Bausch Health Companies Inc (BHC) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the third quarter 2009 earnings conference call for Biovail Corporation. At this time, all participants are in a listen-only mode. This call is being broadcast at www.biovail.com. (Operator Instructions) As a reminder, a replay of this conference call will be available until 7:00 p.m. EDT on Thursday, November 12, 2009, by dialing 416-695-5800 for Toronto and international callers and 1-800-408-3053 for United States and the rest of Canada using the access code 2777843#.

On behalf of the speakers who follow, investors are cautioned that 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 provencial 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 statement November 5, 2009, and available on the Company website as well as its filings with the US Securities and Exchange Commission and the Canadian Securities Administrators, including the risk factors detailed in its most recent annual report on Form 20F. The Company doesn't 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 Investors Relations and Corporate Communications for Biovail Corporation. Mr. Isabel will moderate today's call.

Thank you, Operator. Good morning, everyone. On behalf of Biovail, thank you for joining us. On this morning's call, 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 third quarter of 2009. Joining us on today's conference call are Bill Wells, Chief Executive Officer 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'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. Good morning, everyone. Once again, Biovail delivered strong cash flows from operations this quarter, $114 million excluding the payment of the legacy legal settlement. This allowed us to reduce our debt by $75 million and provides us with over $500 million in available liquidity to move forward with our business development efforts in support of our strategy. Our revenues increased 17% over the same quarter in 2008. GAAP EPS declined by $0.05 per share; however, cash EPS, excluding specific guidance increased 40%, clearly demonstrating increased efficiency and progress towards our goal of making Biovail a growth company.

In the quarter, we made further progress on building our specialty CNS pipeline. I'm pleased by how far we've come. Only 18 months since embarking on our new strategy, one I continue to believe will return the company to high growth. This quarter we completed our fifth business development transaction since initiating our new tragedy. Acquiring the US and Canadian rights to Fipamezole from Santhera Pharmaceuticals. Fipamezole fits perfectly within our strategy. It targets an unmet medical need as there are currently no FDA approved products for Parkinson's disease dyskinesia. It will benefit from at least five years of market exclusivity and, upon approval, can be detailed effectively with a 75 to 150 member sales force which continues to be a longer term goal of our strategy. Gilbert Godin will discuss Fipamezole in more detail in a moment.

This transaction once again demonstrates our general approach to end licensing which is all about mitigating risk. Where risk is high, as it is with all development state products, we'll limit the up-front payments and structure the agreement such that additional funds are only paid as the product meets certain milestones and the risk profile improves. While we may end up paying more over time for programs that reach the market, we'll do so with much less risk for our shareholders and still get a very good return. Also in the quarter, with our partner Acadia Pharmaceuticals, we announced the results from the first of two Phase III studies. Evaluating Pimavanserin in Parkinson's disease psychosis, or PDP.

As you know, the trial did not meet its primary end points as the placebo response was much higher than expected and much higher than what was seen in the Phase II program. In the study, we see a signal of antipsychotic efficacy with a 40 milligram dose. A signal that was most prominent in US centers involved in the study. It is our belief that with an enhanced study design, one that takes some learnings from the negative trial and in addition to potential findings from the second study where enrollment is currently being terminated that we may achieve separation for placebo with a 40 milligram dose of Pimavanserin in patients with PDP. We also initiated a new program to develop Pimavanserin as adjunct therapy in Schizophrenia based on some strong data in completed Phase II trials. Gilbert will provide additional information on our development plans for Pimavanserin in a moment.

I will say our primary objective is to get Pimavanserin to market as quickly as possible. Recall that the molecule has patents with composition to matter claims and exclusivity that run to 2026. This provides a long runway for us to exploit the commercial potential of this promising compound.

Our business development group remains very active with 10 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 structures quite similar to what I described a minute ago. Other opportunities are acquisitions of companies with in market or near to market CNS assets. These opportunities range in size from quite small to potentially quite large. Our primary objective in our business development efforts is to build a long-term growth engine for the company consisting of multiple pipeline assets at various stages of development. Ideally, we'll build a pipeline with some near, mid and long-term opportunities. However, we will not do so at the expense of near-term financial performance. We do not wish our shareholders to endure a prolonged period of revenue and earnings declines while we wait for the pipeline to mature. It is in this area that our M&A strategy is focused.

While we cannot predict the success and/or timing of any business development agreement, we're well positioned to execute with over $500 million in available liquidity at the end of the third quarter. This, along with our strong cash flow from operations, provides us with significant resources to continue the implementation of our new strategy. Our restructuring efforts remain on track and, when complete, 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. Peggy will walk you through some of the highlights of the solid financial results of the third quarter of 2009.

Now let's talk about Wellbutrin XL. We're pleased by the product's prescription volume and market share since the acquisition. Both of which remain substantially higher than what you'd expect at this point following the introduction of generic competition and substantially higher than the assumptions used in our acquisition model. This indicates that brand loyalty and value with Wellbutrin XL remains high. We will be taking action to support the brand. Beginning immediately, we'll be investing in targeted non-salesforce programs designed to support marketshare and patient and physician loyalty. These may include programs to prompt physicians to initiate new patients with the brand as well as others to help bridge the price gap between the brand and the generics. These initiatives will result in slightly higher SG&A expenses in the fourth quarter and into 2010 and we expect to see incremental cash flows as a result of these actions.

Our goal of course is to maximize the value in cash flow and generation of this important asset. We are already well ahead of where we thought we'd be in financial returns from Wellbutrin XL but we think that we can do even better. Gilbert Godin, Biovail's Chief Operating Officer, will now provide an overview on the operational highlights in the third quarter and an update on our pipeline activities. Gilbert.

Thanks, Bill, and good morning everyone. I'll begin my remarks by discussing our first commercial special CTNS products, Xenazine which was launched to US specialists by our partner, Lundbeck in late November 2008. Through October 2 a total of 2,526 patients have enrolled or are in the process of enrolling with Xenazine distribution center and 13,286 prescriptions have been filled. Approximately ten months post launch, Xenazine continues to track nicely to our 4,000 to 6,000 peak patient number. As expected, however, the rate of enrollment has slowed somewhat as the migration of patients from the long-standing compassionate usage program to the commercial program is largely complete. We're now seeing steady new patient gains, including an uptick in September and October. The next phase of the commercial effort is to help a broader number of physicians fully understand the titration and treatment regimen and the specific of the drug program. Our tetrabenazine franchise, including Canadian and rest of world sales, is performing well.

Switching to restructuring. The closure of our [Dorado] manufacturing plant in Puerto Rico remains on track for an early 2010 closure. Due to a significant positive spike in volume requirements for some of our generic products, our Carolina site will now remain open until April or May 2010. Once both are closed, our gross margins will be positively impacted by approximately $25 million, the majority of which is attributable to the Dorado site. The closure of our R&D site in Mississauga, Ontario is complete. The activities performed there have been transferred to our site in Chantilly, Virginia, which, itself, will have been streamlined and consolidated in to a single building by year end.

These R&D initiatives have begun to result in expected cost savings. However, as planned, these are not readily apparent in the PD&L continue to invest into our pipeline. What is happening is that a higher proportion of R&D expenditures is going towards project spending as opposed to overhead and infrastructure. This is allowing us to significantly increase the efficiency of our R&D efforts. 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 third quarter of 2009, we have incurred approximately $92.5 million in such restructuring charges, including cash costs of $17.7 million. There is no change to our expected annual savings of $40 million to $60 million when these initiatives are completed.

Turning now to the sale of noncore assets. Earlier this week we completed the sale and lease back of our corporate headquarters in Mississauga, Ontario, for net proceeds of $18.2 million. A loss on disposal of $11 million will be recognized in the fourth quarter of 2009. Biovail will continue to occupy the facility under a 20 year operating lease at market rental rates. In Dublin, Ireland, we recently sold our R&D facility for net cash proceeds of $5.2 million. In Puerto Rico in a difficult market for pharmaceutical facilities, our two plants are yet to be sold. As previously discussed, we expect to realize approximately $80 million to $90 million in proceeds from the sale of noncore assets. As of today, we have realized approximately $55 million in such sales.

I will now discuss some of the highlights of our product development efforts. In the past 18 months, we've made significant progress in building a specialty CNS pipeline. Today we have six CNS programs in development targeting a range of specialty indications, including Parkinson's disease psychosis, Alzheimer's disease psychosis, levadopa-induced dyskinesia, and Tourette's syndrome. We also have a few legacy assets, including three ANDAs undergoing FDA review and BVF324 which I'll discuss in a moment. A chart is available on our website.

I'd like to begin my product-specific comment with Pimavanserin which, as Bill mentioned, recently had some disappointing results reported in Parkinson's disease psychosis. In that study, both the 10 milligram and 40 milligram arms did not separate from placebo at week six, although there was an efficacy signal with the 40 milligram dose at US centers. Given these results and the similar design of the second Phase III study that Acadia was conducting, the likelihood of success for that second study was very small. As such, the two companies decided to cap the study at approximately 120 patients. Biovail and Acadia will mind the data for anything that might help us in our effort to enhance study design for a new Phase III program. While no decisions have been made, we're looking at potentially increasing the length of treatment, focusing strictly on US sites, using centralized reviewers and/or modifying the assessment scale used. A new Phase III study will likely cost between $10 million and $15 million which Biovail will fund initially.

Should Pimavanserin meet the primary endpoint, we'll deduct 50% of the development cost against the milestone payable to Acadia. Should the study not be successful, Acadia is required to reimburse us 50% of our cost. We intend to meet with the FDA early in 2010 to discuss our development plans and depending on those discussions, we expect a new Phase III program for Pimavanserin in PDP in the first half of the year. An additional indication that we're pursuing with Pimavanserin is as adjunctive therapy in schizophrenia. Robust efficacy and data exists for Pimavanserin in conjunction with Risperidone, a powerful antipsychotic which generated over 12 million prescriptions and revenues of $1.4 billion in the 12 months ended September 2009 according to IMS health despite having been generacized in 2008.

In 2007 Acadia reported the result of a 423 patient study showed that a 20 milligram dose of Pimavanserin in conjunction with a low dose of Risperidone, 2 milligrams, was just as effective as a 6 milligram dose of Risperidone but with a better safety profile, including a statistically significant difference with respect to weight gain. Our intention is to duplicate the results of this well-controlled study in a Phase III program. We anticipate discussing our development plans for Pimavanserin as code therapy in Schizophrenia with the FDA when we meet with them hopefully in the first quarter of 2010. Depending on the outcome of those discussions, the Schizophrenia program may represent Pimavanserin's quickest route to market. This program could represent a very large market opportunity for Biovail. Finally, Acadia may initiate and fund a feasibility study in the third indication, Alzheimer's disease psychosis, or ADP. Should that study be successful, we will reimburse Acadia for their costs.

Turning now to Fipamezole or BVF025, the newest addition to our specialty CNS pipeline. Fipamezole is in development for the treatment of levadopa-induced dyskinesia also known as Parkinson's disease dyskinesia, or PDD, a disorder that impacts approximately 250,000 patients in North America. Importantly, Fipamezole has been granted fast track status with the FDA which is designed to facilitate development and expedite review of a drug candidate that treats a serious or life threatening condition and addresses an unmet medical need. In a recently completed Phase IIB study, a 90 milligram dose of Fipamezole showed a statistically significant reduction in PDD in US patients.

Another positive outcome of the US subgroup analysis was a significant treatment dose in the reduction of hours spent with diminished mobility, also known as off time. While we're encouraged by these data, there are nonclinical matters that need to be overcome before we move forward with Fipamezole. These mainly related to the toxicology program and dosage form. We intend to have an end of Phase II meeting with the FDA in the near term to discuss these items as well as necessary requirements for the Phase III program

Another product in our specialty CNS pipeline is BVF018, a new formulation of tetrabenazine for which we have been granted orphan drug designation for the treatment of Tourette's syndrome in school age children 5-16 years old. As such, if successfully develops, BVF018 would benefit from seven years of exclusivity. Contingent on successful safety assessments, which are ongoing, our current plans are to initiate a Phase II study in the third quarter of 2010.

Turning now to our legacy pipeline beginning with BVF324, which we disclosed today is a novel formulation of Tramadol hydrochloride that we are developing for the treatment of premature ejaculation, an affliction that is estimated to affect up to 30% of men of all ages. Enrollment in the first two studies began in the third quarter of 2009. We'll be conducting two European trials, each with 1,050 patients and will be evaluating the efficacy of 62 milligrams and 89 milligram doses of Tramadol in prolonging intervaginal ejaculatory latency time or IELT. We anticipate having the final data collected early 2011 which, if positive, could allow for a regulatory filing in Europe in the second quarter of 2011. Partnership discussions for BVF324 are ongoing.

As we discussed previously, we have been monitoring the early progress of Dapoxetine since its European approval. Dapoxetine is a J&J product that was recently approved for the treatment of PE. Dapoxetine's success could go a long way in establishing a commercial treatment market for PE prior to BVF324's potential launch. Based on promising Phase II data, we continue to believe that BVF324 could offer a superior product profile over Dapoxetine at a competitive price point.

The last product I'll discuss is BVF045. A combination of Aplenzin and an undisclosed SSRI. Due to our inability to find a development in commercialization partner at acceptable terms, we have decided to terminate the product's development and allocate our R&D resources towards specialty CNS assets. That concludes my remarks. I'll now turn the call over to Peggy Mulligan, Biovail's Chief Financial Officer.

Thanks, Gilbert, and good morning, everyone. In accordance with US GAAP, Biovail reported net income of $40.4 million or earnings per share of $0.25 in the third 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 $10.7 million or $0.07 in EPS.

As I previously discussed with you, Biovail now reports 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 third quarter of 2009, cash EPS was $0.44 compared with a loss of $0.37 in the third quarter of 2008. Excluding specific items consisting primarily of a $24.6 million payment related to a legacy legal settlement and $1.4 million in cash restructuring costs, cash EPS was $0.61 in the third quarter of 2009. This reflects a 40% increase over the same measure in the third quarter of 2008. With a 17% increase in revenues, this 40% increase in cash EPS clearly reflects our increased efficiency. A reconciliation of GAAP EPS to cash EPS is provided in our third quarter earnings release issued this morning.

Total revenues for the three months ended September 30, 2009, were $213 million compared with $181 million for the third quarter of 2008. Product revenues in the third quarter of 2009 were $204 million compared with $171 million in the third quarter of 2008. A 20% increase that reflects higher revenues from Wellbutrin XL and inclusion of revenues from Biovail tetrabenazine franchise and Aplenzin. Offsetting factors include lower revenues from Ultram ER, Zovirax and Biovail's portfolios of generic pharmaceuticals.

Generic product revenues were negatively impacted by $4.4 million as a result of the delay in sale of product due to customs clearance issue. This delay impacted EPS by $0.02 and is not included as a specific item I referred to a moment ago. Importantly, this product is expected to shipped and positively impact our fourth quarter 2009. With respect to Biovail pharmaceuticals Canada, or BPC, despite the 13% year-over-year increase in third quarter revenues, we continue to be impacted by the relative weakening of the Canadian dollar. At constant exchange rate, BPC revenues increased 21% in the third quarter of 2009 compared with 2008 period.

Our product revenues in the quarter were also impacted by $4.5 million increase in Medicaid rebates and chargebacks as a result of higher utilization in US government programs due to current economic conditions. An ongoing effect is expected. Wellbutrin XL revenues were $58.6 million in the third quarter 2009 compared with $16.6 million in the 2008 period. A 253% increase that reflects the May 2009 acquisition of the full US rights to the product which easily offsets the impact of the introduction of generic competition to the 150 milligram strength in May 2008.

Biovail's new tetrabenazine franchise generated third quarter 2009 revenues of $15.1 million which includes US revenues of $11.5 million, Europe and rest of world revenues of $2.2 million and Canadian revenues of $1.4 million which are included in BPC revenues. In the first nine months of 2009, Biovail's tetrabenazine franchise generated revenues of $34.9 million. Ultram ER generated revenues of $12.1 million in the third quarter compared to $20.8 million in the 2008 period. This decrease reflects lower prescription volumes, a 2.5 percentage point reduction in Biovail's supply price in 2009 and lower wholesaler inventories in anticipation of potential generic competition. In August 2009, a US district court ruled in favor of a generic manufacturer in patent infringement litigation related to Ultram ER. White the decision has been appealed, a generic formulation of Ultram ER could be launched at any time.

Let me now turn to Biovail's selling, general and administrative expenses. In the third quarter of 2009, certain items added $4.8 million to this expense, including $4.3 million in indemnity obligations to certain former officers. On a normalized basis, adjusting for these and other similar items in the 2008 period, SG&A is up 6% in the third quarter 2009 compared with the third quarter of 2008 which reflects integration costs associated with that position of worldwide rights to tetrabenazine, higher business development costs as Biovail implements its new business strategy, and higher promotional spending for Zovirax including new promotional efforts introduced in August and the redeployment of the Zovirax.com website. These advertising and promotional initiatives were timed to positively impact prescription trends in the fall and winter months which represents the peak season for cold sore outbreaks.

Looking at our performance year-to-date, SG&A expenses are down 6% to $113 million. R&D expenses were $23.2 million in the third quarter compared with $18.7 million in the prior year period. This increase reflects the up front payment of $8 million made to Santhera in (inaudible) transaction. Adjusting for this payment, Biovail expects R&D expenses to remain above the level seen in the past quarters to a level more reflective of growth company. For example, in the coming quarters will incur incremental costs for Fipamezole, the new development plan for Pimavanserin, ongoing work with BVF018 and RUF350 in addition to the Phase III program for BVF324. We hope to realize an attractive return on these R&D investments over time. As a reminder, we continue to invest $600 million in R&D including up front and milestone payments from 2008 to 2012.

At the end of the third quarter of 2009, the company had cash balances of $49 million. The strong cash flow from operations, which I'll highlight in a moment, allowed us to pay down $75 million of our revolving credit facility. At the end of the third quarter, long-term obligations, including the current portion were $378 million which includes the net present value of the remaining $30 million payable to [Cambridge Labs] over the next two years, $55 million drawn on the revolving credit facility as of September 30, and $296 million representing the value of the debt component of convertible notes. The value allocated to the liability component of the notes 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. In the third quarter, this added $2.7 million to GAAP interest expense.

Another factor that impacts noncash interest expense was the amortization of approximately $24 million in deferred financing costs associated with convertible notes at the company's new revolving credit facility. In the third quarter, this added $1.2 million to GAAP interest expense. Of course, both of these items do not impact cash EPS.

Turning to Biovail's cash flow statement. Cash flow from operations was $89.2 million in the third quarter of 2009 compared with the usage of cash of $62.4 million in the prior year period. Adjusting for the $24.6 million settlement payment, cash flow from operations before changes in working capital was a robust $95.1 million in the third quarter of 2009. Capital expenditures amounted to $1.1 million in the third quarter of 2009 compared with $3.9 million in the prior year period. For more comprehensive details pertaining to Biovail's financial and operational performance for the three and nine months ended September 30, 2009, please refer to the earnings news release distributed by the company earlier this morning. In line with the Company's dividend policy, Biovail today announced its Board of Directors has declared the payment of a dividend of $0.09 per share payable January 4, 2010, to shareholders on December 2, 2009. The end dividend date is November 30, 2009.

I'll conclude my remarks by informing you that as a result of changes in our shareholder base as of June 30, 2009, we no longer qualify as a foreign private issuer. As such, effective January 1, 2010, we'll be required to begin using US domestic reporting forms. This is primarily an administrative change. That concludes my remarks. Bill.

Thanks, Peggy. I'm pleased with the solid financial and operational results of the third quarter. Our base business continues to generate strong cash flows and we're leveraging those cash flows to build a long-term growth engine for the company. I believe this growth engine is emerging, only 18 months since adopting our new strategy. As we now have a promising pipeline with multiple development programs that address unmet medical needs and specialty CNS. Today we are a recognized incredible participant in specialty CNS markets. This credibility is introducing dozens of interesting opportunities around the world. Given our strong results, we have over $500 million in availability liquidity which allows us to remain aggressive in our business development efforts as we strive to build a leadership position in specialty CNS markets. Moving Biovail to high growth remains a top priority for us. This concludes my remarks and I will now return to the call to the conference call operator for questions. Operator.

(Operator Instructions) Our question is from Marc Goodman with UBS Securities. Please go ahead.

On Xenazine the number of patients jumped nicely from last quarter to this quarter, but the revenues didn't seem to jump as much as I would have expected given that patient jump. Maybe if you could talk about that specifically in the US. That's number one. Number two, can you just give us a sense of what happened with Zovirax in the quarter? That number seemed to be dramatically below?

Okay. I think we briefly alluded to that during the call. We mentioned there was a [lul] and it's been picking up lately. Typical of a product at this stage, especially given the initial transfer of patients the bolus patients in compassionate use. What is happening now is the growth is related to the new [Denovo] patient. We have patients that are being enrolled and typical time it can take for these patients to eventually go under treatment can be anywhere from 60 to 90 days. The second element relates to a trade related, this product is distributed through specialty pharmacies. There's been a correction or adjustments in their inventory level. Now that they're more familiar with the extent of the demand and the pace of growth. I think these two elements, one and the other explain the lag that has been emerging and I think that will reach a steady state while that will not be half as apparent in the future.

Clearly we're getting to see the increasing patient count translate into increased revenues in the future. And we remain very happy with Xenazine.

When I first saw the number, I didn't quite understand. When you gave me the patient numbers it sounds much better, obviously. Nice jump. Just so I'm clear, the adjustment in the inventory behind the scenes with your distributor, they adjusted down a little bit in the quarter?

Yes, I don't know if you were listening to Lundbeck's call which was yesterday or the day before yesterday, they made specific reference to adjustment in inventory levels in specialty pharmacy related to Xenazine and that was what they thought was depressing the sales levels quarter-on-quarter.

Okay.

Go ahead, Marc.

Can you quantify it.

No, I'm afraid we can't. We don't have that information.

With respect to your second question, scripts are down about Zovirax. Year-to-date scripts versus last year are down about 3%. This isn't unexpected for us. It's stemming from the natural erosion of the cream in the ointment to the overall dosage something happening over long-term trend and also, more recent ones, script erosion from lack of coverage in the past. So what we're doing is only a partial detailing. We're now seeing the benefit of our sales force on the targeting position. We're seeing the clear uptick in those areas, so that will help. We're also adding promotional means to round out the effort. All of this is quite positive given that the fall and winter months is when cold sores are increasing sharply. Typical seasonality for that market. It's creating peek demand at that time.

On sales, in the delta between sales and scripts, we know for a fact that 90% of the sales variance is related to wholesale and trade inventory variance. The other subset of that, that's the majority of it. The other one relates to medicate rebates that are higher than they were in the past. These are the times, right? Trying economic times, there's been an adjustment in many respects with our products as it relates to the way inventories are being managed. That's what it can be traced to. Script levels are holding and quite indicative of the impact of efforts we're putting forward now.

I know you all don't like to give numbers and guidance and things like that, although some people wish you would. Zovirax had a big fourth quarter last year because of seasonality, if we took it down a little bit from that, you'd end up with like a 140ish number as opposed to 150. Not to get too much in to details, but that's a big product. I want to make sure we got it covered here. Does that sound about right?

We won't giving any numbers here, but clearly we expect the typical seasonality to show in the, and permeate through the Q4 results.

Great, thanks.

Thank you, the next question will be from Chris Schott from JPMorgan. Please go ahead.

First on Pimavanserin, can you just elaborate a little bit more on your expected Schizophrenia pathway to market? I specifically believe that the Schizophrenia indication will require a second phase III in order to file and along those lines, can you help me understand the though of running both the Parkinson's and Schizophrenia indications simultaneously as compared to committing two studies and one indication or the other and maybe having an even faster path to market?

Okay. Good morning, Chris. First of all, in terms of execution, Acadia has their responsibilities and we have others as it relates to the various program. More specifically to your question, our decision was based on very clear results of a solid study generated two years ago that pointed to the benefits of Pimavanserin as adjunct to Risperidone. So one of our assumptions here that needs to be validated is that hopefully we can replicate the study and those results would suffice. Having said, that this decision is not ours. This is one that we will make it conjunction with the input of the FDA and requirements of the FDA. However, if we replicate the steady, that would suffice to show the dose bearing benefits of the product, that would clearly point to a fairly quick way to market.

Okay.

Your question related to why would we also be doing Parkinson's psychosis study at the same time as we're doing the study in adjunct therapy. The incremental investment for us on the Parkinson's psychosis side is quite small. We saw what we think are pretty clear signals of efficacy at a 40 milligram level and so with a redesign of the program that we think is logical and clearly indicated from the data, we think we have a pretty good shot there. And that is really going to be handled by Acadia. So Acadia's taking the point on that. At the same time, we think the fastest way to get this product to market is clearly with adjunct therapy and it's a huge potential market. So we want to get a return on our investment as quick as we possibly can. That's why we decided to do these in parallel and it's Biovail that will be taking the lead on the program developing Pimavanserin as an adjunct therapy.

Great, thanks and quickly on the Wellbutrin sales forms that you alluded to on the call, what kind of led to that decision? I know you mentioned SG&A might be impacted a little bit in 4Q. Should we anticipate near-term impact on ASP of Wellbutrin as a result of these programs?

Wellbutrin is doing outstandingly well, much better than the numbers when we originally acquired it. It's an extraordinarily solid product. We always thought as we were doing acquisition that we had an opportunity to fine tune things being done with Wellbutrin in order to stabilize the prescription deterioration and potentially even get some growth in sales uh, with the right pricing policy. So we've been working on pulling those matters together over the last three months. What we're really talking about is getting information in the hands of physicians, some samples in the hands of physicians, perhaps helping out some of the patients with their expenses on the product. These are the kinds of things that don't involve detailing the product, but we think can be very impactful. The pay back on these efforts is extremely rapid, the investment isn't huge and we get a rapid quite large pay back. We definitely think it's worth doing.

All right, thanks very much.

Thank you, the next question will be from Lennox Gibbs with TD Securities. Please go ahead.

Just to carry on a bit on the Wellbutrin marketing campaign I think is partly covered, but what really would be the thrust of the messaging you'd intend to use for that campaign? And just referring specifically to the docs.

Okay. Well actually the tactical plan is to help the core of loyal prescribers initiate treatment and our research has found that they understand quite well what are the benefits of Wellbutrin XL and why they could or would want to prescribe them. They also want to understand the impediments to the prescription of the brand. One aspect is there to help them initiate treatment. You can think there in terms of sampling, for example, which is typically how this can get the treatment going rapidly. The second aspect is to assist their patients that may be challenged by the difference in copay between brand and generic alternative. Actions that are aimed at bridging that difference put in the hands of prescribers, end up in the hands of patients that are prescribed the brand. Tactical, fairly straightforward. There is no need for a message related to the brand in terms of differentiation. I think this is well understood and that's uh, a place where we don't feel we have to go.

Okay, and secondly on BVF324 and repurposing Tramadol hydrochloride, opioids don't feature prominently, if at all, in the literature's potential treatments for that indication. What is the pharmacological rational for trying to develop Tramadol for that indication?

Unfortunately, I think our resonant expert in the field of science and medical aspects of that could give a much better answer, there is, however, a number of published studies and also most importantly a Phase II study that I believe hadn't been published that is quite illustrative of the benefit of the drug and of its relative safety and therefore this is basis on which we uh, we predicated that develop. We feel is this a new category where there is, there'll be room for an effective treatment. This appears to be an effective treatment. We've developed dosage and dosage form that's well adapted to the indication. Our views is that if it's successful and if we go to market, this will be competitively priced with the alternatives that are not developing that market. There is also great potential for strong brand identity in emerging markets such as this one. So we're hopeful that with good clinical outcome that's consistent with the Phase II results that I alluded to earlier, we'll see greater propagation of the IELT marker and better safety profile for the product that has been approved and moved to market.

Can you perhaps speak to the mechanism of action at least in broad terms?

I think not, but we can follow up with the specifics of the call after that.

Good enough. Thank you very much

The next call is from Tim Chiang with FTN Equity Capital. Go ahead.

I'm noticing Wellbutrin trends. They have been relatively stable. Your share has dropped a little bit. Do you think some of these initiatives might be able to stem some of declines on the Wellbutrin XL product at this point?

Well that is the objective is to stem some of the erosion with Wellbutrin. It's normal for a product like Wellbutrin to erode slowly over time. What's unique about Wellbutrin is it seems to be happening much more slowly than is true with comparable products that have been genericised and is holding at a better market share. We think the actions we are going to take will help to stem some of that erosion and, of course, coupled with the right pricing strategy, perhaps we can even get some growth in revenues.

Just a followup, Bill. Has Lundbeck, do they plans to potentially increase the size of their salesforce promoting Xenazine? What sort of discussions have you had with them on that topic?

Yes, we don't think we need to have an increase in sales force size. The sales force is very effective. They're doing a good job, Lundbeck has been performing very well for us. A portion of Lundbeck's sales force is dedicated to Xenazine. It's handling Xenazine full-time. We'll be focusing more on centers of excellence in the US market as we go forward. As Gilbert was saying, you saw this big ball of patients that moved over in the early days of product launch folks who were on compassionate care, now it's back to basic blocking and tackling and explaining the product to docs, helping them with titration schedules and explaining exactly how this product needs to be used. We are pleased with how it's gone so far and I think that this is now standing product. It's got a lot of runway in front of it.

I think you talked a little about Medicaid rebating and how it's having an impact on products. Is that having an impact on Xenazine at all?

It's having a marginal impact, not significant.

Okay, great, thanks.

The next question is from Doug Miehm with RBC Capital Markets. Please go ahead.

Coming back to Wellbutrin, don't want to beat this to death, but when you talk about very specific pay back, what examples can you give us in terms of what you've seen before and why you're so confident in this occurring?

Okay. First of all, I want to emphasize here this is a good solid tactical plan so it has limits in terms of the extent of it. But what is great about it is that we have a way to execute that is very cost efficient and can measure the result precisely. So providing samples, providing coupons, for example, to mitigate the cost of the copay are very measurable because you realize redemption. Redemption is also stemming from the actual fulfillment of a prescription. So in that respect, we can model those programs and better mind their extent. We have a pretty good read of the prescribers practices and the extent to which they prescribe the molecules. So that's what we mean. We have a very clear view of what we will invest and what is likely to return in the base case and of course in the -- we factor in some sensitivity in the worst case and the best case are all to our satisfaction in terms of returns. So that's why we're quite confident. It's not up in the air, it's a fairly well-defined set of mechanics.

Okay. Moving on to the generics then, part of this was obviously $4.4 million with the delay due to customs, but it would appear that there was also, I guess, due to Medicaid also an issue there. Is this something that is going to be permanent then? Did I hear that correctly as well?

Yes, I think this Medicaid issue is one that which is going to be ongoing. Clearly what's happening is people are under economic pressure in the US, so you're seeing folks who are moving away from some of private programs and more towards Medicare and Medicaid and consequently you have a bigger Medicare and Medicaid rebate which has an impact. I do think this is something which is going to continue as we go forward. It's not a huge impact so far, but it's something we're keeping a close eye on. We'll just have to adjust for it in our product development in making sure that we get the right products in with the right cash flows on the right profile in terms of who's handling it from a managed care perspective.

And I would add, Doug, that the $4.4 million -- there was actually a pipeline cleanup seemed to come through this quarter as well. So it's not all gained sales in the quarter.

Got it, and just to wrap up, maybe a quick comment on Cardizem LA, it was quite high. If you can comment on potential discussions with respect to what's going on in the Tramadol marketplace with respect to Ultram ER.

On Cardizem, as you know, it will be genericized at any time. We do expect it will be genericized. We don't know exactly when. That's not really up to us. On Ultram, as you know , there's -- has been a litigation which is ongoing. I do expect that that litigation will continue going forward. I do not know if there'll be a settlement or not. Certainly it's in the interests of the various parties that there should be an appropriate agreement. However, I can't give you any visibility into whether that's going to happen or not since I simply don't

Thanks, very much.

Thank you, the next question will be from Scott Hirsch from Credit Suisse, please go ahead.

Thanks. This is (inaudible) actually here for Scott. Just one quick question on business development. Can you discuss how many deals you have in the hopper now? You mentioned it before. As well as after what happened with Pimavanserin with the data, did that impact your strategy at all in terms of what you were looking at or maybe the timing of certain deals?

We've got 10 to 20 different deals we're looking at right now, both M&A and licensing transactions. The -- I'd say the profile of deal that we're starting to look at is perhaps shifting more towards the shorter term. We've been very successful in filling out the pipeline. We might have one or two more deals coming through which are oriented towards that pipeline fill, but I think we're starting to shift our focus a bit more towards the near term in terms of products which are in markets or close to market. Obviously we want to continue the success that we've experienced with Wellbutrin and tetrabenazine in driving revenues and driving cash flow. The -- we've got the fire power to do it with $500 million in available liquidity, we're locked and loaded and ready to go. There are a number of opportunities that we're working on that are shorter term, near term-type revenues. Can't give you any idea in terms of exactly when that would come to fruition, but we're working on it enough out there that I'm quite hopeful we'll get at least one done in the not too distant future.

Thank you.

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

Thanks for taking the question. I have one or two. On Xenazine a little bit, are you happy with the dose? Has there any change in average dose used?

The average dose is running well ahead of where we had thought it would be and that seems to be holding. So yes, we are happy with the dose.

Can you say what that is?

We have not. Sorry, approximately 50 milligrams .

With regard to Pimavanserin and Schizophrenia, I appreciate framing the PCP costs for the next Phase III study. With regard to Schizophrenia, can you do a similar exercise? I know you haven't had the discussion with the FDA but is this a five-arm study with several hundred patients and kind of replicating the last study and if that's the case, can you say generally what this study might cost with Schizophrenia?

Yes, I think, in your question, you mentioned, Bert, that FDA is key. Obviously that's the case here. We'd love to be able to replicate the study, 423 patients and probably simplify it somewhat. In terms of cost at this point, this is very notional $15 million to $20 million potentially. Now that cost could be way off if the requirements were to grow or to be simplified.

Okay, thank you. And then, Bill, just with regard to your last comments on strategy. Should we be anticipating M&A that would appear somewhat like the Wellbutrin transaction where you're looking to beat versus let's say diminish product opportunities over time or is it something with a little bit longer lived intellectual property you'd be considering?

We're looking at both. So we have some opportunities which would be legacy-type products like Wellbutrin that bring significant cash flows with them and if you structure them properly, can be a really good financial deal. We're also trying to find opportunities where there may be some things we can do in the market like we think we can do with Wellbutrin that would support the product and sort of reduce some of the script erosion over time. We're also looking at some products which would be specialty CNS products, which are either end market or very close to market, that would have some exclusivity for a period of time. I would be happy to do either type of deal assuming we can make the numbers work and make it accretive within a relatively short timeframe.

Great, thanks for the comments.

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

My question's been answered, thank you

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

Thank you. Hi, Bill. Can you comment on the efficacy you saw on the Pimavanserin clinical trial, what time of (inaudible) provide some details on these, please? You mentioned seeing in US centers only. Was this in the clinical development and, if possible, could you comment on the decision of rationale for advancing the program despite the fact that the trial failed to meet the primary endpoint.

Sure the program was in both Indian and US centers. The data out of the Indian centers was confused and didn't provide much useful information. However, when you focused in on the US centers, there seem to be quite a clear signal which was developing. The one of the issues may well be that the trial period may not have been long enough. It was a six-week trial. Sometimes it takes time for the placebo effect to subside. One hypothesis we're working with is that by having a longer trial period, perhaps a 12-week trial, you get more time for placebo effect to subside and to have separation. In terms of the actual scales that were used and the signal that was coming from it, I'm going to defer on that question, if you can follow-up with Nelson after the call, we can get Chris Fibiger, our CSO, to give you more detail on it.

Thank you. And on the business development front, have you perceive a change in the competitive landscape in the specialty CNS area over the last 12 months? Have the capital markets affected the competitive landscape?

It really hasn't --from what I can see, which I find a little bit surprising. We're not seeing really any more competition and the deals that we're looking at than we did experience over the last 12 to 18 months. The amount of deals that we're seeing is roughly the same. The quality of the deals is just as good as the deals that we looked at previously. I would say there are perhaps more deals available that have products which are in market or close to market. Part of that may be that I think we're starting to see some stuff come loose from big pharma as they're emerging and as they're revamping their businesses. So the the business development environment right now is just as good as it was when we were started this overall strategy.

Thank you very much.

We have a follow-up question from Bert Hazlett from BMO Capital Markets. Please go ahead.

Thanks for taking the follow-up. Just a question on the ACP103, Pimavanserin study and Schizophrenia, was that study stratified according to BMI or weight?

My recollection is that it was both, I think. It was, I think they looked at both indications but I would encourage you to take a look at the slides we have on our website which can lay all of that out for you. I think it's fairly clearly detailed there.

Okay, it didn't have the baseline levels and love to be able to get that. Maybe I can do it offline with Chris, thank you.

Yes, let's try and get Chris in touch with you.

Appreciate it. Thank you

There are no further questions at this time, I'd like to return the meeting back to you Mr. Wells.

Thank you everyone for taking the time to listen to us on the call. I'd like to end the call by thanking all my fellow Biovail employees for their great achievements this last quarter and over the past 18 months. I think we've made great progress in moving the company forward and certainly the strong results this quarter demonstrated that. Thank you all. Your efforts are very much appreciated. With that, we look forward to talking to you all next quarter

Thank you. The conference call has concluded. You may disconnect your phone lines at this time. We thank you for your participation. Have a great day.