Bausch Health Companies Inc (BHC) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the fourth 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 worldwide web at www.biovail.com. (Operator Instructions). As a reminder, a replay of the conference call will be available until 7:00 p.m. Eastern Standard Time on Thursday, March 5th 2009, by dialing 416-695-5800 for Toronto and international callers, and 1-800-408-3053 for the United States and Canadian callers. Using access code 3283280.

Biovail's Safe Harbor statement. 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 US Private Securities Litigation Reform Act of 1995. And which comprise forward-looking information under applicable Canadian Provincial Securities laws. For the purpose of this caution, we refer to such statements as forward-looking statements. Forward-looking statements involve risk 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 the statements. Forward-looking statements include but are not limited to, our goals, targets, strategies, intentions, plans, benefits, estimates, expectations, outlook, guidance, and other statements which contain language, such as guidance, believe, anticipate, expect, intend, plan, will, may, target, 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 February 26th, 2009, and available on the Company website. As well as it's filings with the US Securities and Exchange Commission and the Canadian Securities administrators, including the risk factors detailed in it's most recent Annual Report on Form 20-F, Item 3d. The Company does not undertake to update any forward-looking statements.

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

Thank you, operator. Good morning, everyone. On behalf of Biovail, thank you for joining us. On this morning's call, Biovail management will describe the progress made to date with respect to the Company's new strategic focus, as well as discuss the financial and operating highlights for the fourth quarter, and the 12-month period ending December 31st 2008.

Joining us are Bill Wells, Chief Executive Officer of Biovail Corporation, Gilbert Godin, Chief Operating Officer, and Peggy Mulligan, Chief Financial Officer. All will be available to participate in the question and answer session with research analysts immediately following our remarks. We will try to get to as many questions as possible, while limiting the call to approximately one hour. Other participants are encouraged to follow-up with the Company after this morning's call, by calling 905-286-3000, and asking for Investor Relations.

Bill, please go ahead.

Thank you Nelson. Good morning, everyone. 2008 was a transformative year for Biovail, one of decisive action and change. Biovail has a new Board, a new senior management team, and a new strategic focus. We are aggressively restructuring which is producing results, and we have resolved many of the legacy issues that are holding us back. In many important ways this is a new Company.

In May, shortly after I assumed the role of CEO, we announced our new strategic focus, one that targets unmet medical needs in specialty central nervous system, or CNS disorders. A new strategic focus was required for a number of compelling reasons. The environment for reformulated drugs has changed dramatically over the past few years. Incremental advances and convenience or compliance are no longer sufficient to achieve favorable reimbursement coverage, critical to a drug's commercial success.

In addition, generic companies have become increasingly sophisticated in terms of their drug delivery capabilities, and more aggressive with respect to at-risk launches, resulting in shorter periods of exclusivity for reformulated products. Recent changes to patent regulations are also working against the classic drug delivery technology business model. Prior to deciding on specialty CNS as our area of focus, a special committee of the Board and Biovail's senior management team, looked at all options for Biovail, from selling the Company, to privatization, to adopting a new business model.

After a comprehensive review aided by external experts, the Board unanimously approved our new strategic focus. As part of our new strategic focus we developed a five-year financial plan. I am pleased to say that we are generally tracking ahead of our original plan. Some of the assumptions of that plan you have heard before. For example, as part of our planned investment of approximately 600 million in R&D through 2012, we are targeting the in-licensing and development of four to five specialty CNS products.

Importantly, one of the assumptions of our plan was that the first of these products would not contribute meaningful revenues until the 2012 timeframe. However, through our first acquisition, we have managed to significantly accelerate that timeline, and already have our first specialty CNS product in the market. As part of the Prestwick acquisition in September 2008, we acquired the North American license rights to tetrabenazine tablets, which are known as Xenazine in the US, and Nitoman in Canada. Nitoman has been on the market in Canada since 1996, and we have assumed full commercial responsibility for the product through the Biovail Pharmaceuticals Canada sales force.

In the US, however, Xenazine was only approved by the FDA in August 2008, and formally launched by our marketing partner Ovation Pharmaceuticals on November 24th. While it is still early in the product's launch, we are pleased and encouraged by the initial uptake, which thus far has exceeded our expectations. Gilbert will comment more specifically on Xenazine's initial launch performance in a few moments.

The Prestwick acquisition is directly on target with our new strategic focus, and is indicative of the types of opportunities we are exploring on the business development front. The ideal target profile for us is a specialty CNS drug, that targets an unmet medical need, with peak annual revenue potential of between 100 million and $300 million, and with at least five years of market exclusivity. I am pleased to report that there are a number of these opportunities out there, and we are actively pursuing them.

You may recall me mentioning a transformative type acquisition on previous calls, one that would essentially achieve Biovail's five-year plan on a much shorter time horizon. We pursued such a transaction until very recently, but were ultimately outbid. While we are disappointed, it is more important that we continue to exercise financial discipline, which we did. The other opportunities we are looking at are equally interesting, although not as large.

We have the financial resources to execute on them, and business development remains our top priority. As always, it is impossible to predict if and when any potential transaction may occur, and we won't commit to a specific timeline. We will, of course, be diligent and prudent with our investment decisions, as we have already demonstrated.

On our last call, I announced the appointment of Dr. Christian Fibiger to the newly created post of Chief Scientific Officer, located in Barbados. Dr. Fibiger brings a wealth of experience in specialty CNS to Biovail. Since his appointment Dr. Fibiger has hit the ground running. One of his near-term priorities is to establish a Scientific Advisory Board, to further enhance our specialty CNS resources, and to provide input into our CNS investments and pipeline.

I am pleased to say he has made great progress on this front. A number of first-rate individuals have been identified, many of whom have already agreed to serve. We anticipate announcing the fully constituted Advisory Board in the coming weeks.

In terms of restructuring, we are on track to complete the closure of our Puerto Rico manufacturing facilities within a year. The shutdown of our research and development site in Dublin, Ireland is complete. In both cases, we have initiated efforts to sell the facilities, and depending on market conditions, hope to do so within the next 12 months. As a reminder, our restructuring and cost containment initiatives once completed, are intended to result in annual savings of 30 million to 40 million. We expect to be at this run rate in 2010.

We continue to target 100 million in total proceeds from the sale of noncore assets, including our manufacturing facilities in Puerto Rico, and our R&D site in Ireland. We are also pursuing the sale and lease-back of our corporate headquarters in Mississauga, which we expect to complete in the near term. Through the fourth quarter of 2008, we realized approximately 25 million of our $100 million goal.

I am particularly pleased that our restructuring efforts are beginning to make Biovail a more efficient company. This is demonstrated by our strong operating cash flow in 2008. Peggy will comment further on this.

Gilbert Godin, Biovail's Chief Operating Officer, will now provide an overview on the operational highlights in the fourth quarter. Gilbert.

Good morning everyone. I would like to begin my remarks by discussing the Ultram ER recall. In December, we determined that over time certain lots of the 100-milligram strength of Ultram ER, marginally exceeded the dissolution specification at the 8-hour mark. This minor dissolution variance has no impact on patient health or safety.

Following our field alert to the FDA, we identified the cause of the problem and took steps to voluntarily recall product from wholesalers and pharmacies. We have taken corrective measures to resolve the issue, and expect to replace recalled product over the next few months. As is noted in the fourth quarter results, we have recorded a reserve of $6.5 million against revenue, and inventory write-off of $600,000, and $1 million in administrative expenses in respect of the recall.

Turning now to Xenazine. As Bill mentioned, Xenazine was launched to US specialists by the Ovation sales force in late November 2008, and has thus far exceeded our initial expectations. Through February 6thm a total of 1,177 patients have enrolled or are are in the process of enrolling with the Xenazine distribution center, and 1,083 prescriptions have been filled. In addition, the average daily dose thus far is approximately 50 milligrams, which is also above our original expectations. Recall that Xenazine's gross annual price is 30,000 to $50,000 for patient, depending on dose.

As you know, Ovation has financial support programs in place, which are designed so that people who need Xenazine, and have demonstrated economic need, will have access to the medication wherever possible. You may also have seen that Ovation was recently acquired by Lundbeck. The acquisition should not result in any change to our commercialization agreement with Ovation, or to our positive working relationship with Ovation as it relates to Xenazine. We are actively involved with worldwide license holder of tetrabenazine, Cambridge Laboratories, to determine the most appropriate clinical development of new indications for tetrabenazine, pursuant to the options right we acquired in the Prestwick acquisition.

Turning now to Aplenzin, in December 2008 we signed a supply and distribution agreement with Sanofi-Aventis US for our once-daily formulation of bupropion hydrobromide. Under the terms of the agreement, we will manufacture and supply Aplenzin to Sanofi-Aventis at contractually determined prices, which will be based on Sanofi's net selling price. Our supply price will range from 25% to 35% of net sales, depending on the level of the product's net sales in each calendar year.

Aplenzin is the only single table product, that contains the highest prescribable daily dosage of bupropion, courtesy of it's 522 milligram dosage strength. In addition, Aplenzin is alcohol-resistant, and as per the granted label, we have animal data that suggests the product has a better side effects profile, as it relates to seizures, although the clinical significance of this finding is unknown. We have manufactured large quantities of Aplenzin, in anticipation of it's launch by the Sanofi-Aventis sales force early in the second quarter 2009.

We have also had success in our generic, or ANDA pipeline in 2008 with a total of 3 ANDA filings. These include generic formulations of Venlafaxine XR, sold as Effexor XR by Wyeth, Fenofibrate tablets, which are sold in the US under the TriCor brand name by Abbott Labs, and Quetiapine tablets, which are sold as Seroquel by AstraZeneca. We believe we are the first to file on the 48-milligram strength of TriCor.

On all three filings we have been sued by the innovator, and as such the Hatch-Waxman 30-month stay applies. We are currently in discussion with a potential distribution partner in the US for these products.

With respect to BVF-045, our combination product that consists of Aplenzin and an undisclosed SSRI, we continue to explore risk sharing opportunities with potential partners. However as we have said before, given the nature and expense of the Phase III work required, we will not progress BVF-045 forward, without a partnership in place.

We have recently decided to discontinue the development of BVF-012, our enhanced absorption formulation of venlafaxine. Following a reassessment of the product's commercial potential. The launch of a new version of venlafaxine by Upstate Pharma last fall influenced this decision.

The last product I will touch on is BVF-324, our undisclosed product for the treatment of the prevalent sexual dysfunction, namely premature ejaculation, or PE, for which we are targeting the European market. We are proceeding with the preparatory steps required to begin the pivotal trial program for the product, and are finalizing the selection of the CRO that will execute the program under our supervision. We currently anticipate enrollment to begin in mid-2009.

You may have seen that Johnson & Johnson's depoxatine was recently approved in a couple of European countries for the treatment of PE, a sexual dysfunction that is more prevalent than erectile dysfunction. Depoxatine's success clearly indicates there is a well-defined regulatory path for approval in place in Europe, and bodes well for BVF-324. For a number of reasons that we will not discuss today, we believe BVF-324 may have certain advantages, and may benefit from depoxatine's success in building a PE treatment market.

With respect to our restructuring initiatives as Bill mentioned, we re on track on all fronts. Before I turn the call over to Peggy, I am pleased to report that we have now deployed a sales force covering 50 territories, and have resumed the oversight of all sales and promotional activities for Zovirax in the US, as of January 26. We have recruited the [vidicated] sales team through Publicis Selling Solutions, or PSS, who will oversee the administrative aspects, while Biovail maintains ownership of brand activities and sales force direction. As our agreement does not include revenue sharing component, we will he retain a greater share of the product's economics, relative to the previous arrangement with Sciele.

I will now turn the call over to Peggy Mulligan, Chief Financial Officer, who will provide an overview of the financial highlights in the fourth quarter of 2008. Peggy.

Thanks, Gilbert. Good morning everyone. I would like to begin by quickly reviewing a few of the financial highlights in the fourth quarter and full year of 2008.

We are now into the second full quarter of the generitization of Wellbutrin XL, and our year-over-year results reflect the impact this has had on Biovail. Wellbutrin XL revenues were down 66% in the fourth quarter of 2008, and 43% in the full year, when compared to the same periods in 2007. However mitigating much of this decline were price increases implemented across a number of other product lines, and the inclusion of Xenazine and Nitoman revenues in 2008.

In accordance with US GAAP, Biovail reported net income of $120.4 million, or earnings per share of $0.76 in the fourth quarter 2008, and 199.9 million, or EPS of $1.25 in the full year. These figures were impacted by a number of specific items that in the aggregate had a positive impact on net income in the fourth quarter of $66.2 million, or $0.42 in EPS, and a negative impact of 30.9 million, or $0.19 in EPS in the full year 2008. Excluding these items, EPS were $0.34 in the fourth quarter 2008, and $1.44 for the full year.

These items are described in our news release issued this morning, and will be discussed in detail in our Form 20-F that will be filed with the regulators tomorrow. So I won't go over them all here. I would, however, like to spend a minute describing the $90 million deferred income tax benefit that we realized in the fourth quarter.

We recognized this deferred income tax benefit, as a result of a change in our assessment of the realizability of a portion of the Company's deferred tax assets, related to approximately 350 million of non-operating loss carry-forwards in the US. As a result of the taxable position of the Company's US operations for the last three years, and with the expectations that it is more likely than not that we will continue to be taxable in the US, we reduced the valuation allowance against $230 million of the loss carry-forwards. In simple language we are making more money in our US operations, so we are now likely to be able to use this amount of NOLs to offset cash taxes in the future.

This resulted in the recognition of a $90 million deferred tax asset on the balance sheet, and a corresponding increase to net income. The accounting result of this will be an increase in the Company's effective GAAP tax rate commencing in first quarter 2009. This could be in the range of 20%. However, we will continue to apply the now recognized non-operating losses against cash taxes otherwise payable. And as such, we do not anticipate any significant change to our cash tax rate of approximately 5% in 2009.

To facilitate a more appropriate comparison between periods, we will begin reporting cash EPS in the first quarter of 2009. Total revenues for the three months ended December 31, 2008 were $181.5 million, compared to 203.9 million for the fourth quarter of 2007. Product revenues in the fourth quarter 2008 were $171.4 million, compared with 194 million in the fourth quarter 2007, a 12% decrease.

As previously mentioned, this reflects the introduction of generic competition on both strengths of Wellbutrin XL, lower revenues from Ultram ER, due to the recall that Gilbert described, and the effect of the weakening Canadian dollar on Biovail Pharmaceuticals Canada, which negatively impacted revenues by approximately $4 million. Partially offsetting these declines were increases in revenues from the Company's portfolio of legacy products, generic products, and Cardizem LA. Following it's late November launch Xenazine generated US revenues of 2.6 million in 2008, Nitoman generated a total of 1.5 million, since we acquired the product in mid-September, so the total tetrabenazine franchise generated 4.2 million in revenues for Biovail in 2008. Nitoman revenues to December 1 of 1.1 million are our tetrabenazine revenues in our press release, while the 400,000 of revenue post-December 1 are included with the BPC results.

In terms of prescription trends, Biovail's top-line performance in the fourth quarter 2008, reflects a 27% 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 largely offset by price increases, that have been implemented across a number of product lines over the past year. Excluding Wellbutrin XL, total prescription volume for our portfolio of products was down a modest 3%, compared with the fourth quarter 2007, and was up 1% compared with the third quarter 2008.

As I said before, I believe this performance reflects the annuity strength of Biovail's base product suite, and the robustness and stability of it's cash flow generation capabilities. Excluding Wellbutrin XL, total product revenues were 593.8 million in the full year 2008, compared with 588.7 million in the corresponding period in 2007, an increase of 1%.

Biovail's balance sheet remains strong. As the end of the fourth quarter of 2008, the Company had cash and cash equivalents of $318 million. Given current market conditions, most of the Company's cash balances are invested in T bills, GICs, or money market funds.

Biovail remains free of any long-term debt, and has no outstanding balances against it's fully committed $250 million credit facility. This facility remains an attractive source of funds, should our acquisition strategy require a short-term borrowing. Biovail's financial strength affords it significant flexibility to invest in growing the business, both organically and through acquisitions.

Let me now turn to Biovail's selling, general, and administrative expenses in the fourth quarter and full year 2008, which some of you may find higher than expected. In the fourth quarter 2008, there are a number of items that added $12 million to this expense. These include 9.9 million related to legacy litigation matters, including 8.9 million in indemnity obligations to certain former officers, and I would remind you three of whom have recently settled with the OSC, 1 million in administrative costs, related to the voluntary recall of Ultram ER 100-milligram tablets, and 1.4 million in management succession costs. In contrast, the fourth quarter of 2007 benefited from insurance recoveries of almost $8 million, and reversals of certain accruals, largely related to bonuses of 4.5 million.

On a normalized basis, SG&A expenses are down $7 million, or 18% quarter over quarter. In the 12-month period ending December 31, 2008, SG&A expenses include charges and costs totaling 42.2 million for a number of items, including 22.6 million related to legacy litigation matters, which included 16.4 million in indemnity payments, 6.2 million in costs related to the proxy contest, 7.4 million in management succession costs. 4.1 million related to the implementation of the Company's new strategic focus, and 1.1 million related to the valuation of deferred share units, or DSUs, issued to Board members. During the year ended December 31, 2007 insurance recoveries of 20.5 million were realized, and 42 million of legacy litigation fees, including the indemnity costs of 10.1 million were incurred.

On a normalized basis, SG&A year-over-year is up only 3%, which reflects higher sales and marketing expenses in 2008. Excluding sales and marketing expenses, normalized general and administrative expenses were down 5.8 million, or 7% in 2008, compared with the full year of 2007. Despite these improvements, we are not yet satisfied with our current level of G&A expenses, and remain committed to further reducing them, and improving our efficiencies. Aligning our cost structure with our current revenues remains a high priority for us.

R&D expenses were 16.1 million in the fourth quarter, and 92.8 million in the full year 2008, compared with 29.3 million, and 118.1 million in the prior year period. The significant decreases reflect the termination of the BVF-146 program, reduced overhead costs as a result of the closure of our Ireland R&D facility, and lower formulation type activity within the pipeline, as we rebalance ourselves to specialty CNS opportunities. Going forward, it is likely that R&D expenses will continue to track below historic levels, until such time that we in-license or acquire new CNS products, and/or launch the Phase III program for BVF-324.

Turning to Biovail's cash flow statement, cash flow from operations was a robust $107 million in the fourth quarter 2008, and 204 million in the full year 2008. Excluding the $93 million paid in 2008 as part of the settlement of the SEC investigation, and the US and Canadian class actions, and the $45 million paid to GSK pursuant to the sample allowance provision in the Wellbutrin XL agreement, cash flow from operations was $342.4 million in 2008, reflecting the strong annuity cash flows of our base product suite, and showing that our restructuring efforts are having an impact. That Biovail is beginning to perform at a higher level of efficiency.

Capital expenditures amounted to $700,000 in the fourth quarter 2008, compared with 11.4 million in the prior year period. For the full year 2008, CapEx was 22 million, compared to 35.1 million in 2007. Going forward, we expect to see capital expenditures track significantly below historical levels, as a result of the Puerto Rico and Dublin closures, and the sufficiency of capacity at our Steinbach manufacturing facility. In 2009, we anticipate CapEx of 5 to 10 million.

From our comprehensive detail pertaining to Biovail's financial and operational performance for the three and 12 months ended December 31, 2008, please refer to the earnings news release distributed by the Company earlier this morning. As Bill mentioned, we intend to enter into sale and lease-back arrangement for our corporate offices in Mississauga, Canada in the near term, and expect to incur a noncash loss of approximately $7 million on disposal.

With respect to other restructuring initiatives, we continue to expect to incur total charges of 80 million to 100 million, the cash component of which is now expected to range from 20 million to 40 million. Through the end of 2008, we have incurred costs of 72.8 million, 10.2 million of which represents the cash portion.

With respect to the share repurchase program we announced in May, we have thus far purchased 2.8 million shares, at a total cost of $29.8 million. Our share repurchase program contemplates, subject to regulatory approval, the purchase of up to 14 million shares to June 2009, which represents approximately 9% of the total issued and outstanding.

Our credit facility currently limits the amount we can spend on share repurchases to $50 million per calendar year, and to-date we have not requested lender consent to exceed this amount. In line with the Company's current dividend policy, and given the strong core cash flows from operations in the quarter, Biovail today announced that it's Board of Directors has approved the payment of a dividend of $0.375 per share, payable April 6th 2009 to shareholders of record on March 10, 2009. The ex dividend date is March 6th.

Following the payment of this dividend, Biovail has paid a total of $4.88 in dividends per share to it's shareholders, since commencing it's dividend program in December 2005. Biovail continues to believe that current operations and it's existing pipeline, should generate sufficient cash flows to sustain the Company's dividend policy. However, as we said before, and as I would like to stress again for you now, business development activities designed to accelerate Biovail's new strategic focus, have first priority for use of the Company's cash flow.

Bill.

Thanks, Peggy. I am pleased with the progress we have made in our restructuring efforts, and in the implementation of our new strategic focus. We have taken decisive actions on both fronts, and I am confident we are on the right track. I know that some in the marketplace were skeptical of our ability to succeed when we first announced our new strategic focus. This despite the fact that almost everyone agreed that Biovail's business model had to change. We went into specialty CNS with our eyes wide open.

Our in-depth analysis of the market showed that this therapeutic area holds a great deal of promise, for a company with the resources and capabilities of Biovail. However, as you all know, reality often differs from theory. My biggest concern was whether the opportunities that we thought existed were, in fact, really there. Now here we are, 10 months later, and I can tell you that the opportunities are real, and they are actionable.

We have already made our first acquisition, and we are work diligently on several others, and on a number of in-licensing opportunities. In fact, since we have embarked on our new strategic focus, the number of opportunities we have seen, has significantly surpassed the assumptions used in developing our five-year model.

To a large degree this is a testament to the strength of continues development team we have at Biovail. However, we have also benefited from the current financial market turmoil. There are a number of interesting companies with promising specialty CNS products, both public and private, that are facing funding shortfalls, or the threat of running out of cash. Under normal circumstances, these companies would likely not be entertaining out-licensing or acquisition discussions with us.

I am not suggesting we will be able to acquire these assets at fire sale prices, because these are good assets we are looking at, and they won't be given away, but we have been invited to the table. I can assure that you we intend to take full advantage of this window of opportunity to grow the Company, and seek to establish Biovail as the premier pharmaceutical company in specialty CNS. I can also assure you that we will continue to be prudent in all of our investment decisions.

This concludes our comments. I will now return the call to the operator for questions.

Thank you, sir. We will now take questions from the telephone lines. (Operator Instructions).

There will be a brief pause while participants register for questions. Thank you for your patience. Our first question is from Doug Miehm, RBC Capital Markets. Please go ahead.

Good morning. Couple of questions. I guess to start off, with respect to Ultram ER and the competitive positioning with respect to the upcoming launch from Purdue, could you give us any information in that regard?

Good morning, Doug. This is Gilbert. First of all, we think there are two things at play here, first of all, we believe that the second branded once-a-day Tramadol overall can help lift that segment of the market. It is a very large market.

But it is also true to say, that competition will intensify therefore, and as a result of that, we envision a flat performance for the brand in the forthcoming few months. I guess we will be in a better position to tell where the market is heading, probably by the end of the year, if that launch is occurring any time soon.

Okay. Bill, coming back to acquisitions, I think this is a very important part of the Company's strategy, I was happy to see that you didn't go ahead with the Ovation transaction. I saw it as true financial responsibility, but are you looking at still a couple that are of that size, perhaps even larger, and then maybe you could drill down for us a little bit more on some of the smaller things that you are looking at, and how early stage they could be?

We are not looking at anything that would be comparable in size to the Ovation transaction. The things that we are looking at currently would be more in the small to medium size frame. There is one opportunity which would be a larger opportunity, but not quite as large as Ovation. We are taking a very disciplined approach to this.

Having the financials work out is just as important, if not more important than making sure we have the right strategic fit. My experience in this over many years doing it, is that if you get too excited, and you let yourself end up overpaying, that is the worst mistake that you can make, because you live with that forever. It is very hard to dig yourself out from that. So better not to do a transaction, rather than to overpay.

Okay.

Just to give you a better sense on some of the other stuff that we are looking at, a lot of the names are obviously going to be familiar to you. It is focused on specialty neurology, although there are one or two opportunistic things that we are looking at that may be, let's say in some of the outer circles of our target. The compounds are typically Phase II, Phase III, although there are a couple of opportunities which are reasonably close to market, or even one or two which are in the market.

And we are taking a flexible approach. So in-licensing would be our preference in certain circumstances. In others, it just may not be possible, because the investors in those companies have different priorities, so we may be forced into looking at acquisition. We are willing to consider both. But again, we have to make sure that the financials work.

Okay. The most important product for the Company at the moment on a revenue basis is now Zovirax. Could you maybe talk about the competitive positioning, especially with respect to generics, and how expect to protect that franchise?

The last question for Peggy, just wondering why you are going ahead with the sale-leaseback of the facility, the $7 million loss, in this environment? And I will leave it there. Thanks.

First of all, on Zovirax, your question is fairly broad, I will try to narrow it down to a few things here. First of all, can this product be genericized? I guess you could say yes, it has happened in the past, but there would need to be a clearer regulatory path. You can't genericize a topical on the basis of traditional PK studies. You need to do clinical efficacy trials. So that is one of the elements.

With respect to the broader competitive environment, this is in the field of antivirals, the topical antivirals are competing with the oral antivirals. The oral antivirals overall are growing at the expense of the topical, albeit fairly mildly.

Zovirax is the only actively promoted product in the topical category, and therefore we believe that we can continue to sustain the very high share that we have, which is hovering above 70%, and maybe grow it a little bit. So that is why we didn't have any hesitation to resume the detailing of the brand, with a sales force that was created as I described earlier, and we believe that it is going to be highly profitable fours.

Doug, let me answer your questions on the sale-leaseback. The reason for that is because the cash, which is tied up in the building, has a much better use, and the use that we will use it for, is to buy back some of our shares. When you look at our shares, they have close to a 14% cash on cash return, whereas with the cash tied up in the building, it is not earning any direct return at this point.

Our strategy has been to try to match the amount of shares that we are repurchasing, with the amount of cash that we are generating from the sale of nonstrategic assets. And so this is, in effect, purely a financial play, to get a better return on that capital, which is tied up in the building.

Thanks very much.

Thank you. The next question is from Lennox Gibbs of TD Newcrest.

Good morning, thanks. With respect to BVF-0324 and the PE target market, that is a pretty new pharma market, can you provide some additional information on what you believe that market might look like, and comment on things like incidence numbers, and likely prescribers, patient motivation, et cetera? Secondly, can you comment on 324's mechanism of action in that indication?

Okay. Unfortunately, I will address the second one first. We will not disclose anything that could be indicative of what the molecule is at this point. This is a repurposed drug, and therefore for competitive reasons we will keep it confidential as long as possible.

However, would can we say about the market. It is the most common form of sexual dysfunction. FP data is pointing to 25 to 30% prevalence rate in men of all ages, so that would represent a market, probably north of 20 million males in Europe, which is our targeted market right now. And we believe that product will be a competitive product in this new category. We are hopeful we can demonstrate through a trial, that the product will be superior from a clinical and safety standpoint.

Okay. This is likely something that goes through GPs? Urologists? How do you see that playing out?

As is usually the case when a new therapeutic category is being developed, it starts with specialists that are involved in the treatment of the disease or molecule confronted with those patients, and eventually it broadens to a broader base of prescribers. So it is likely that it will be a rather narrow target to start with, but given the extent of the prevalence, we believe that in probably 3 to 5 years that could be a product that would be prescribed much more broadly by primary care practitioners.

Right, but have you set up your sites for the study, and investigative sites, is it urologists that you are using primarily? How is that structured?

Actually, we are focusing on centers that have demonstrated the ability to recruit, actually there is an interesting fact here, is that the recruitment for those trials have proved to be fairly easy and rapid, and can be targeted to the broader population directly. And therefore, it doesn't complexify the recruitment as it would be the case.

If it were about more specialized disease states, that need to be under existing control of treating physicians. In other words, this is a disease state that is not treated today. Everybody can relate and understand what the benefit could be, and therefore, given the broad base of patients, we believe that recruitment is going to be fairly straightforward, and the treatment centers will not need to be highly specialized.

Okay. Now, yesterday, just to switch tracks, but your dissident shareholder flagged several issues yesterday, published several issues, shareholder approval of major transactions, et cetera. Bill, which if any of those recommendations hold merit in your view, which do not, and maybe if could you comment on how you arrive at your view?

Well, things are getting just a little bit too routine around here, and we can always count on Eugene to liven things up. I am not going to comment on the specifics of the proposals which have been made. We will look at those proposals seriously. We only received them yesterday. We have to do some analysis, come to the appropriate conclusions, then we will treat them appropriately as we go forward.

Good. One last question. The $10.9 million charge related to technology assets, were you referring to venlafaxine what specifically were those assets? Can you share whether or not a decision has been made with respect to the development candidates that you have picked up along with Xenazine in the Prestwick acquisition?

The 10.9 million related to the write-off of some technology assets, that were in relation to a drug reformulation, as well as additional charge on the lease at our Bridgewater facility.

With regard to tetrabenazine, there are two potential new developments that we are looking at as part of that overall acquisition. Both of them appear to have very good potential. I will let Gilbert talk about the details.

Okay, and maybe a distinction here, we are clearly interested in more active discussions, to further develop at the time tetrabenazine. I think your question was more specifically revolving around the other developments that were in Prestwick's pipeline. I think there were three.

We believe that one of them may have potential, but it is at a very early stage, and in a therapeutic area that is not in our sweet spot, so we may decide to pursue a divestiture route for this one. The other two developments have been deemed to be not material enough for us to pursue, and therefore we have discontinued them.

Okay. Thanks very much.

You are welcome.

Thank you. The next question is from Cosme Ordonez, GMP Securities. Please go ahead.

My question is in regard to Aplenzin. Could you please comment on the timelines of the launch of Aplenzin in the US by Sanofi, and also how important is the fact that Aplenzin contains the highest dose available of bupropion, and what are your expectations for this product in 2009?

We expect Aplenzin to be launched early in the second quarter. The fact that it does have the highest prescribable dose in a single tablet, bupropion is important. I think that is one of the factors which distinguishes the product in the overall market, we are not going to get into giving any dimensions around sales. Obviously, we believe that the product has good potential, and Sanofi-Aventis believes the same thing, but I think we have said in the past that this is not going to be a huge product. It is going to be a solid product, a good product, but we are not expecting it to be enormous.

And with regard to your dividend policy, we saw that in the last quarter you generated significant cash flow, so as you mentioned before, the Company stands by the position that the dividend is safe, but in the past, you mentioned that if Biovail is to get involved into a large transformative deal for the Company, then the Board of Directors would reconsider your dividend policy? Is this still the case?

Yes, it is. Business development comes first, so if we arrive at a position where we feel we need to redirect some of the cash which is going to the dividend, to accelerate or support our business development activities, I think the Board will give serious consideration to that.

However, the good news is the Company is performing extremely well from a cash flow perspective. $342 million in operating cash flow last year on an adjusted basis, it is excellent, and it does appear that restructuring efforts are starting to pay off, and so we are getting better cash flow performance out of that. So we are very pleased with how that is going.

With regard to Zovirax, now that you have switched Sciele from PSS, obviously you mentioned the call that you are going to get better economics, but do you expect a significant change in sales, or should we expect sales of Zovirax to remain flat for the year?

Actually, the approach we took here is not your typical run-of-the-mill CSO approach. It is a dedicated sales force, that we have selected one regional manager and one sales representative at a time.

They are perfectly adapted to the audience, and to the product communication that we have divides, so it is a very qualitative approach, as opposed to just buying a detailing position in the sales force. So we believe that the impact is going to be important, it is going to be meaningful. Our objective is to try to reduce the gradual erosion of the brand that I talked about earlier, related to the orals, stabilize it, and who knows, maybe even increase it.

Following the first two quarters of detailing, we will analyze precisely what the response has been, and if there is anything that we can do to maximize Zovirax's performance, we will certainly contemplate it. We are not about optimizing here. We are about trying to maximize the market share, of a product that is a clear leader in this category.

Thank you. My last question, have you been approached by Lundbeck with regard to Xenazine, or you have not heard from them?

Lundbeck is still in the process of finalizing their purchase of Ovation. They are still going through the Hart-Scott-Rodino process in the US, and it is probably not appropriate for us to be talking to them until that process is finished, and the acquisition is final.

Thank you very much.

Thank you. The next question is from Randall Stanicky of Goldman Sachs.

This is actually Bob Jones on for Randall. Questions, one for Peggy on cash generation. Obviously saw some strong cash generation this quarter, cash balances went up about 100 million. Is there anything you can give us in terms of your ability to generate this level of cash going forward? With regard to that, I know you sold some shares from Depomed. Can you remind us how much you have left in that?

Second question, going back to Aplenzin, I am not sure how much more you can give us on this, but I think originally the timeline was to launch the product, or have Sanofi launch the product in Q1. Now we are looking at early Q2. Is that a pretty hard date at this point? Any other further color you can give us on the sales force, or positioning of the product within Sanofi would be really helpful? Thanks.

Okay, you have got to stop, we are running out of pages to write your questions here. On the cash flow, obviously we are not going to give you a total forecast, but I think if you look at both the third and the fourth quarters of 2008, both those quarters reflect the full generitization of the Wellbutrin, at both levels. It is a very good proxy for the ongoing strength of our portfolio of products. You see that overall prescriptions, including Wellbutrin, are down about 3% year-over-year. But we have been very successful in offsetting that with price increases, so very strong annuity on the revenue side, and if you look at my earlier comments on the G&A, the traction of our focus on expenses is really starting to kick in, and we do expect to see ongoing improvements there.

Plus, if you look at our total restructuring, the closure of our Puerto Rico facility come 2010 will create some substantial benefits as well, so I think a very good picture for cash flow. Your question on the Depomed shares, I can't recall the exact number of shares we have remaining, but it is less than 200,000.

I believe it is about 146,000.

A few points on Aplenzin. First of all, you may recall this deal was closed days before Christmas, and therefore little was done before the end of the year. Since then, our commercial partner has been using the current timeframe to prepare for the launch. That means preparing, of course, commercial or communication material, training material, now training the reps, and the deployment of their sales force will take place in the earlier part of the second quarter, on the front end.

The partner strategy, of course, is confidential. What we can say is that they have a material, and quite adequately configured sales force, that will be calling on top tier prescribers, treating major depressive disorders. So that is about as much as we can disclose, in the context of that new partnership.

Thank you. Next question is from Scott Hirsch with Credit Suisse. Please go ahead.

Good morning, just a few quick questions. On Xenazine, will you continue to give us patient and RX numbers, and is that the right way for us to measure growth for the product?

Yes, we will continue to give that you that information. And yes, I do believe that is a good way for you to monitor growth.

All right. On Zovirax, I know a lot has been asked, but Sciele was able to really grow this product with price increases. Have you guys taken any price increases this year, and do you think the additional, taking it back with the new sales force will that have any impact on the SG&A leverage you were hoping for?

To your first question, we always look at how we can, from a price standpoint, apply the appropriate level. I believe we have done so. I am not perfectly clear on it. I believe we have done so just at the turn of the year.

Sorry, your second question relates to the difference in the detailing?

Yes. Does that have any notable change on SG&A?

Oh, yes, I think that we had announced, and we had communicated in the previous quarters that there would be a substantial benefit to the transition, and it is our belief that the brand will not suffer from a detailing standpoint, but our P&L will greatly improve, because of the nature of the agreement we have with Sciele, where they were rewarded on revenues generated above a certain threshold, and I might add, at a pretty high rate. So this is something that now is coming back to us. So it is quite material.

Okay. In R&D, with BVF-012 sort of on hold, and then BVF-045 waiting for a partner, could R&D meaningfully come down on an absolute basis this year?

Our belief is that we will be successful in in-licensing some products as we go forward in the year, so there will be some up fronts and possibly milestones that would be payable on those in-licensing efforts. So our feeling is that while we will probably track lower on R&D in the first quarter, maybe in the second quarter as well, as we start bringing in those opportunities, we should see the overall R&D expense in-line with where we had indicated to the market.

It will be, 324 will also, we will incur some spending on 324 starting mid-year, and that is going to be fairly meaningful.

324 spending starts mid-year, you said?

Correct. Actually a little bit before, preparatory steps, but the trials and the recruitment will start around the middle part of the year.

Then lastly, I know there i s only so much color you can give on the business development front, but maybe just qualitatively, are the size and scale of the programs you are looking at, ones that are less likely to put the dividend in question? Then just in terms of areas, are you still looking at the orphan drug model, or anything specific to that extent?

Well, with regard to the things that we are looking at, we are looking at number of opportunities. If we were successful on some of those opportunities, it may cause us to have to take a look at the dividend. But that is something that we will just to have evaluate as we go forward, because it is very difficult to predict, whether you are going to be successful on some of these opportunities.

You know the game very well, and you can be at the last instant ready to sign, and the deal falls apart. That has happened to me often enough. So I am very cautious about expressing any certainty around these things.

With regard to orphan drugs, that is still very much a focus, as we are going forward. A number of the opportunities that we are looking at do have orphan drug status. Certainly are very interested in the extended IP that that gives us. Not everything we are looking at is orphan drug. Some things are not. However a reasonable proportion of the items are.

Okay. Just to clarify that real quickly, so the preference, although you obviously have to structure deals however you need to, the preference are for structures like Xenazine, with lower upfront costs, and more royalty structures, if you can, is that correct?

Each deal has it's own dynamics, and a lot depends on the other side, what their objectives are. If people are interested in a sale, then we will certainly try and accommodate them. What I will say is that my personal preference would be, where you have products which are a little bit further out, or have a little bit more risk in the development, to be focusing more on licensing.

And that where you have products which are a bit closer in, or are already in the market, already have cash flows and sales associated with them, to be focusing more on acquisition. That is just a preference of mine. Whether that actually translates into anything in the deal making process, is still to be seen.

Great, thanks very much.

Thank you. The next question is from Marc Goodman of UBS. Please go ahead

I was hoping we could talk about Xenazine a little bit more. You mentioned there were two developments in the works, can you elaborate on that? Secondly, you talked about 1,177 patients. Can you talk about those patients? Are they all on-label patients who have Huntington's with Chorea, or is there any off label getting through at all, or in addition to those patients? And talk about any off-label usage that can go through this program, and also talk about ASPs, and how you think, where they are now, and how you think they are going to change over time? Thanks.

Okay. I guess your first question relates to the development, further development of tetrabenazine. As you probably know, tetrabenazine has been granted a number of additional indications in many other countries, we own Nitoman in Canada, where the spectrum of movement disorders that can be treated are broader, in terms of tardive dyskinesia as an example. Tourette's is an example. It is out there. We are looking at and evaluating the various possibilities. We will make decisions in conjunction of course, with the worldwide licensure of the product, as to which ones we will pursue, so that is the first one.

Your second question was about the number of patients in treatment right now. I think what we can say here is this is three months into a launch, and a launch that is essentially, to a certain extent, predicated on the fact that certain patients were already treated, and are transitioning to what is now a commercially available brand.

So that is a factor that needs to be fully understood and weighted, but it can be confounding. Now while the majority of the prescriptions are in Huntington's Disease, there is some level of off-label use of the drug. As you all know, it is something that is not being promoted by the commercial partner, but it is always a physician's prerogative, to use the drugs available in the arsenal to help his patients. So that is something that is happening on it's own, and is independent of the very good work that Ovation is doing in the field of Huntington's Disease.

So the 1,177 patients are enrolling now. What is the date that we can kind of put that to?

Well, actually, I will try to describe here what is the steady state. Patients will be prescribed with the product, and they will be directed to this private dedicated organization, that is coordinating the payor's approval. That is why this data is not available through IMS. This is a drug that has limited distribution. It is only dispensed through specialty pharmacies, therefore patients will enter the system, so to speak. Right now there are close to 1,200 of them that have entered the system.

Those prescriptions are being treated with the assistance of that organization, so that there is payor's coordination, request of the various payors, whether they are Medicaid, Medicare, or private payors, then there is the determination that relates to reimbursement, and once this has been all accomplished, they are directed to the proper specialty pharmacy outlet, where they can pick up their prescription.

So at every point in time in the future, there will be patients coming into the system, and augmenting the number of patients. There will be patients that will be directed to their specialty pharmacy center, and I guess we can also expect that some patients will be dropping off the therapy. So the net of that is what will constitute the Xenazine performance overall.

So these are 1,200 patients who have entered the system?

That is correct.

But 1,083 prescriptions have been filled.

So right now 90%. 1,000 prescriptions, and 1,200 into the system.

That is true to February 6th.

That is what I was getting ready to ask. As then far as two developments for Xenazine, you started to talk about that a little bit, as far as other, are there other indications that you are working on, you are going to work on?

The strategy is still being determined by our development committee, which is joint between Ovation, ourselves, and Cambridge Labs, but we are taking a look at other indications. Obvious tetrabenazine is being used for tardive dyskinesia and Tourette's outside of the US. That is an opportunity. We certainly are evaluating those potential indications for follow-on products to Xenazine. There is also different types of formulations around Xenazine, so that is certainly an area where our expertise comes to play. We think there are some pretty good opportunities there, and we will be moving those forward.

One other thing, just remind me how many patients were already on the therapy before?

In the US I have 2,000 in mind, but I hate to rely on my memory, especially for numbers.

It was approximately 1,000 actually.

In that area.

So all 1,000 of those have pretty much transitioned into the system, and we have got another so-called couple hundred who are new, or how do I think about that?

Yes, I don't think that we can conclude that the transition is moving on block, and that this is where it is coming from. I don't believe that we have the precise information to disclose as to the origin of those patients.

I think that what we can say on the other hand is that our commercial partner had determined the rate at which this could progress in the early months, and is currently exceeding that expectation.

We had already factored into the projections, the fact that there were patients in the US who were already on the product, and so that had been put into the projections on patient uptake, and we are running ahead of those projections.

Thanks.

Thank you. Our last question is from [Vern Hazlett] of BMO Capital Markets.

Just a follow-on to the subject you were just on with Mark. So of the prescriptions you just saw since the launch, can you quantify how many came from the, let's call it the established base, and how many came from new patients, or patients that were not on this drug previously?

We have a fair amount of information in that database. I do not have that specific information at this point, however.

Okay. Moving back to business development, with the Prestwick acquisition, and having a product being launched already well ahead of the strategic plan that was laid out, does this shift the focus to earlier stage products? Should we thou be expecting more Phase II compounds, or is there still an urgency to consider already approved products, as you look at business development going forward?

We are look at products across the spectrum. We are look at some earlier stage things as well as some products, which are either close to market, or already in market. It is more the dynamics of the deal making, which will determine when these sort of come into our portfolio. And I really can't predict which will be next up, whether it will be an earlier stage product, or whether it will be one which is closer to market. What I can say is that our objective is to create a balanced portfolio.

So we are trying to create a portfolio, where we have some products which are closer to market, in order to help us with short-term revenues and cash flow, and also some developments which are a little bit further out, and there may be one or two developments which are quite far out, but are programs which have very high potential. And so ultimately, we will create a balanced portfolio that will give us the right balance of risk/reward, and near-term returns.

Thanks. You also mentioned a comment a little earlier in the call about maybe considering products that were in the franchise depth, or the opportunistic category, such as psych. As you consider these licensings, can you narrow it down? Should we be considering fatigue and pain opportunities, or would you be considering now more in the psych, or broader CNS categories for those opportunities?

We have always thought about this process as being a bull's eye, a target, and that the center of the bull's eye is specialty neurology. The next circle out would be supportive care for specialty neurology, so it might be things like pain or fatigue, that would be associated with specialty neurology type of products, and then the final circle of the bull's eye, would be broader CNS.

So it might be a pain and psych type of things we are doing with Ultram and Wellbutrin. But we have always said that opportunistically, there are some things that are available there that play to our strengths as a company, and that we think we can get good returns on. We would be foolish not to do them.

Thank you for the color.

Thank you. I would now like to turn the meeting over to Mr. William Wells for closing comments. Please go ahead.

Thank you everyone. We appreciate your attention today. I think it was a very solid quarter for Biovail, particularly pleased with the progress we have been making in our restructuring, and in our business development efforts, and very pleased with the strength of the performance with regard to cash flow last year. I appreciate your joining us today, and we look forward to talking to you next quarter.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. Have a great day.