Bausch Health Companies Inc (BHC) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the first quarter 2009 earnings conference call for Biovail Corporation. (Operator Instructions). This conference call is being webcast on the world wide web at www.Biovail.com. (Operator Instructions). As a reminder, a replay of the conference call will be available until 7 PM Eastern time on Wednesday, May 13, 2009, by dialing 416-695-5800 and 1-800-408-3053 and using access code 3460042#.

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 law. For the purpose of this caution, we refer you to such statements as forward-looking statements. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.

Forward-looking statements include but are not limited to our goals, targets, strategies, intentions, plans, beliefs, estimates, expectations, outlook, guidance and other statements which contain language such as guidance, belief, 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 May 6, 2009, and available on the Company's web site, as well at its filing with the US Securities and Exchange Commission and the Canadian securities administrators, including the factors detailed in the most recent annual report on Form 20-F. The Company does not undertake to update any forward-looking statements except as required by law.

At this point, I would like to turn the call over to Mr. 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 progress made to date with respect to the Company's new strategic focus, as well as discuss the financial and operating highlights for the first quarter ended March 31, 2009. As a means of reference during today's call, a short slide deck is available from the investor relations page of Biovail's website at www.Biovail.com.

Joining us on today's conference call are Bill Wells, Chief Executive Officer of Biovail Corporation; Gilbert Godin, Chief Operating Officer; Peggy Mulligan, Chief Financial Officer; and Dr. Chris Fibiger, Chief Scientific Officer. All will be available to participate during the question-and-answer session with research analysts immediately following our remarks. We'll 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.

Thanks, Nelson, and good morning, everyone.

While I'm pleased by yet another quarter of solid financial results, like to begin my remarks this morning by reviewing the operating highlights for the past few months of 2009 and the highlights of this past week, an extraordinary period for Biovail, which has culminated with the successful closing this week of two important business of element transactions.

On Monday, we announced the collaboration and license agreement with ACADIA Pharmaceuticals for the US and Canadian rights to the pimavanserin, for several CNS indications. Pimavanserin is a new chemical entity currently in Phase III studies for the treatment of Parkinson's disease psychosis, or PDP. This agreement is perfectly aligned with our new strategic focus and further builds our specialty CNS development pipeline. Pimavanserin has intellectual property protection which provides us with exclusivity through 2021. Further, it clearly addresses an unmet medical need as there are currently no approved medicines for the treatment of psychosis associated with Parkinson's or Alzheimer's disease.

Pursuant to the terms of this agreement, we made a $30 million up-front payment to Acadia and will make additional payments as pimavanserin progresses through the regulatory process. Should the drug to be approved by the FDA for both PDP and ADP, we will pay a total of $160 million to ACADIA. The approval of pimavanserin in a third indication would result in $45 million in additional milestone payments.

The agreement also calls for $160 million in sales milestones. Needless to say, we would be delighted to pay the maximum amount.

While every agreement is different, the transaction with ACADIA is a good proxy of our preferred approach in-licensing, which is about taking advantage of opportunities while mitigating risk. Wherever possible, we'll limit our upfront payments and structure the agreement such that additional funds are provided as the product meets certain milestones and presumably the risk profile improves. Chris Fibiger, our CSO, will provide additional information about pimavanserin in a few moments.

This morning, we announced we entered into an agreement to acquire US rights to Wellbutrin XL from GlaxoSmithKline. This deal is all about accelerating our new strategic focus. You have to have a strong foundation to build a house. As you know, Wellbutrin XL was developed by Biovail and we have manufacturing it for distribution by GSK since September of 2003. This transaction is designed to strengthen our base business and cash flows in order to accelerate our new strategic focus and help shift Biovail to high growth. The valuation was compelling, particularly when you look at the financial impact it will have on Biovail. We are expecting an attractive rate of return on our investment with a payback period of four to five years.

Wellbutrin XL's prescription volume has not been following the typical erosion you see following the introduction of generic competition. In fact, it has significantly outperformed the vast majority of generic cessation curves we have seen in recent years as evidenced in slide six of the presentation. Importantly, our valuation was based on the assumption prescription volumes would decline rapidly to what is a more typical level and the numbers made sense under this conservative scenario.

Further, Biovail has been successful in managing and maximizing the value of off-patent branded products, or legacy products. Our expertise in this regard bodes well for the ongoing strong cash flow generation capabilities of Wellbutrin XL and our ability to maximize the value of this important asset. The acquisition of US rights to Wellbutrin XL is immediately and significantly accretive to revenues, earnings and cash flows.

As you can see on slide five, in 2009 we expect incremental cash flows from Wellbutrin XL of $80 million to $90 million, growing to $120 million to $130 million in 2010. This additional $200 million to $220 million in cash flow through 2010 solidifies our current business while providing us with the resources to accelerate our strategy through additional in-licensing and acquisition opportunities.

As a result of the Wellbutrin XL and ACADIA transactions and in consideration of the likelihood of additional business development activity in the near term, Biovail's Board of Directors has decided to modify its dividend policy. The new dividend policy contemplates the payment of a quarterly dividend of $0.09 per common share. Based on the volume weighted average price of Biovail's shares on the New York Stock Exchange in the five trading days ended May 5, 2009, this represents a competitive 3.2% dividend yield.

Biovail's financial strength allows us to continue paying a dividend while maintaining the flexibility and the resources to invest heavily in transforming Biovail into a high-growth company. The new dividend policy makes an incremental $180 million in cash available to Biovail every year. When combined with the Wellbutrin XL acquisition, we are expecting an additional $480 million in cash availability over the next 20 months.

We have made great progress in implementing our new strategic focus, and I remain as confident as ever that we are on the right track. Cutting a dividend is never an easy decision, and this was not one that was taken lightly by the Board. However, both the Board and management believe that the investments we are making today to strengthen and build Biovail for the long term will result in higher returns for shareholders.

We continue to track ahead of the five-year plan we developed when we announced our new strategic focus last year. Operationally we have made great progress in restructuring the Company. Gilbert Godin, our COO, will update you on this in a moment. These restructuring efforts have begun to make Biovail a more efficient company, as evidenced by our financial performance. Peggy Mulligan, our CFO, will provide you with the numbers to back this up shortly. We've already launched our first specialty CNS product, tetrabenazine, and are well along the path of building our specialty CNS development pipeline. Chris Fibiger will provide further information on our pipeline later in this call.

We remain very active on the business development front as Biovail's long-term success is largely dependent on in-licensing and acquisition. As we have said before, the ideal target profile for us is a specialty CNS drug that targets an unmet medical need with peak annual revenue potential between $100 million and $300 million and with at least five years of market exclusivity. There are a number of these opportunities out there, and we are actively pursuing several of them today. In addition, we are also looking at several opportunities that bring near-term revenue and cash flow to the Company.

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

Thank you, Bill, good morning, everyone. I would like to begin by echoing Bill's excitement regarding the Wellbutrin XL transaction that we announced this morning. Needless to say, we are delighted to have acquired the US rights to Wellbutrin XL and look forward to leveraging the incremental profitability and cash flow that it provides to Biovail.

The existing agreement between Biovail and GSK as it pertains to countries other than the US remains intact. Biovail would continue to manufacture and supply extended-release bupropion hydrochloride tablets to GSK for distribution in these territories. In Canada, Wellbutrin XL is marketed by the Biovail Pharmaceuticals Canada, or BPC, sales force. The transaction also confers to Biovail the right to launch an authorized generic and we are evaluating that option. No decision has been made at this point.

Turning now to our first commercial specialty CNS product, Xenazine, which was launched to US specialists by our partner, Ovation, in late November 2008, I am pleased to report that Xenazine continues to perform ahead of expectation. Through April 9, a total of 1731 patients have enrolled or are in the process of enrolling with the Xenazine distribution center and 2777 prescriptions have been filled. In addition, the average daily dose remains approximately 50 milligram, which is also above our original expectations. Recall that Xenazine's gross annual price is $30,000 to $50,000 per patient, depending on dosage. And, 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.

Ovation was recently acquired by Lundbeck. Our initial discussions with Lundbeck suggest our positive working relationship with Ovation as it relates to Xenazine is not likely to change.

Turning now to Aplenzin, which was launched in the US on April 7 by our commercialization partner, Sanofi-Aventis. Under the terms of our agreement we manufacture and supply Aplenzin to Sanofi-Aventis at contractually [debtor-mined] prices which are based on Sanofi's net selling price. Our supply price ranges from 25% to 35% of net sales, depending on the level of the product's net sale in each calendar year. Aplenzin is the only single-tablet product that contains the highest prescribable daily dosage of bupropion courtesy of its 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 effect profile as it relates to seizures, although the clinical significance of this finding is unknown. A 348-milligram dosage strength of Aplenzin is also available in pharmacies and the 174-milligram strength should be launched midyear.

With only two weeks of IMS data thus far, it's too early to provide any comments on the product's performance, although we are confident in its prospects.

Switching now to restructuring, we announced some new initiatives this morning. As a result of our shift in focus from reformulation opportunities to the in-licensing and development of specialty CNS programs, we have decided to close our R&D site in Mississauga, Ontario. The activities performed at this site, which are essentially related to tech transfer, will be transferred to our site in Chantilly, Virginia. In addition, Biovail's operations in Virginia, which are currently housed in two buildings, will be streamlined and consolidated into a single building. We expect to have these initiatives completed by year end. Importantly, our clinical development and regulatory affairs expertise, which are integral to our pipeline development activities, are not impacted by these efficiency initiatives. In total, the closure of Mississauga's R&D site and the consolidation of the Chantilly site, which will result in a 50% headcount reduction, should result in annual cost savings of approximately $8 million, funds that can be reinvested into our specialty CNS pipeline.

With respect to previously announced restructuring initiatives, we are on track to complete the closure of our Puerto Rico manufacturing facility by early 2010 and the shutdown of our research and development site in Dublin, Ireland, is complete. We have initiated efforts to sell these facilities and, depending on market conditions, hope to do so within the next year. We remain confident that we will meet our target of $100 million in proceeds from the sale of non-core assets.

Our restructuring and cost containment initiatives, once completed, are now expected to result in restructuring charges of $100 million to $120 million, up from our previous range of $80 million to $100 million. Importantly, however, the cash component is still expected to be in the $20 million to $40 million range. To date, we have incurred approximately $75 million in such restructuring charges and I am pleased to report that these initiatives are now expected to result in annual savings of $40 million to $60 million, up from our previous range of $30 million to $40 million. We expect to be at this run rate in 2010.

That concludes my remarks. I would now like to call on Dr. Chris Fibiger, our CSO, who will discuss our pipeline with you. Chris?

Thank you, Gilbert, and good morning, everyone. It is a great pleasure to be joining you on these calls for the first time.

I would like to begin by sharing my thoughts and enthusiasm on pimavanserin. This is an exciting product that is currently being developed for Parkinson's disease psychosis, or PDP, but one that we also believe may be efficacious in other specialty CNS indications, including Alzheimer's disease psychosis, or ADP. PDP affects up to 40% of patients with Parkinson's disease. Pimavanserin is a selective 5H2A inverse agonist and is protected by a composition of matter patent that runs through 2021 and a method of use patent that runs through 2023. Pimavanserin is dosed orally and is being evaluated at tablet strengths of 10 to 40 milligrams.

Today, ACADIA announced it has completed enrollment in its first of two Phase III clinical trials of pimavanserin in patients with PDP. Top-line results from this trial are expected to be announced by the end of the third quarter of 2009. The first Phase III trial is a multicenter double-blind placebo-controlled design study to evaluate the safety and efficacy of pimavanserin in patients with PDP. A total of 298 patients were enrolled and randomized into one of three study arms, placebo or one of two doses of pimavanserin. Patients receive oral doses daily for six weeks in addition to stable doses of their existing dopamine replacement therapy.

Patient enrollment continues in the second pivotal Phase III clinical trial of pimavanserin in PDP and data are expected in the third quarter of 2010. The primary endpoint of each of the Phase III studies is antipsychotic efficacy. Motoric tolerability is a secondary endpoint in these studies.

The other product currently in our CNS specialty pipeline is BVF-018, a controlled release formulation of tetrabenazine. Currently patients take tetrabenazine up to three tablets daily. Our plans for BVF-018 involve clinical trial programs in Tourette syndrome, a disease that affects approximately 200,000 Americans, and one that significantly impacts quality of life. Tetrabenazine has been shown to control symptoms in patients with Tourette's and the scientific literature with respect to this indication is significant. In addition, the molecule is approved for use in Tourette's in Canada and a number of European countries. We are targeting a pre-IND meeting with the FDA for this program in mid-2009 and our current plans are to initiate a Phase II study in the first half of 2010.

Turning now to BVF-324, our undisclosed product for the treatment of premature ejaculation, or PE, we remain on track to begin enrollment in the European pivotal trial program in mid-2009. We will be conducting two separate trials evaluating different doses of 324. The estimated cost of the planned Phase III studies is $25 million to $35 million, and if BVF-324 is successful, we expect an attractive return on this investment. For a number of reasons that we won't discuss today, we believe that BVF-324 may have certain advantages over [diboxatine], a recently approved product in Europe for the treatment of PE.

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've said before, given the nature and expense of the Phase III work required, we will not progress BVF-045 without a partnership in place.

I would like to close my remarks today by expressing my great pleasure with the external advisory board that we have put in place. I would like to emphasize that this is not your standard advisory board. Having served on several such boards in previous lives, I can attest to the fact that we will be meeting more frequently than most and the level of engagement of each member of our EAB will be much higher than the norm. For example, each member has agreed to submit a written quarterly report.

The Board, which I will chair, is composed -- is comprised of Mr. Franklin Berger, Dr. Mark Cochran, Dr. Kathleen Clarence-Smith, Dr. Robert Lenox, Dr. Karoly Nikolich, and Dr. Ian Ragan -- exceptional professionals that bring a wealth of academic, business and product development expertise and acumen to Biovail. The EAB's mandate is to provide medical, scientific and commercial input into Biovail's development pipeline efforts in specialty CNS disorders. I am pleased to report that, even though our first meeting isn't until next week, we have already learned of interesting opportunities through our EAB members. We have an outstanding team in place and I am looking forward to a very productive and successful year.

I will now turn the call over to Peggy Mulligan, Biovail's Chief Financial Officer.

Thanks, Chris, and good morning, everyone. I would like to begin by reviewing a few of the financial highlights in the first quarter of 2009.

In accordance with US GAAP, Biovail reported net income of $39 million or earnings per share of $0.25 in the first quarter of 2009. These figures were impacted by a number of specific items that in the aggregate had a negative impact on net income of $5.7 million or $0.04 in EPS. As a reminder, and as discussed in our fourth quarter 2008 press release and conference call, in the first quarter of 2009 Biovail's GAAP tax rate increased to 24%. As a result of this change, and to facilitate a more appropriate comparison between periods, Biovail has begun reporting cash EPS, which we calculate as cash from operations excluding changes in operating assets and liabilities, divided by the number of shares outstanding.

In the first quarter of 2009 cash EPS was $0.42 compared with $0.46 in the first quarter of 2008. Excluding specific items in the first quarter of 2009, comprised of $1.4 million, and costs associated with the consultant appointed to our SEC settlement, $1.3 million in restructuring costs and $241,000 in legal settlements, cash EPS was $0.44. A reconciliation of GAAP EPS to cash EPS is provided in our first quarter earnings release issued this morning.

Total revenues for the three months ended March 31, 2009, were $173.3 million compared with $208.5 million for the first quarter of 2008. Product revenues in the first quarter of 2009 were $165.4 million compared with $196.9 million in the first quarter of 2008, a 16% decrease. Wellbutrin XL revenues were down 66% in the first quarter of 2009 compared to the same period in 2008. Now into the third quarter of full genericization, Wellbutrin XL continues to retain a significant portion of total bupropion prescriptions. As Bill mentioned, Wellbutrin XL is outperforming the majority of genericization analogs, which bodes well for its longer-term prospects.

Revenues from Ultram ER, Cardizem LA, Zovirax and Biovail Pharmaceuticals Canada, or BPC, were also lower in the first quarter of 2009 compared with the prior-year period. In BPC's case, the decline was driven by the weakening Canadian dollar. At constant exchange rates, BPC revenues increased 17% year-over-year. Partially offsetting these declines were the strong performance of Biovail's legacy products and the inclusion of Xenazine, Nitoman and Aplenzin revenues in 2009. Excluding Wellbutrin XL, product revenues in the first quarter of 2009 were $145.3 million compared with $138.1 million in the prior-year period, an increase of 5%.

Following its late November launch, Xenazine generated US revenues of $6.7 million in the first quarter of 2009. As Gilbert described, we are pleased by Xenazine's initial commercial performance. Aplenzin contributed its first revenues in the first quarter of 2009 as we recorded $3.8 million through the shipment of launch and sample quantities to Sanofi-Aventis ahead of the product's April launch. As Gilbert mentioned, with only two weeks of IMS data, it's too early to provide meaningful commentary on performance.

At the end of the first quarter of 2009, the Company had cash and cash equivalents of $298 million, remained free of any long-term debt, and had no outstanding balances against its fully committed $250 million credit facility. Biovail intends to use available cash and its credit facility to finance the acquisition of the US rights to Wellbutrin XL.

Let me now turn to Biovail's selling, general and administrative expenses. In the first quarter of 2009, two items added $7.2 million to this expense. They were $5.8 million in indemnity obligations to certain former officers and $1.4 million in costs related to a consultant appointed by the SEC. On a normalized basis, SG&A is down 15% compared with the first quarter of 2008. As a percentage of revenue, SG&A was 21% in the first quarter of 2009 compared with 20% in the prior-year period. This is a significant accomplishment, considering total revenues were down 17% over the same period and demonstrates our commitment to improving our overall efficiency rate.

Despite these improvements, we are not yet satisfied with our current level of SG&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. As Gilbert mentioned, the various restructuring initiatives we've announced or have planned are now expected to result in annual savings of $40 million to $60 million. This is a significant improvement from the previous estimate of $30 million to $40 million.

R&D expenses were $14.5 million in the first quarter compared with $36.3 million in the prior-year period. The significant decrease reflects reduced overhead cost as a result of the closure of the Company's Ireland facility and lower expenses associated with our legacy pipeline as we rebalanced our development priorities to our specialty CNS programs. In addition, in the first quarter of 2008 we accrued $7.9 million in costs to terminate the long-term safety study for BVF-146, a combination product consisting of tramadol and a nonsteroidal anti-inflammatory drug. Going forward, R&D expenses are expected to increase relative to first quarter of 2009 levels as a result of the collaboration and license agreement with ACADIA for pimavanserin, the planned mid-2009 initiation of the Phase III clinical program for BVF-324 and the ongoing development of tetrabenazine CR.

Turning to Biovail's cash flow statement, cash flow from operations was $47 million in the first quarter of 2009 compared with $92.7 million in the prior-year period. Cash flow from operations before changes in working capital were a robust $66.8 million compared with $73.9 million in 2008; quite an accomplishment, given the impact of Wellbutrin genericization period over period. Once again, this reflects the strong annuity cash flows of our base product suite and the fact that our restructuring efforts are having an impact that Biovail is beginning to perform at a higher level of efficiency.

Capital expenditures amounted to $786,000 in the first quarter of 2009 compared with $9.7 million in the prior-year period. Going forward, capital expenditures are expected to remain significantly below historical levels as a result of the closure or consolidation of the Company's facilities in Puerto Rico, Ireland, Mississauga and Chantilly and the availability of capacity in Biovail's Steinbach manufacturing facility. In 2009, Biovail anticipates capital expenditures to be in the range of $5 million to $10 million.

For more comprehensive detail pertaining to Biovail's financial and operational performance for the three months ended March 31, 2009, please refer to the earnings news release distributed by the Company earlier this morning.

In line with the Company's new dividend policy, Biovail today announced its Board of Directors has declared the payment of a dividend of $0.09 per share payable July 6, 2009, to shareholders of record on May 15, 2009. The ex dividend date is May 13, 2009. Following the payment of this dividend, Biovail will have paid a total of $4.97 in dividends per share to its shareholders since commencing its dividend program in December 2005. That concludes my comments. Bill?

Thanks, Peggy. In a short period of time, we have made significant progress in transforming Biovail. In response to a changing environment, we have adopted a new strategic focus that is beginning to bear fruit. We have acquired and launched our first specialty CMS product in the US and Canadian markets, tetrabenazine for Huntington's Chorea, which is doing better than expected. We are building a promising pipeline of specialties CNS products which today includes tetrabenazine CR for Tourette's syndrome and pimavanserin for Parkinson's disease psychosis and Alzheimer's disease psychosis. We have built a promising business development pipeline with a number of extremely interesting opportunities that we are hard at work on.

We reinforced our base business in order to provide additional resources to accelerate our strategy by acquiring US rights to Wellbutrin XL. This transaction is expected to be immediately accretive to sales and GAAP EPS and should add $200 million to $220 million in cash flow through 2010 and create substantial value for the Company and its shareholders. We partnered and launched Aplenzin. We are restructuring the business to reduce costs and increase efficiency. This is going better than expected and we have just raised our annual savings target to $40 million to $60 million. We have strengthened our internal capabilities by adding great new scientific and financial talent, including Chris Fibiger, our Chief Scientific Officer, and Peggy Mulligan, our Chief Financial Officer. We have established an outstanding external advisory board that will provide important medical, scientific and commercial input into our pipeline efforts. Perhaps most importantly, we have become a recognized and credible participants in the specialty CNS market. And in the middle of all this change, Biovail's people have stayed optimistic, focused and committed and we continue to produce solid financial results.

I would like to conclude my remarks by reminding everyone that our annual meeting of shareholders will be held on May 28, 2009, at 10 AM Eastern time in downtown Toronto. I encourage all of our shareholders to attend this meeting and even if you cannot attend in person to vote your blue proxy. Obviously, we hope you show your support for Biovail's ongoing transformation and successes of the past year by voting in favor of Biovail's board nominees and the other Biovail resolutions to be considered at the meeting. I look forward to seeing you on the 28th.

This concludes my comments, and I will now turn the call to the conference call operator for questions. Operator?

(Operator Instructions). Lennox Gibbs, TD Securities.

Pimavanserin's prospects in ADP, what is the basis for your view that there is a clinical role for the drug in ADP? Can you share what work has been done to date? And then secondly, can you share when you intend to make the decision to progress that drug to pivotal trial, and on what basis?

This is Chris Fibiger, I will take that. There is -- the plan is as follows, is if we get a positive signal in PDP in the current Phase III trials, then we will commit to undertake studies on -- in ADP. And the biology of neither disease is sufficiently well understood to say that, because it works in PDP it's going to work in ADP. But we think that there is enough commonality at least in the symptoms of the two conditions with respect to psychosis that we would definitely want to try ADP if the molecule works in PDP.

Okay, thank you. And I will then quickly switch to business development. So obviously, there is a whole spectrum of targets out there on the market and that is an opportunity cost associated with doing Wellbutrin XL to date. And I think I understand the rationale for the transaction, but if you can perhaps share a bit more around why XL to date as opposed to [gross] product, development product, etc., speak a bit more to timing. And maybe if you can share a bit about how the transaction came to pass, whether the product had been shopped, if it was up for sale, whether this was opportunistic. Maybe if you can just help us understand why today as opposed to something else today -- I think that's it.

Okay, let me re-emphasize. This deal with Wellbutrin is all about accelerating our shift into specialty neurology. We have to have the resources to do that. And doing this transaction with Wellbutrin substantially increases our capacity to go after the specialty neurology space. So this transaction came about as a result of a direct contact from me with the CEO of GSK suggesting the transaction to them. The asset was not [shopped]. This was at our initiation, and we did it because we knew that the best way to accelerate our strategy as we go forward is to have sufficient resources to do that.

The raw material that we have to work with here is cash flow. This is a licensing and an acquisition-driven transformation as we move into specialty neurology. We have to have the cash flow in order to do what we think can be achieved. And, we are seeing so many opportunities out there right now that are extremely interesting that we want to go after more than we had originally planned when we laid out the plan one year ago.

I believe, and I believe this strongly, that this deal with Wellbutrin XL is going to allow us to do that. It is going to give us $480 million together with the change in the dividend policy through the end of 2010 in order to go after additional business development opportunities. And of course, this asset is going to be generating cash flow long into the future, which is also going to allow us to increase our financing capacity as a business, again thereby giving us the resources to go after more opportunities in the specialty neurology area. I can't emphasize enough that that is what this deal is about, and this was at our initiation. This is a proactive piece of our strategy to build a specialty neurology pipeline and to transform Biovail into a leader in the specialty neurology area.

And then just finally, how do you foresee Wellbutrin XL being sold near term and then perhaps mid-to long-term?

I'm not sure that I get exactly the sense of your question, Lenox.

Who will sell the product?

How we see the product behaving?

No, no, who will sell the product, sales force, near term -- (multiple speakers)

The product is a genericized product, so there is no sales effort that goes with it. It is an extremely low-risk acquisition because we are already manufacturing the product. This is a product that we created. We know this product extremely well. There is no need for a sales force associated with this product. The incremental cost associated with bringing in this product is minimal, practically nil, so almost all of the revenues of this product drop to the bottom line in terms of cash flow. So it's extraordinarily efficient. Practically no integration risk with the acquisition, all of which means that we can do a major increase in the resources that we have available to pursue our new strategy with practically no distraction whatsoever for management as we go after all of the other development opportunities that we have.

The other important issue with regard to Wellbutrin is, when you look at the slides that we put out on our website, you will see that the genericization curves associated with Wellbutrin, it is performing much better than many analogues. Now, if it continues to sustain that level of performance, it will be far above the assumptions that we used when we were putting together the valuation for the acquisition and will generate an enormous amount of value for Biovail's shareholders. Even with the assumptions that we used, and the assumption that we used was that it would return to the normal genericization curve relatively quickly, which it does not appear to be doing -- even with that assumption, there is still a very attractive net present value associated with this transaction.

So I think this deal brings almost everything you could wish to us in a transaction -- high cash flows, immediately accretive, no disruption to management, reinforces our acceleration into our base strategy, very low risk and extremely attractive value creation for the shareholders of Biovail.

Cosme Ordonez, GMP Securities.

Just to follow up on Lenox's questions, regarding the Wellbutrin deal, you mentioned that Wellbutrin XL is doing better than you anticipated, given the genericization of the product. And I see here in the numbers you have given us, that you foresee revenues from this product going higher in 2010. What will drive this? Will it be the launch of the authorized generic formulation, the new generic formulation, or because sales are declining, so it's difficult to understand it.

Cosme, first, the numbers that we have put out there that are on the slides, the 2009 numbers are half-year because we are only acquiring the product this month. The 2010 numbers are full-year. However, there are a number of things that we can do in order to sustain the sales of this product.

I should also point out that those numbers are incremental in addition to the sales and the cash flow that we already report from Wellbutrin. Obviously, the launch of an authorized generic would be an interesting way to reinforce the brand and to bring in some additional sales and cash flow, and we are looking at that very closely. But no decision made yet. And we do have a good history of being able to manage price on our legacy portfolio that I think would also be applicable to Wellbutrin, which has demonstrated very good results for us in the past.

Do you foresee that once Aplenzin starts gaining market share, that this would affect your strategy with Wellbutrin XL?

Actually -- good morning, this is Gilbert -- we believe that the patients that remained loyal to the brand post-genericization will remain loyal to the brand even once Aplenzin is being launched. And therefore, the volume for Aplenzin will stem from new Rx. I just want to put into perspective here the fact that pretty much every week, 120,000 new scripts are being written for a bupropion-based product. So it provides a lot of capability for growth without having to tap on the fairly modest portion of that volume that is actually dedicated to Wellbutrin XL.

Are you still looking for a transformational big event, in terms of business development, or should we assume that this is it and we will see more of the in-licensing type of deals, but you are still looking for something that could be transformational for the Company?

We are looking at a variety of opportunities. We have a number of opportunities that are in-licensing deals. I think the Acadia deal would be fairly representative of what those deals look like. And there is a number of very interesting opportunities there that we are currently working on.

We are currently working on two acquisition opportunities, which are reasonably far advanced. I would not describe them as transformative, but they are certainly of a decent size, both with assets in the specialty neurology area. One of them would bring infrastructure as well in the US market in terms of a sales organization and both have current revenues and cash flow. So, quite interesting opportunities there. Having done the Wellbutrin deal, we now think that that helps to increase our financing capacity as a company and will actually allow us to pursue those two opportunities even more aggressively.

We are continuing to be open to the idea of a transformative acquisition, but the opportunities that we see out there are more in the distance, not something which would be of a near-term nature.

Thank you very much.

Marc Goodman, UBS.

A couple of questions. First of all, can you talk about Xenazine a little bit and the type of patients that are going on the product? Are we seeing some off-label usage now? It's been on the market a little bit longer, so I figured you could probably answer that question.

Second of all, Zovirax, there was obviously inventory. Can you just give us a sense of what the revenue impact was from the inventory hit there for the quarter, destocking?

And then the third question has to do with pimavanserin. I just want to make sure I understand what the primary endpoint is. And I have looked at the studies of the Phase II, and it looks like there was a SAP score. I just want to understand, is it the total score? Is it the one that had not met the P value, but it was -- obviously it was not driven in the Phase II meet that. I just want to make sure I understand exactly what the primary endpoint is.

I will handle the first two and Chris will comment on the latter one, on pimavanserin.

First, on Xenazine, I think we stated before that we are still -- we were expecting a 20% to 25% penetration in Huntington's market. All seems to point to that materializing over time, so nothing unusual or unexpected so far.

With respect to off-label usage, while the majority of the prescriptions are in Huntington's disease, there's -- obviously appears to be some off-label use of the drug. It's always a physician's prerogative to use available drugs to help their patients, and it appears to be the case in the present case with Xenazine as well.

A few comments on Zovirax. As you pointed out, the Zovirax revenues for the quarter are lower than for the same quarter of last year. We have estimated that about two thirds of that is related to inventory movement within the trade; nothing that we are concerned about. And actually, the reminder -- remaining part of it, the one third, the other one third is related to a slight share decrease that we have pegged at about 4.7%. This is not inconsistent with the fact that the brand was not detailed for a period of approximately four months. Now that we have reinitiated sales and promotion of the product as of February 1, we are confident that we'll see the needle move before the end of the second quarter. So we'll keep you appraised of that. Chris, do you want to comment on pimavanserin?

Yes. The two ongoing studies are -- the objectives are to demonstrate the antipsychotic efficacy of pimavanserin in subjects with PDP as measured by decreases in the severity and/or frequency of hallucinations and/or delusions; and secondarily, to demonstrate that pimavanserin does not worsen motor symptoms of PDP -- of psychosis in PDP subjects. So the primary endpoints here, unlike the Phase II study, which was really to show that the molecule does not adversely affect motor symptoms in Parkinson's disease, which it does not appear to do, the Phase III studies, the primary endpoints are to take measures of psychosis, both hallucinations and delusions. So that is where the focus of these Phase III studies will be now, is on the efficacy endpoints.

So the (inaudible) total score is the primary?

Yes, and there are a number of other measures included as well.

Hari Sambasivam, National Bank Financial.

A quick question for Peggy. In terms of amortization of the Wellbutrin acquisition, could you talk a little bit about how you are going to recognize this in your P&L going forward, over how many years and what kind of -- how we should be modeling this?

And the second question is on Xenazine. Obviously there's a huge difference in Xenazine prices in the US versus Canada and Europe. And given the small number of patients -- and I am just wondering how you are managing to sort of at least avoiding erosion of sales of branded Xenazine in the US to something that you could get, say, for example from offshore pharmacies and so on and so forth?

Sure. I'll do the Wellbutrin answer, and then pass over to Gilbert on -- to Bill, I'm getting the finger here -- on the Xenazine.

For Wellbutrin, we do intend to account for this as an asset acquisition, so recognition of an intangible on the balance sheet. And we are estimating a ten-year amortization period straight line, which will help you get the [math] from the revenue down to the EPS on our side.

With regard to Xenazine, we obviously are handling the distribution of Xenazine in Canada, and so we are monitoring very carefully where it is going. It's a relatively low volume in Canada, so we can have very good visibility on where everything is flowing. Our partner, Cambridge, monitors the worldwide distribution. They are handling the worldwide distribution of Xenazine, so they are doing exactly the same thing with regard to where Xenazine is going in the European market. So we have very good visibility into it and are not concerned about erosion in the US market.

Yes, and there is a third component of course in the US. As you may know, all Rx are processed by a private, dedicated organization that coordinates payors' approval, patient assistance, dispensation through specialty pharmacy. So Bill is right. We have a number of vantage points that are complementary to each other and we would see any material movement.

Robert Hazlett, BMO Capital Markets.

Just to round out the Wellbutrin discussion, just to make sure we understand it, are there any potential lifecycle extensions here or any other strategy, or is this just strictly a harvesting, a financial transaction? And then I have a question on pimavanserin.

This transaction is really oriented towards managing the existing asset, maximizing the cash flow that comes out of the existing asset and we'll be using strategies like potentially an authorized generic and managing the price of Wellbutrin XL. We expect that the asset is going to have a very long tail in terms of generating cash flow for many years; and, if it continues to perform as it is currently, a significant amount of upside with regard to cash generation and value generation. And to emphasize once more, what it does for us is it reinforces our base business, brings in additional cash flows and allows us to accelerate our entry into specialty neurology. So I see this as a foundation stone in building that new strategy.

Thank you, that's helpful. And a question on pimavanserin -- two, actually. First of all, in the Phase III studies, as I read them -- I guess, Dr. Fibiger, this is for you -- as I see them on clin trials, one study has a 10-milligram and a 20-milligram dose, and then another study, the second Phase III, has a 10-milligram and a 40-milligram dose. Can you help clarify why the different doses in the different studies and what we need to be understanding about maybe what you either do or don't know about this molecule that would set up those studies that way?

And then secondly, when should the safety studies wrap up? When should we understand something more about the long-term tox and the safety studies as well? Thanks.

Yes, you are quite right. The two Phase III studies, they both share a common dose of 10 milligrams, and then one is 20 milligrams, is the second dose, and the other one is 40 milligrams. We were not involved in designing those trials, so I do not have a clear understanding as to why Arcadia chose to do that. But I can tell you that the 10-milligram dose, according to [patch] studies that were conducted by ACADIA, does occupy the 2A receptor almost completely. And assuming -- more than 90% plus, and that is usually enough to produce a clinical response with antagonists. And so our expectation is that if the efficacy is an on-target effect, which it likely is, that one would have a good chance of seeing efficacy at the 10-milligram dose. The 20-milligram dose and the 40-milligram dose obviously would produce even greater exposure and greater occupancy of the receptors. We'll just have to wait and see what happens as the data come in. Obviously, our hope is that we'll see good efficacy at the 10-milligram dose in both studies.

Okay, and then the long-term safety studies, when should we some sort of conclusion on those?

I don't have the precise answer here, but typically it's not uncommon to see a time frame of about six months following the conclusion of what would be the second study. It is also (inaudible) I believe that those can be concurrent to the filing. In other words, the extension of a given trial will allow the gathering of safety data, but it doesn't impede one's ability to file and to get the review initiated. So we could come back to you with more precise information on that.

There is an ongoing long-term safety study, and Robert, I do not have at my fingertips the date at which that will complete, and we can get that information to you.

That would be helpful. And I guess just to follow up on pimavanserin as well. In terms of the tox that you might expect as you push the dose up here, what would you expect? Just again, broader studies are underway, and I know we won't know until we know. But what would you expect out of a compound like this?

Well, the molecule to date looks remarkably safe. There have been adverse events reported, headache and the usual stuff that one sees in clinical trials, but nothing jumps out at you with this molecule. It just looks to be a very safe molecule in man. And the animal tox studies, they push doses -- I mean, some very, very high doses before effects were seen. So it looks to be a very safe molecule so far.

Thank you very much, appreciate it.

(Operator Instructions). Doug Miehm, RBC Capital Markets.

A quick question for Bill. You talk about two potential, not company-changing acquisitions, but more material ones. I realize you're going to have significantly more cash flow, but can you speak to how you would finance those acquisitions if they were made within the next month or two?

We are looking at our overall capital structure, and part of what we were going to have to do anyway was redo our existing revolver because it was expiring in 2010. And so I think we plan on going out with a new revolver probably fairly shortly. In fact, we already have a lead lined up on that, which is JPMorgan. We already have soft commitments from a number of banks, which mean that we are highly confident that we will get it done. It would of course be an up-size from our existing facility. And so all of that is well in train. Peggy and her team have been working hard on it, and I think we've got a good plan in place.

Okay. Peggy, one of the things I did note in terms of the guidance you gave, with respect to the revenues on the Wellbutrin XL, was that it did exclude funding costs. And maybe you could just talk to us about where you see the costs of these revolvers to stand? And also, could you tell us if the revenues are net of the royalties you are currently receiving in the US?

Our existing facility, Doug, is at very, very favorable rates, and I do mean very favorable. And if you look at the cash flow timing, you will see that that facility will get repaid on a very timely basis. So the overall funding costs associated with this Wellbutrin transaction are really quite minimal with the combination of the rate and the quick repay. $480 million of incremental cash in this transaction and from the change in dividend policy gets us out in a very quick way. The guidance on the slides is all incremental to the current royalty structure.

Okay, perfect. And then perhaps last question, just has to do with the $600 million in R&D that you have indicated you are going to spend between 2008 and 2012, that five-year period. Obviously on a run rate we're basically at $60 million or so right now. Does this include your up-front payments and projected costs if you were to go ahead with ADP and those sorts of things? Or maybe you could flesh that out little bit for us. Thanks.

Yes, Doug. First, we still continue to target spending $600 million on R&D over the five-year period from 2008 to 2012. Obviously we are behind that run rate right now, which implies we will be spending more in future years. It does include milestones and it does include the projected costs of projects such as the PDP, the ADP and Tourette's CR. And we also have placeholders in there for future projects that we are hopeful we are going to bring in through our in-licensing efforts.

Okay, great. Thank you.

Thank you. There are no further questions registered at this time. I would like to return the meaning to Mr. Bill Wells.

Thank you, operator. We want to thank everybody for your attention today. Once again, it's been a momentous day for Biovail, I think a big move forward in terms of generating additional resources for us to accelerate our new strategic focus and great progress on building our specialty CNS pipeline with our licensing of pimavanserin. Also, excellent progress on restructuring the business and through that, again, generating even more resources to be able to invest in our move into specialty neurology. Thank you all for your attention, and we look forward to talking to you at the end of next quarter.

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.