Bausch Health Companies Inc (BHC) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the second quarter 2009 earnings conference call for Biovail Corporation. At this time all participants are in a listen-only mode. This conference call is being webcast on the Worldwide Web at www.biovail.com. (Operator Instructions) As a reminder, a replay of this conference call will be available until 7 p.m. EDT on Thursday, August 13,2009 by dialing 416-695-5800 for Toronto and international callers, and 1-800-408-3053 for U.S. and Canada, using access code 1864477 followed by the pound key. 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 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, 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 August 6, 2009, and they are available on the Company website as well as its filings with the U.S. Securities & Exchange Commission and the Canadian Securities Administrators, including the risk factors detailed in its 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 Nelson Isabel, Vice President Investor Relations and Corporate Communications for Biovail Corporation. Mr. Isabelle will moderate today's call. Please go ahead, sir.

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 strategy, as well as discuss the financial and operating highlights for the second quarter ended June 30, 2009. Joining on today's conference call 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 during the question and answer session with research analysts immediately following our remarks. We will try to get to as many questions as possible while limiting the call to 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. Good morning, everyone. The second quarter of 2009 was a very productive one for Biovail, as we made significance progress on a number of fronts. The goal of Biovail's business development effort is to move the Company to high growth over time focused on specific specialty therapeutic areas. In the second quarter we completed three transactions investing a total of $770 million. Each of these transactions was highly supportive of our specialty CNS strategy. They should improve both Biovail's near and mid-term financial performance and enhance the Company's long-term growth prospects through the addition of multiple pipeline programs in specialty CNS. I will discuss each of these transactions in more detail in a moment. Our business development group remains very active with ten to 20 products or companies currently in our deal flow and a number of these at the term sheet stage.

Many of these opportunities are licenses of late stage specialty neurology compounds with deal structures quite similar to the ACADIA transaction. Several are acquisitions of companies within markets or near to market CNS assets. These opportunities range in size from quite small to potentially quite large. As always, we cannot predict the success and timing of business developments agreements. The number of high quality business development opportunities we are seeing caused us to go to the credit markets in the second quarter. We were very successful in this regard and accessed total credit of $900 million. This, along with our strong cash flow from operations, provided us with significant resources to accelerate the implementation of our new strategy. To recap the details of these financings, in June we announced our intention to issue $200 million in convertible notes. The offering was five times oversubscribed.

As a result, we twice upsized the deal, ultimately issuing $350 million in notes, while also increasing the conversion premium and holding the rates at an attractive level. These notes continue to be well received in the marketplace. We also upsized our revolving credit facility from $250 million to $410 million, with an accordion feature that could allow for total funds under this facility to reach $550 million. We completed this refinancing at effectively investment grade rates and terms. Today we have access to over $400 million in liquidity for investment to grow our business in addition to significant cash inflows every month. Our restructuring efforts remain on track and are increasingly reflected in our financial results. When complete, these restructuring efforts will enhance our business efficiency and provide even more resources to invest in future growth.

Gilbert will provide an update on our restructuring in a moment and then Peggy will walk you through some of the highlights of the solid financial results of the second quarter of 2009. Now let's talk about the three transactions completed in the quarter. In May we announced a collaboration and license agreement with ACADIA Pharmaceuticals for the U.S. and Canadian rights to 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. Pimavanserin provides us with a potential long-term growth asset and is the type of product we find attractive. It targets a niche indication in neurology. It clearly addresses an unmet medical need as there are currently no FDA approved products for PDP. It has strong intellectual property protection that runs to 2026 and it has potential in the treatment of other CNS indications.

Pursuant to the terms of this agreement, we made a $30 million upfront payment to ACADIA in the quarter and will make additional payments as pimavanserin progresses through the regulatory process. As I discussed with you last quarter, the transaction with ACADIA is a good proxy for our preferred approach to end licensing. Our approach is to take advantage of opportunities while mitigating risk. Wherever possible we'll limit our upfront payments and structure the agreement such that additional amounts are paid as the product meets certain milestones and the risk profile improves. Gilbert will provide additional information about pimavanserin in a few moments. Also in May we acquired the U.S. rights to Wellbutrin XL from GlaxoSmithKline. This transaction was financially motivated as it immediately strengthens our base cash flows, thus providing us with additional resources to execute on our strategy through greater accessibility to capital markets, as evidenced by our recent successful financings.

As we discussed with you last quarter, the valuation was compelling and easily surpassed our internal hurdle rates, despite what we believe to be conservative assumptions. Wellbutrin XL's prescription volume during the second quarter remained substantially higher than the typical erosion you see following the introduction of generic competition. Our acquisition valuation was based on the conservative assumption that prescription volumes would decline rapidly to what is a more typical level, so some upside potential clearly exists. We also assumed in our acquisition model that we would manage pricing at a level in line with GSK's historic practice for the brand. We believe there may be opportunities to enhance our return through more aggressive pricing strategies. For example, after closing the transaction we implemented a 6% price increase. We also were able to achieve a significant improvements in our contract terms with distributors for all of the products we distribute due to increased volume.

Our expertise in managing all facet of branded drugs, in addition to the factors I just discussed, bodes well for the ongoing cash flow generation of Wellbutrin XL and our ability to maximize the value of this important asset. We believe the risk profile associated with Wellbutrin XL transaction is relatively benign. In fact, I believe it is one of the lowest risk transactions possible in this industry. It is for this reason that we were comfortable investing $510 million to complete the transaction. Wellbutrin XL is off to a good start and we expect to realize an attractive and immediate return on this investment. In June we acquired the worldwide development and commercialization rights to the entire portfolio of tetrabenazine products from Cambridge Laboratories Ireland. This transaction accomplishes several objectives. It enhances our near-term financial performance, while providing us with ownership and control over interesting pipeline assets that may provide long-term growth, and allows Biovail to control the supply chain for tetrabenazine.

In the near-term the agreement allows Biovail to further participate in Xenazine's ongoing success in the U.S. through lower cost of goods. It provides incremental revenues and profitability from sales of tetrabenazine outside of North America and is expected to add $23 million to $26 million in operating cash flows in 2010. Longer term BVF-018, a modified release formulation of tetrabenazine, and RUS-350, an isomer of tetrabenazine, could prove to be interesting assets. Gilbert Godin, Biovail's Chief Operating Officer, will now provide an overview on the operational highlights in the second quarter and an update on our pipeline activities. Gilbert.

Thank you, Bill, and good morning, everyone. The second quarter was a productive and successful one for Biovail. Closing three significant transactions is no easy feat and I am very proud of the tremendous work of our team to make it happen. We believe the integration risk associated with the two acquisitions completed in the quarter is very low and entirely manageable. Starting with the Wellbutrin XL agreement, the only significant changes are in the product's packaging, the destination to where product is shipped and the medical monitoring and pharmacal vigilance activities inherent to its distribution. As for the Cambridge transaction, we expect to utilize existing resources to manage the business and a few additional employees for supply chain activities. Turning now to our first commercial specialty CNS product, Xenazine, which was launched to U.S. specialists by our partner, Lundbeck, in late November 2008.

Through June 26th a total of 2,150 patients have enrolled or are in the process of enrolling with the Xenazine distribution center and 6,685 prescriptions have been filled. We're pleased by the sales and marketing efforts of our partner. As you may know, Lundbeck recently acquired a larger stake in the worldwide rights to tetrabenazine. Now, only Biovail and Lundbeck have any significant economic interest in tetrabenazine. Lundbeck's acquisition does not impact Biovail's economics in the drug and we look forward to continuing the very positive working relationship between the two companies. In addition, Turning now to Aplenzin, which was launched in the U.S. on April 7th by our commercialization partner, sanofi-aventis. Aplenzin is the only single tablet product that contains the highest proscribable daily dosage of bupropion, curtesy of its 522 milligram dosage strength.

In addition, Aplenzin is alcohol resistant and, as per the granted label, has 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. It is still early in the product's launch to provide any meaningful comments on the product's long-term potential. However, we're pleased by our partner's sales and marketing efforts and sanofi-aventis has indicated they're pleased with Aplenzin's launch performance thus far. The July launch of the 174 milligram strength tablet should accelerate prescription volumes over the next several months. This will allow for simpler treatment initiation through the use of this titration dosage. Switching to restructuring, the closure of our R&D site in Mississauga, Ontario is virtually completed. The activities performed at this site, which were essentially related to tech transfer, were transferred to our site in Chantilly, Virginia, which itself is being streamlined and consolidated into a single building.

The entire consolidation of those two units resulted in a 50 person headcount reduction and will be completed by year-end. With respect to other restructuring initiatives, we are on track to complete the closure of our Puerto Rico manufacturing facilities by early 2010. The shutdown of our research and development site in Dublin, Ireland, is complete. As previously disclosed, our restructuring and cost containment initiatives in aggregate are expected to result in restructuring charges of $100 million to $120 million, the cash component of which is expected to be in the $20 million to $40 million range. Through the end of the second quarter of 2009 we have incurred approximately $88 million in such restructuring charges, including cash costs of $15 million. Once completed, these restructuring initiatives are expected to result in annual savings of $40 million to $60 million. We expect to be at this run rate in 2010. Turning now to the sale of non-core assets.

In April we completed the sale and leaseback of our corporate aircraft for total proceeds of $5.3 million. With respect to our corporate headquarters in Mississauga, Ontario, the sale and leaseback agreement we expected to close in July of 2009, was not completed with the purchaser. We are close to finalizing similar arrangements with another purchaser. In Dublin, Ireland, we recently sold our R&D facility for net cash proceeds of $5.2 million. The sale of our Puerto Rico manufacturing facilities will be more difficult as the local real estate market for pharmaceutical facilities continues to decline. Indeed, in the current quarter we recognized a further write-down in the value of this asset of $6.5 million. Given these and other market conditions, we now expect to realize approximately $80 million to $90 million in proceeds from the sale of non-core asset, down from our previous estimate of approximately $100 million.

I will now discuss some of the highlights of our product development efforts beginning with pimavanserin, which is currently being evaluated in two Phase III studies as well as an open label safety extension study in Parkinson's disease psychosis or PDP. PDP affects up to 40% of the estimated 1.5 million U.S. patients with Parkinson's disease. The primary end point of each of the Phase III trials is anti-psychotic efficacy as measured using the Scale for the Assessment of Positive Symptoms or SAPS. Motoric tolerability is a secondary end point in the Phase III trials and is measured using the Unified Parkinson's Disease Rating Scale or UPDRS parts II and III. Data from the first of these Phase III studies are expected in the current quarter. This trial is a multi-center, double blind, placebo controlled study designed to evaluate the safety and efficacy of pimavanserin in patients with PDP.

A total of 298 patients were enrolled and randomized to one of three study arms, placebo or one of two doses of pimavanserin, 10 milligram or 40 milligram daily. Patients receive oral doses once daily for six weeks in addition to stable doses of their existing dopamine replacement therapy. The second study, which is of similar size and which was initiated approximately one year after the first one, is evaluating 10 milligram and 20 milligram dosage strength. If results from the first Phase III program are positive, we intend to launch the clinical program in Alzheimer's disease psychosis or ADP, an indication with a much larger patient base. It is estimated that more than 50% of the over 5 million U.S. patients with Alzheimer's are effected by psychosis. Pursuant to the agreement with ACADIA, we would fund all studies in ADP.

Another product currently in our specialty CNS pipeline is BVF-018, a new formulation of tetrabenazine that we intend to develop in Tourette syndrome, a disease that affects approximately 200,000 Americans and one that significantly impacts quality of life. Through the recent transaction with Cambridge we now have control and ownership of this asset. It is my pleasure to report that BVF-018 has been granted orphan drug designation for the treatment of Tourette syndrome in school-age children five to 16 years old. As such, if successfully developed, BVF-018 would benefit from seven years of exclusivity. We had a pre-IND meeting with the FDA for this program in July and, contingent on successful safety assessment, our current plans are to initiate a Phase II study in the third quarter of 2010. Another product that we now own is RUS-350, an isomer of tetrabenazine that has intellectual property protection through 2025. RUS-350 has displayed a promising safety profile in the Phase I work that has been completed to date.

Contingent on FDA's concurrence and the outcome of additional preclinical assessments, we hope to move RUS-350 into a Phase II study in the first half of 2010 to determine whether it has comparable or ideally superior efficacy to tetrabenazine in managing hyperkinetic movement disorders. Turning now to our legacy pipeline, beginning with BVF-324, our undisclosed product for the treatment of PE. We plan to begin enrollment in the European pivotal trial program in the current quarter. We will be conducting two trials, evaluating different doses of BVF-324. If BVF-324 is successful, we intend to engage a commercialization partner for the European market. We have been monitoring the early progress of Dapoxetine in Europe. Dapoxetine is a Johnson & Johnson product that was recently approved for the treatment of PE in Europe.

Beyond confirming that a regulatory framework for approval exists in Europe, Dapoxetine success could go a long way in establishing a commercial treatment market for PE prior to BVF-324's potential launch. In the U.S. we're monitoring Dapoxetine's progress and should it ultimately be filed with the FDA, we will revisit our strategy with respect to the U.S. market. We continue to believe that BVF-324 could offer a superior product profile over Dapoxetine's. That concludes my remarks. I will now turn the call over to Peggy Mulligan, Biovail's Chief Financial Officer. Thank you.

Thanks, Gilbert, and good morning, everyone. In accordance with U.S. GAAP Biovail reported net income of $24 million or earnings per share of $0.15 in the second 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 $29.4 million or $0.19 in EPS. As previously discussed, 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 second quarter of 2009 cash EPS was $0.59 compared with $0.44 in the second quarter of 2008. Excluding specific items in the second quarter of 2009 comprised of $5.6 million in transaction costs associated with the recent acquisition of the worldwide rights to tetrabenazine, $22 million in proceeds related to the settlement of arbitration proceedings in respect to Biovail's investment in auction rate securities, $1.5 million in costs associated with the SEC consultant, and $629,000 related to proxy solicitation activities, cash EPS was $0.50 in the second quarter of 2009.

A reconciliation of GAAP EPS to cash EPS is provided in our second quarter earnings release issued this morning. Total revenues for the three months ended June 30, 2009, were $193.5 million compared with $186.1 million for the second quarter of 2008. Product revenues in the second quarter of 2009 were $187.7 million compared with $175.7 million in the second quarter of 2008, a 7% increase that reflects higher revenues from Wellbutrin XL and the inclusion of Xenazine, Nitoman, and Aplenzin revenue in the 2009 period. Offsetting factors include lower revenues from Ultram ER, Cardizem LA, Zovirax, and Biovail's portfolio of generic pharmaceuticals. In Biovail's pharmaceutical candidates case, where revenues were down 1% year-over-year, the decline was driven by the weakening Canadian dollar. At constant exchange rates BPC revenues increased 15% in the second quarter of 2009 compared with the 2008 period.

Wellbutrin XL revenues were $37.1 million in the second quarter of 2009 compared with $30.4 million in the 2008 period. This increase reflects the May 14, 2009 closing of the acquisition of the full U.S. rights to the product, which more than offset the impact of the introduction of generic competition to the 150 milligram strength in May of 2008. Following its late November launch, Xenazine generated U.S. revenues of $11 million in the second quarter of 2009. As Gilbert described, we're pleased by Xenazine's initial commercial performance. Ultram ER generated revenues of $16.6 million in the second quarter compared with $19.2 million in the 2008 period. This decrease reflects lower prescription volumes and a 2.5 percentage point reduction in Biovail's supply price in 2009, partially offset by price increases implemented over the last twelve months.

In the second quarter of 2009 a competing once-daily formulation of tramadol was launched in the U.S. market. While this did not have a significant impact on Ultram ER revenues in the second quarter of 2009, we're monitoring the effect it may have on prescription volumes in future periods. Additionally, Ultram ER is the subject of patent infringement litigation. The trial has ended and a ruling can come at any time. A ruling of non-infringement could allow for the launch of a generic formulation of Ultram ER in the U.S. market. Turning to the expense side of the income statement, gross margins based on product sales were 73% in the second quarter of 2009 compared with 75% in the prior year period. The year-over-year decline reflects the inclusion in cost of goods sold of $6.3 million of Wellbutrin XL inventory that we reacquired from GSK at a price equal to 22% of the product's net selling price and then subsequently sold to wholesalers in the second quarter of 2009.

It also reflects lower contributions and sales of 150 milligram tablets of Wellbutrin XL prior to our acquisition of the full U.S. rights to the product in May, the inclusion of lower margin Xenazine and Nitoman sales and the reduction in 2009 of our supply price for Ultram ER. These items were only partially offset by price management across several product lines, lower labor and overhead costs in Puerto Rico, and the positive impact on labor costs in Steinbach as a result of the weakening of the Canadian dollar relative to the U.S. dollar. Let me now turn to Biovail's selling, general and administrative expenses. In the second quarter of 2009 four items added $12 million to this expense. They were $7.6 million in indemnity obligations to certain former officers, $2.2 million in compensation expense related to deferred share units, $1.5 million in costs related to the SEC consultant, and $629,000 related to proxy solicitation activities.

On a normalized basis adjusting for these and other similar items in the 2008 period, which included management succession costs of $6.1 million, SG&A is down 5% in the second quarter of 2009 compared with the second quarter of 2008. This demonstrates our commitment to improving our overall efficiency rate and our success at delivering on this objective. As Gilbert mentioned, the various restructuring initiatives we've announced are expected to result in annual saving of $40 million to $60 million. We are already seeing the traction of these initiatives in current earnings and expect to see full results in the 2010 year. R&D expenses were $44.7 million in the second quarter compared with $21.8 million in the prior year period. The increase reflects the upfront payment of $30 million made to ACADIA in the pimavanserin collaboration agreement.

Adjusting for this upfront payment Biovail expects R&D expenses to remain above the levels seen in the past several quarters. We have now largely completed the rebalancing of our portfolio and expect to see R&D costs reflective of a growth Company. For instance, the planned initiation in the third quarter of 2009 of the Phase III clinical program for BVF-324, as well as incremental costs associated with the pimavanserin program and the tetrabenazine assets. At the end of the second quarter of 2009 the Company had cash balances of $53 million and long-term obligations, including the current portion, of $450.7 million. The long-term obligation includes the net present value of the remaining $30 million payable to Cambridge Labs over the next two years, $130 million drawn on the revolving credit facility as of June 30th, and $293.8 million which represents the value of the debt component of the convertible notes.

The equity component of the notes, valued at $56.7 million, is recorded in additional paid in capital and shareholders equity. The value allocated to the liability component will be accreted up to the face value of the notes over the five year period to maturity and will be recognized as additional noncash interest expense. This will add an average of $2.8 million every quarter to GAAP interest expense. Another factor that will result in additional noncash interest expense is the amortization of approximately $26 million in deferred financing costs associated with the convertible notes and the Company's new revolving credit facility. This will add approximately an average of $1.5 million every quarter to interest expense resulting in total noncash interest expense of $4.3 million per quarter on average. Of course these items will not impact cash EPS.

With respect to the convertible notes, it is our current intent and policy to settle the notes using a net share settlement approach such that the principle amount of any notes tendered for conversion would be settled in cash and any excess conversion value settled in common shares. This will mitigate the dilution impact. For example, at $20 per share a total of approximately 6 million shares would be issued representing dilution of less than 4%. Turning to Biovail's cash flow statement, cash flow from operations was $97.1 million in the second quarter of 2009 compared with $67.1 million in the prior year period. Adjusting for the $5.6 million in transaction costs related to the Cambridge transaction, the $22 million in proceeds from the settlement of arbitration proceedings related to our auction rate securities, and the costs associated with the SEC consultant and proxy solicitation activities, cash flow from operations before changes in working capital was a robust $79.9 million in the second quarter of 2009.

Capital expenditures amounted to $842,000 in the second quarter of 2009 compared with $7.7 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 recently expanded state of the art manufacturing facility in Steinbach, Manitoba. 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 and six months ended June 30, 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 October 5, 2009, to shareholders of record on September 1, 2009. The ex-dividend date is August 28, 2009. That concludes my comments. Bill.

Thanks, Peggy. I am pleased by the progress we've made since adopting our new strategy in May 2008. Successes of the past year have solidified Biovail's near-term financial performance as we continue to build the long-term growth outlook for the Company. Perhaps most importantly we have become a recognized and incredible participant in the specialty CNS market. We now have a promising pipeline with multiple development programs that address unmet medical needs and specialty CNS and our first specialty CNS product, Xenazine, continues to perform strongly in the U.S. market. Our restructuring efforts are beginning to positively impact our operating results. And these should improve further in 2010, as some of these initiatives are completed. However, there is much still to do.

The strong ongoing cash flows of our business in conjunction with our recent success in accessing up to $900 million in total credit, provide us with the necessary resources to continue to be aggressive in our business development efforts. Today's global financial environment has created a number of interesting and actionable opportunities that could allow us to build a leadership position in specialty CNS markets. Moving Biovail to high growth is a high priority for us. But not at any cost. The four transactions we have completed since September, 2008 should give you comfort that we are disciplined and prudent in our capital allocation decisions. Today Biovail is a strong Company. Our base business generates robust cash flows, which we are reinforcing in the short and medium-term. We're leveraging those cash flows to build the long-term growth outlook for the Company. I believe that growth story is now emerging based on all of the actions of the past fifteen months. I am convinced Biovail is on the right track.

And in the midst of all this change, Biovail's employees have remained optimistic, focused and committed and we continue to generate solid financial results. This concludes my comments, I will now return the call to the conference call operator for questions. Operator?

(Operator Instructions) Our first question is from Lennox Gibbs from TD Securities. Please go ahead.

Good morning. Thank you. Presumably there are a number of complexities in that $37 million number for Wellbutrin XL just related to the mixed economics on the quarter. What would the implied quarterly run rate be if you were to normalize for some of those anomalies?

If you were to just look at where the product is performing on a normalized basis, we're probably in, and I will give you an annual number, we're probably tracking north of $200 million at this point.

Okay. And thanks. And then secondly if you were to take a look at your options in the wake of the PDP Phase III results, can you speak to the minimum outcome you need to see both on the primary and secondary end points in order to call that trial a success? And then secondly can you share what your obligation is to ACADIA in the event that you do not -- in the event the trial does not meet that hurdle?

Good morning, Lennox, this is Gilbert. Good morning, Gilbert. Actually we believe that if either one, i.e. both dosages, would actually show and separate from placebo, that would be considered to be a success. Therefore if either the 10-milligram or the 40-milligram. Beyond that point, we have a decision tree. It is very clear and it is agreed to by both parties as to what would take place next. We have finding requirements that are for two well controlled trials and therefore we will do what is appropriate to have a successful filing.

So back to the -- back to the primary and secondary, at what P -- separated at what P values?

I think that the trial is -- well, I think typically it would be at 0.05 and I think the -- the trials that are performed at -- are powered at 90% power level.

Right. So there is a sheer decision process. Is that correct? You've agreed in advance as to what constitutes success?

Yes, I think it is fairly clear amongst the parties here. We have constant scientific interactions with our partners at ACADIA and there is pretty good concurrence on what we will do next.

But again, so what is the obligation in the event that the hurdle is not met?

Actually, as I said before, there is a decision tree, so one possible outcome is success with both dosages that would certainly encourage us to -- to trigger the next step, which is a first trial NADP. If there was success in one of the two dosages, depending on which one it is, that may or may not require that we extend the clinical program that would be based on the actual data that we would see. We have a commitment to work collaboratively with ACADIA to reach a successful outcome and have two well controlled trials that would be fileable. In the event that both dosages would not succeed, we would have to analyze the data and determine if there is anything here that is indicative of a need to pursue or not any further developments.

Yes, one thing that's important to remember, Lennox, is that, as you know very well, there is always significantly uncertainty in the outcome of these trials and when we went through the evaluation of this opportunity, we -- we assumed that there might be the requirement for an additional Phase III and so we did build that into the economics of the transaction when we put it in place. We are confident about the, I think, the performance of pimavanserin and continue to -- to think that this is a very attractive opportunity, but as you know, there is always uncertainty in clinical trials.

Okay. Then one final question and I will get back in the queue. Just some perspective on that Lundbeck LifeHealth transaction. Was LifeHealth something that you considered or even pursued? If so, what happened and if not, why not?

No. We did not pursue LifeHealth and we did not consider -- we considered a potential pursuit of LifeHealth, but decided that it was actually much better in the -- in Lundbeck's hands. We -- we were interested in acquiring the assets of Cambridge Labs Ireland related to tetrabenazine. That gave us control over the supply chain and also gave us ownership of two quite interesting development programs. However, we were very interested in having Lundbeck acquire LifeHealth because we wanted them to have a larger economic interest in tetrabenazine. As you know, they are the marketing partner in the U.S and so it is very much in our interest to have them have more skin in the game and be heavily invested in the success of tetrabenazine. So has this has all played out, I think it is perfect for Biovail. We have an excellent partner with Lundbeck, who has a -- a very significant economic interest in tetrabenazine. They're doing a good job on the marketing and we are, I think, doing a good job and working on the supply chain and are working hard starting to -- to move forward the developments of these two interesting new programs.

Thanks very much.

You're welcome.

Thank you. The next question will be from Tim Chiang from FTN Equity. Please go ahead.

Hi, thanks. I had a question on Xenazine. I know that you have given some updated patient enrollment figures, I think it is like 2,150 patients. Do you guys have an internal target as to where you can get that number to by the end of this year? And also could you just comment on what sort of annualized run rate you're at now with Xenazine?

Yes. We -- we haven't disclosed any -- any target numbers around patient enrollment for this year. What we have said is that we expected a patient population of between 4,000 and 6,000 patients over time. Obviously, we are moving well towards that -- towards that target. I would say Xenazine has been running ahead of our expectations so far and we're very pleased with how it has been performing. Annualized run rates, I'm not going to go there. You have the numbers and I think we'll just let you guys do the math.

Bill, just one follow-up then. I think you had given some initial guidance for Wellbutrin XL. I mean, are you guys already ahead of those numbers based on what you're seeing in the marketplace with that product right now?

Well, the numbers in the second quarter on an annualized basis, we're certainly running ahead of that guidance. However, I am not going to comment on -- on what might happen going forward. But I will say that based on the performance in the second quarter, there is -- appears to be some potential upside. Okay. We're very pleased with how Wellbutrin is -- is performing right now.

Thanks.

Thank you. The next question will be from Marc Goodman from UBS. Please go ahead.

Yes, hi. Can you -- on Xenazine can you give us an idea of, I guess number one, how much is off label usage relative to on label and the second, the average pricing, what kind of dosing or the average patient's using. And then second question is on SG&A. I believe it was, Peggy, in your remarks you were talking about the indemnity obligations for former officers, there was a deferred share units, all of these expenses that are kind of within your, let's call it, core SG&A number here. When do those go away? What really is the core SG&A number? And then on pimavanserin, I'm just want to make sure I understand, when you spoke to the FDA, what did they say about pimavanserin with respect to primary and secondary end point? Is this just the primary end point, if you hit it on both studies you are good. Are the secondary end points important for marketing or is it just -- is it important for approval?

Let me try the first question. We'll hand off to Peggy on the SG&A and Gilbert on pimavanserin. So with regard to tetrabenazine, the average dose is running at 50 milligrams, which is higher than we had originally -- originally projected. The average pricing that we had projected was between $30,000 and $50,000 a year in annual therapy costs. Obviously, since the annual dose is running higher we're, I think, above the midpoint of that range. That is in terms of gross -- gross costs, however. And let me hand over to Peggy for SG&A.

Sure. I think, Marc, if you adjust for the -- the matters that I spoke to, the indemnity costs, the first document, CSEC, the proxy, that will get you to certainly what I use to measure as a run rate and a run rate that, as we've mentioned, we hope to continue to improve on.

But when do those go away?

Well, as far -- as far as the deferred stock units I hope never, because that's part of our equity based comp, so that one is really -- the reason it is called out as a differential is it was a timing issue. Those were first quarter charges in '08, second quarter in '09, so that would be a swing factor there.

Oh, I see. Okay.

The indemnities we're required to pay those to our certain former officers. Three of the four have settled with the Ontario Securities Commission, the fourth has completed his hearing, but has not been finalized and I believe the SEC hearings are in process or commencing in the near future, so we're certainly hopeful that those costs will diminish in the not too distant future, but that's something that's not directly within our control.

Marc, good morning, this is Gilbert. With respect to pimavanserin, well, we were not privy or we were not participant to the -- to the meetings with the FDA. Those took place before our involvement with -- with the product. Having said that, we have reviewed the outcome of those meetings and, while it is always delicate to speculate, it is likely that meeting the primary end point will -- will be conducive to an approval if this can be demonstrated in two well controlled trials. The secondary end point could find their way into the label. Obviously, in that case demonstrating that the drug is not counter productive to the motor systems experienced by Parkinson in patients is highly accretive to a drug that is primarily to treat psychosis.

And the one other question, what's a good gross margin that we should be using thinking about going forward?

A couple of things are going to impact our gross margin go forward. Wellbutrin -- the Wellbutrin transaction, of course, is dropped almost straight to the bottom-line. So that will be a tremendous improvement with the gross margin. As will the -- the closure of the Puerto Rico facility where about $25 million to $30 million of overhead costs will drop out of the equation. Conversely Xenazine, by the way the arrangement is struck, has -- is a much lower margin project, so as those sales increase, that squeezes the margin down some. So those two will offset each other. If you pop them into your model, I guess you will get a fairly good estimate of what the run rate should be.

Okay, thank you.

Thank you. The next question will be from Hari Sambasivam from National Bank Financial. Please go ahead.

Ah, yes, thank you. Just a couple of quick questions on the acquisition strategy as well as the balance sheet. You folks have been very active on the acquisition front at this point in time and I am just wondering in terms of your -- your pace to acquire a small sales force or other products, I am just wondering what we should be expecting for the next several months. Are you going to take a hiatus or should we be expecting additional opportunistic acquisitions, was the first question. Second question really relates to a -- a similar issue arising from the acquisitions, which is your balance sheet. Right now, obviously, a fairly significant amount of long-term debt has been built up and I am just wondering when we look forward to maybe '10 or '11 how do you anticipate the long-term debt levels compared to '09? I am just wondering are you planning to pay this down quite substantially over the next year or are you planning to carry this for some period of time depending on the acquisitions. Maybe you can explain that, please.

Sure. We're still full speed ahead on the business development front. So I would expect we will be doing additional acquisitions in the future. In the near-term, however, in the next little while I would expect probably licensing transactions to occur first before acquisitions. That's just because of how things are positioned in the deal flow. But I certainly do expect you will see some additional acquisitions in the future. Yes, we -- we have built up reasonably significant amount of debt on the balance sheet at the moment. I will point out, however, that our ratios are still extremely solid and well within investment grade range. We also are getting a, I will use a descriptive term, a river of cash flow coming into the Company because of the, obviously, the Wellbutrin deal, managing our legacy portfolio product well, and also the -- the efficiency steps that we have taken.

We will be applying that cash flow to pay down our revolver and I expect that, absence any other acquisitions or significant upfront payments on licensing deals, that we would see that revolver paid down very rapidly. However, I do expect that we will do some acqui -- acquisitions and we -- we will have some milestone payments associated with licensing and so we would then simply reborrow under that revolver in order to finance it. The good news is is that we are seeing -- we are seeing the cash flow that we had expected coming into the Company and that is the raw material which is allowing us to improve the Company's growth profile over time.

Thank you.

Thank you. The next question will be from Randall Stanicky from Goldman Sachs. Please go ahead.

Good morning, this is actually Bob Jones on for Randall this morning. Just on the business development front, now that you guys have completed these four deals, could you talk a little bit about what phase of development you're looking for in -- in potential further end licensing deals?

Certainly. The -- we are -- we are targeting Phase II and Phase III type assets for end licensing. When we're looking at assets, which are either already in the market or short -- again, come to market shortly, typically those would be more acquisition focused. We -- we also have a couple of programs that we're looking at which would be earlier than -- than Phase II, so we're talking about programs, products that might come to market in, let's say, five to seven years.

The -- these are not going to be a big piece of our portfolio, but I would like to have one or two programs with that characteristic in the portfolio, because they're extremely interesting opportunities, very interesting science associated with them, potentially very big -- very big markets, and they are interesting learning opportunities for Biovail to help to develop our capabilities, but that's not where you're going to see us putting a significant amount of our effort or our resources. Much more of that effort and resources is going to be focused on products which are currently in the market, shortly about to come to market, or a Phase II and Phase III, and you'll probably see a fairly balanced approach to those different areas.

That's helpful. And then just back on the Wellbutrin deal, based on the experience you guys are having with that deal, are there other situations out there that could present a similar opportunity?

We are evaluating some and I think that there are some other situations which have characteristics which look a lot like the Wellbutrin deal that could be interesting and so we are going to certainly take a look at those and see if we can make them happen. Probably not quite as large as the Wellbutrin deal. That was a somewhat unique -- unique opportunity. But everything that we have seen in the performance of Wellbutrin after the acquisition, and of course it is a product we know well because we have been handling it for years, indicates to us that this is a -- a very significant value creation for Biovail.

Thanks.

Thank you. The next question will be from Doug Miehm from RBC Capital Markets. Please go ahead.

Good morning. A quick question as it relates to the generic portfolio. We noted that one of the generics had been doing extremely well, Cardizem CD, it looks like you've had a competitor drop out of that market, or Teva has anyway, and where we were expecting better numbers out of the Company in terms of revenues, could you maybe speak to that? Is there changes with respect to pricing or is there anything specific going on there?

Sure. Good morning, Doug. Indeed we have observed the whole [dochism] generic market has been in a -- in a state of flux. As you know there has been some competitors dropping out of that market and therefore others moved and took over the market share. This, however -- and in addition to some, I guess, some listings that were gained by some of our partners was done at the expense of pricing. In other words, this is a highly competitive marketplace and the price point is essentially the rule of the game and, therefore, we can unfortunately conclude that a lot of those share gains have been made at the expense of pricing and it's -- it's been pretty much of a net zero sum game as a result of that.

Okay. Good. Perhaps you can talk to Wellbutrin XL, the pricing strategy going forward? You had a 6% price increase. Can we expect regular increases of that magnitude on a six to twelve month basis?

Well, I think you can expect regular price increases. I don't want to give a magnitude. But I do expect that we will be more aggressive than -- than GSK had been in the past. They seem to be averaging about a 2% to 3% price increase annually. And we are also looking at other ways that -- that we can maximize our earnings from the product and to encourage more -- more scripts. As I say, so far it has been performing very well and we haven't even started to implement some of the ideas that we have for the product. So we're feeling pretty good about Wellbutrin XL.

Okay, good. And then just to wrap up, Bill, with respect to acquisitions, not the end licensing, but more the acquisitions that you're looking at right now, are you finding with improvement in the market that pricing is getting away from you in any way or are things pretty stable? Perhaps you could comment on that. Thanks.

Well, Doug, you may -- you may have heard me say in the past that the deals we were looking at were quality assets and you're never going to get a quality asset that -- at a knockdown price and so we -- we always believe that we were going to have to pay fair prices for these -- for these assets. And even paying a fair price that we would be able to get very attractive returns from them. That's certainly what has played out over the -- over the last year and I don't think that situation has changed at all.

Okay, great. Thanks very much.

Thank you. The next question will be from Cosme Ordonez from GMP Securities. Please go ahead.

Thank you. Could you remind us exactly when the acquisition of Wellbutrin rights from Glaxo closed? When did the transaction close exactly and the transaction (inaudible) revenue in the quarter in full or only part of the quarter?

Don't -- don't hold me to the exact date, but I believe it was May 15th. So it was about halfway through -- halfway through the quarter.

Okay.

And so the revenues, the incremental revenues from Wellbutrin only affected half of the quarter.

And with regard to Xenazine, do you plan to undertake any clinical studies to support your commercial efforts?

We certainly are going to be doing clinical studies on the new versions of tetrabenazine, BVF-018 and RUS-350. On the existing formulation of tetrabenazine, only if we think there are other indications which might be interesting and so we have some ideas. We'll take a look at it, but don't know if those will develop or not.

Thank you. And you mentioned that you have an excellent relationship with Lundbeck. Do you have any changes to the sales team in the U.S. to report after the acquisition of Ovation? Anything has changed in terms of personnel or the infrastructure's still the same?

Infrastructure is basically still the same. I think there is a couple of individuals who have -- who have left, not seeing that that's affecting the marketing effort in any way.

Okay. Now, with regard to pimavanserin, assuming that the results from the ongoing Phase III clinical trials meet your expectations, when do ACADIA and Biovail expect to file the NDA with the FDA?

If everything goes as planned, these are not firm dates, but it is -- it's just looking at the calendar and - and the sequence of event, most likely in the first half of 2011, something like that. The second trial has been launched after -- the one year after the first trial. This first trial comes to a conclusion now and we'll have the results during the third quarter, so we can expect that between third and fourth quarter next year would come the results of the second trial, a few months to prepare the filing and therefore hence the mid-year of 2011. This is kind of back of the envelope calculation, but I think it is a reasonable assumption if everything is fine as best case, yes.

Thank you very much.

Thank you. The next question will be from Bert Hazlett from BMO Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Just with regard to a comment you made on Wellbutrin XL, you were talking about other ways to encourage more scripts. Could you elaborate on that a little bit, please?

I will hand that one to Gilbert.

Yes. Well, actually, we're -- we're researching. We're trying to understand here what explains fairly strong performance post genericization of the brand. There is obviously a number of hypothesis, none of which have been validated. So we're trying to see that if in this specific market and that specific disease state, there is obviously a sensitivity to revert to generic alternatives. It is important to state that Wellbutrin XL has been coined as a last line of defense by psychiatrists that are essentially initiating treatment and, therefore, it is a product that's been used time and again in the most refractory cases or the relapsers, and, therefore, once it works, it is likely that there will be a resistance to transitioning that treatment to another brand or another alternative. So we're trying to understand what that could be. And if there is anything here that can be done so that those -- those findings can be known to the greater number and -- . We still have to be realistic. This is a fully genericized market. But the brand has lot of equity and we'll do what is right for the

Okay. Thank you very much. And just with regards to Xenazine and your expectations for the remainder of the year, I know you said performance was -- was good in the second quarter and you talked about pricing being above your expectations. Really looking forward to -- to trying to get a little bit more detail on what you're expecting for Xenazine revenue for the second half of 2009?

We're just going to have to let you guys come up with your own assumptions on that. What I will say is that it is performing ahead of our expectations in terms of average dose, in terms of number of patients enrolled, in terms of number of prescriptions. So we're pleased with how it has been performing.

Okay, thank you.

Thank you. The next question will be from Scott Hirsch from Credit Suisse. Please go ahead.

Thanks. Can you -- you guys mentioned that you raised $350 million in the convert, you have the accordion revolver up to $550 million, cash flow on hand, but that is less the stock buyback and the previous revolver paydown and the dividend. What I am getting at is what in aggregate is the powder available for business development?

Yes, boil it all down and right -- at the end of the -- at the end of the second quarter we had over $400 million in liquidity available and a significant amount of cash flow coming through the door every month. And if you see the cash flow numbers from the second quarter, so it should be pretty easy for you to come up with a figure on free cash that's available for us.

Fine. Is there any update on Ultram ER litigation?

The trial is complete. Decision could come at any time and we have no idea which direction the decision is going to go.

Potential settlements are always opportunities still?

I don't think it is likely there will be a settlement.

Okay. And then you mentioned a little bit in the PE market how J&J's product might change some of the decision processing. Shionogi Cialis has got a product, [Warner Chocat] has got a product, it looks like it could become crowded. What are your thoughts depending upon how this market plays out down the road?

First, I think it is going to be important to see how Dapoxetine does and whether they really a pioneer of this market for us. Us hugging in behind them and tail dragging that product, I think, is a perfect -- perfect positioning for us. The -- the other products which are in the market, a number of them are topicals, and I don't want to go into too many of the details, but topicals have some serious deficiencies with this particular -- particular application. So having a -- an oral -- an oral drug is, I think, much-- much better from a patient -- patient perspective. Both the patient and their -- and their partners and that's why we think that Dapoxetine is so important in pioneering this marketplace.

Fine. And then just lastly, Peggy, you mentioned that there is $40 million, $60 million in restructuring to play out in 2010. Is that going into 2010 or coming out in 2010 or during it?

During, but early during.

So first half of 2010 we could see the restructuring of -- in that $40 million to $60 million range play out at leverage?

You're talking the savings, right?

Correct.

Yes. Yes, because -- and don't forget Ireland has already been closed, so that -- that cost is gone already. The transfer of manufacturing up to Steinbach is progressing well. So, yes, the traction is already there and should be full throttle in the not too distant future.

Okay, great. Thank you.

Thank you. And the final question will be from David Steinberg from Deutsche Bank. Please go ahead.

Thanks. There has been a steady stream of reports and actually some have reached the press about increasing patient dissatisfaction with generic forms of Wellbutrin XL and even some safety concerns given that it is not exactly a bio-equivalent to the brand. I know you've only had the asset for a little bit of time. Any thoughts on that? Any ways to capitalize on this situation. And then finally, there is some talk that the FDA would ask for some study comparing the generic to the brand. Do you think that will become reality and if so, who would fund the study?

Well, there actually has been a lawsuit in California which was filed by -- by patients and on behalf of patients who were using the generic forms and -- and alleging that the generic forms are not -- not efficacious. We obviously have nothing to do with that lawsuit, but we're just watching with interest. There is a lot of noise in the marketplace, as you say, so some of the research that -- that we have been doing is just to understand this. To understand what people's attitudes are towards it, both patients and also physicians, and -- and to see what all of the elements are which are causing people to make decisions about whether they use a branded form or they use generic form.

I can't say at this point what actions, if any, we would take in the -- in the future, but obviously, as Gilbert said, we are going to do our best to maximize the value of the brand. The FDA has acknowledged some of these issues, expressed some interest in -- in trying to nail them down. I personally doubt whether the FDA will actually go ahead with head to head trials, but it is possible and if it occurs, obviously, we'll be very interested in the -- in the outcome.

Okay. Thanks.

Thank you. And at this time I would like to return the meeting back to Mr. Wells.

Thank you very much, operator. I would like to thank everyone for participating today. I would also like to end the call by thanking all of my fellow Biovail employees for your incredible achievements in this last quarter and over the last 15 months. You are really moving Biovail forward. We're making terrific progress and I am proud of you all. Thank you very much, everyone.

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.