commentary to indicate that you're primarily focusing those discussions on the combo product, the BVF 045, and not single entity?

No. That's not correct.

Okay.

We're definitely and actively involved in partnering discussions with a handful of validated partners, and those discussions, of course, have been stimulated by the announcement, and we're employing ourselves at securing or intending to secure the best possible conditions for success, and we're ready to launch whenever these conditions have been met.

Are you looking to partner both together as a single package?

That's always a possibility. That's something that we would certainly not exclude. That's not mandatory, and it doesn't mean that this would be in Biovail's best interest. It's really a case by case, play by play decision.

Okay. Thanks.

Welcome. (OPERATOR INSTRUCTIONS). Our next question is from Max Paris from CIBC World Markets. Please go ahead.

Good morning. A brief clinical follow-up question here. Do you think you can provide a very brief update on the BVF 324 for the undisclosed sexual dysfunction, and how does your new focus on CNS change things in regards to that program? Does that fit in CNS?

That's a project that I think that we would intend to continue with. We are focusing that product at the European market. We still have not put the product through the screens that I was talking about earlier, but it is a project that we certainly are interested in, and I think we'll continue investing in. Gilbert, do you want to comment?

Just to comment that as we announced at the last earnings call, we are doing the regulatory and the commercial assessments for Europe. That is progressing rapidly and quite well actually, and it should allow us to make the appropriate decision this summer.

Great. And then, on your alcohol-resistant Effexor, are we still expecting a refiling of the NDA by Q3 of this year?

Yeah. That's something we can't confirm. The development continues. But we're not at a point where we can make any meaningful conclusions as to this penultimate step of the process, and that's a filing, of course.

Okay. And then just a quick question on Wellbutrin XL. With the upcoming genericization of the 150 milligram dose, what's your feeling in regards to GSK's pricing strategy? Have you discussed this, or do you think they'll be increasing their pricing in light of the entry of generic versions of the 150 milligram? I'll leave it at that. Thank you very much.

Well, that's something that is something we absolutely can't speculate on. We are basically the supply partner here, and that's a question that would be best answered by the folks at the GSK.

Okay. Thank you.

Thank you. Ladies and gentlemen, that concludes today's question-and-answer session. I would now like to turn the meeting back over to Mr. Bill Wells.

Thank you very much, everyone. We greatly appreciate your participation. We're excited by our new strategy, and our whole team here is energized and looking to go ahead and implement it. We look forward to giving you further updates on progress in the future. Hope you all have a very good day.

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.