Bausch Health Companies Inc (BHC) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth 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 7:00 p.m. EDT on Thursday March 4, 2010 by dialing 416-695-5800 for Toronto and international callers and 1-800-408-3053 for US and Canada, using access code 2058403 followed by the pound key.

On behalf of the speakers who follow, investors are cautioned that the presentation 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 purposes of this caution, we refer to such statements as forward-looking statements. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed 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 likely, should, guidance, believe, anticipate, expect, intend, plan, will, may, target and other similar expressions. For additional information about the material factors or assumptions underlying such statements and about the material factors that may cause actual results to vary from those expressed or implied in such statements, please consult the Company's earnings press release dated February 25, 2010 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 or Form 10K to be filed on or before March 1, 2010. The Company doesn't undertake to update any forward-looking statements except as required by law.

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

Thank you, operator, and good morning, everyone. On behalf of Biovail, thank you for joining us. On this morning's call, Biovail management will describe the progress made to date with respect to the Company's strategy as well as discuss the financial and operating highlights for the fourth quarter and full year of 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'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. 2009 was a transformational year for Biovail with significant strategic accomplishments and robust financial performance. We completed five business development transactions, including two acquisitions that immediately strengthened our near term financial performance. We also completed three inlicensings that improved our pipeline and medium to long-term growth potential. Our momentum continues in 2010. We recently competed our seventh deal in 21 months. This brought us a unique product targeted at a large unmet medical need which could launch early in 2011. As you can see, we're steadily building both parts of our business in order to make Biovail a high growth company.

Our operating business, which proceeds near term growth and cash flows exceeding $400 million and our development business or pipeline, which increased our growth potential in the medium to longer term. As you'll hear later, we have numerous opportunities in hand to continue building both parts of our business and the resources to do so. Business development is at the core of our strategy and we now have a sufficient track record to clearly demonstrate our approach to reduce risk and increase the predictability of returns.

Over the last 21 months, we've invested $928 million in seven transactions. Approximately $800 million was for acquisition of end market products in CNS, lower risk deals with more predictable returns that were almost immediately accretive to sales and cash flows and built our operating business. Approximately $125 million was for licensing or acquiring programs to build our specialty CNS pipeline. Generally, these were structured as gated deals with milestones paid only on success in order to mitigate clinical and regulatory risk and minimize the amount of capital we put at risk in such programs. We anticipate that the majority of the programs in our pipeline will fail. However, by having a sufficient number of high quality opportunities at various stages of development, by rigorously killing them if they fail to meet expectations and by minimizing the amount of capital at risk, we are confidence our pipeline should deliver high growth and excellent returns overall.

Now let's discuss our most recent transaction. This deal represents an important next step in our strategy. Since we intend to deploy a sales force to commercialize the product in the US. This month we acquired the US and Canadian rights to commercialize Staccato loxapine, or AZ-004 from Alexza Pharmaceuticals for CNS indications. AZ-004 is a novel formulation of loxapine administered via deep long inhalation, using Alexza 's proprietary Staccato device.

Staccato loxapine is initially targeted for the rapid treatment of agitation in patients with schizophrenia or bipolar disorder,and is currently undergoing FDA review. Further, to Alexza 's NDA submission in December 2009. The FDA action date is October 11, 2010. Staccato loxapine is a specialty CNS product that aligns well with our strategy and targets a significant unmet medical need. Of the over 8 million patients in the US with schizophrenia or bipolar disorder, it is estimated that a majority of them will experience agitation episodes. Primary market research suggests each of these patients will have 11 to 12 such episodes per year. Currently, many of these episodes are left untreated, subjecting the patient and family members to risk and discomfort. Of those that are treated, about half are given an intramuscular injection of an antipsychotic, often forcibly, depending on the severity of the agitation. The alternative is to take an oral medication which can take over an hour to begin to work, a problem when time is of the essence.

Alexza 's Phase III clinical trials demonstrated that Staccato loxapine was able to achieve the same speed of onset and efficacy as an injection, but in a more patient friendly, noninvasive manner. In addition, the device is easy to use. It is literally as easy as taking a breath. And importantly, compliance rates were almost 100% with over 650 patients in the Phase III studies. Even in those patients with severe agitation. Further, Staccato loxapine has demonstrated few safety issues. Taste was the most common complaint cited by approximately 14% of the Phase III clinical trial participants.

The loxapine molecule was originally approved by the FDA in 1975 and is considered a typical antipsychotic. The NDA seeks approval for 5 milligram and 10 milligram dosage strengths of Staccato loxapine, which is a fraction of the 50 milligrams to 300 milligram normal daily oral dose. Depending on the progress of the FDA's review, we intend to begin building a 60 to 100 person US hostile sales force in the second half of 2010, ahead of the product;s PDUFA date. While this strategy has some risk, we believe the quality of the Phase III data and the relatively small amount of incremental investment helps to mitigate the risk. Our initial assumption is that AZ-004 will be approved for in-patient usage, that is, in medically supervised settings such as emergency rooms, hospital psychiatry wards and specialized clinics. We'll focus our detailing efforts on the high potential hospitals in the US that have an emergency department and/or a clinical psychiatry ward. Over time, we anticipate approval for outpatient usage which would require a more traditional specialty sales force.

There are approximately 40,000 psychiatrists in the US, 34,000 of which include treatment with antipsychotics for their patients. We believe a 125 to 150-person sales force could effectively cover the 18,500 psychiatrists that represent 80% of prescriptions written for antipsychotics. Alexis Research shows that over 50% of schizophrenia and bipolar patients can recognize when an agitation episode is starting. Caregivers are even more receptive. This is an important detail. As it suggests, there is an opportunity for the use of Staccato loxapine early in the agitation cycle on an outpatient basis, before the condition escalates, which could potentially eliminate the need for emergency room visits and/or police intervention. An internal specialty sales capability in the US is a key component of Biovail's long term strategic plan. This provides more control over branding, marketing and pricing for our products. We believe that at maturity, Staccato loxapine alone is sufficient to absorb the operating expenses of the sales force. And it is our current contention to launch Staccato loxapine as our sales force's only product. However, we do intend to inlicense and require additional specialty psychiatry products to better leverage the associated infrastructure costs.

Several of our business development and current pipeline opportunities fit nicely with Staccato loxapine, such as (inaudible) as adjunct therapy in schizophrenia. Staccato loxapine has the potential to be an important product in Canada and fits well with our existing sales force. We will move to submit the product for approval by Canadian authorities. Eventually, we believe there is considerably potential for Staccato loxapine in other indications involving agitation. The long IFP life of the product extending beyond 2022 will allow us time to explore these possibilities.

Now let's talk about Biovail's financials. The Company delivered strong cash from operations in the fourth quarter. $128 million, demonstrating the strength of our operating business. This allowed us to pay down our revolving credit facility and close the year with $114 million in cash. We have over $650 million in available liquidity for business development, representing considerable fire power. (inaudible) will review the financial highlights of the quarter and full year of 2009 shortly.

Our business development group remains very active with ten to 20 products or companies currently in our deal flow. Several of these have agreed upon term turn sheets. A number of these opportunities are licenses of late stage specialty CNS compounds with structures quite similar to what I described previously. These would build our pipeline and increase Biovail's medium to long-term growth prospects. Other opportunities are acquisitions of products or companies with end market or near to market CNS assets which would build our operating business and bring near term accretion to sales and cash flows. These opportunities range in size from quite small to potentially quite large. As always, we cannot predict the success or timing of any business development transaction.

Now let's talk about Wellbutrin XL. We'll pleased by prescription volume and market share since the acquisition. Both remain substantially higher than norms following generacization and the assumptions in our acquisition model.

We have now launched our targeted non-sales force programs to support market share and patient and physician loyalty. Earlier this month, we began shipping samples of Wellbutrin XL to physicians that requested them. The response rate from physicians was much higher than expected. Over half of the 13,000 physicians targeted completed the procedure for request samples. Samples are shipped in titration packs intended for patients that are new to Wellbutrin XL. We also began distributing coupons to high-prescribing physicians to help reduce the difference in copay amounts between the brand and generics. We expect to see the impact of these actions in the next few months. The Wellbutrin transaction has so far provided much better financial returns than originally projected. In 2009, we generated incremental revenues of $109 million as a result of the acquisition. Our guidance at the time of the acquisition was $80 million to $100 million. Now let me hand over to Gilbert for an overview of operations on the fourth quarter and an update on the pipeline. Gilbert?

Thank you, Bill, and good morning everyone. I'll begin my remarks this morning by discussing our first commercial specialty CNS product, Xenazine, which was launched to US specialists by Lundbeck in lane November 2008. Through January 2, 2010, a total of 2,738 patients have enrolled or are in the process of enrolling with the Xenazine distribution center, and 16,921 prescriptions have been filled. Approximately 15 months post launch, Xenazine continues to track to our 4 to 6,000 peak patient number. As we discussed last quarter, the rate of enrollment has slowed as the initial migration of patients from the long-standing, compassionate usage programs through the commercial program is largely complete. Lundbeck is now focusing on helping a broader number of physicians fully understand the titration and treatment regiment and the specifics of the drug's REMS program. With respect to Wellbutrin XL, as Bill mentioned, we remain pleased by the product's performance. On January 1, 2010, we implemented a 6% price increase on both strengths of the product.

Switching to restructuring and the sale of non-core assets. In the fourth quarter of 2009, we completed the sale and lease back of our corporate headquarters in Mississauga , Ontario for net proceeds of $17.8 million. A loss on disposal of $11 million was 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 January, 2010, we completed the sale of our Dorado Puerto Rico manufacturing facility for net cash proceeds of $8.5 million. We'll continue to occupy the facility until the end of March, during which time any remaining manufacturing and packaging processes will be transferred to our Steinbach facility. Due to a significant positive increase in demand for some of our diltiazem based product, our Carolina site will now remain open indefinitely. Given current market conditions, we now expect to realize over $17 million in proceeds from the sale of non-core assets versus our prior estimate of $80 million to $90 million. As of today, we have realized approximately $63 million in such sales. 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 2009, we have incurred approximately $97.2 million in such restructuring charges, including cash costs of $20.1 million. There's no change to our expected annual savings of $40 million to $60 million when these initiatives are completed.

I will now discuss some of the highlights of our product development efforts. In the past 21 months, we've made significant progress in building a specialty CNS pipeline. Today, we have seven CNS programs in development targeting a range of specialty indications including schizophrenia, agitation associated with schizophrenia and bipolar disorder, Parkinson's Disease, Parkinson's Disease psychosis, Alzheimer's Disease psychosis, levodopa induced dyskinesia and Tourette's syndrome. We also have a few legacy assets, including three ANDAs undergoing FDA review and BVF-324, which I'll discuss in a moment. A chart of our pipeline is available on our website and is updated regularly.

As Bill discussed with you, our leading specialty CNS program is now Staccato loxapine. We think the product represents a great opportunity for Biovail, and we plan on initiating our sales force efforts in the second half of this year. Our current plans are to launch the product in the first quarter of 2011.

Of course, there will be costs associated with building the sales force and prelaunch marketing activities. We estimate these two amount to between $10 million and $20 million in 2010, beginning as early as the second quarter and between $40 million and $70 million in 2010, spread evenly through the year, depending on the breadth of the label approved by the FDA. Turning to Pimavanserin, we have requested a meeting with the FDA to discuss the clinical program required for the use of the product as adjunct therapy in schizophrenia patients. Our expectation is that the meeting will be held in the second quarter. We hope the Phase II study conducted by Acadia in this indication may qualify as one of two required adequately well-controlled studies required for approval. We will try to get agreement from the FDA of such as our upcoming meeting.

In 2007, Acadia reported the results of a 423-patient study that showed that a 20-milligram dose of Pimavanserin in conjunction with low dose 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 current plans are to initiate a six-week, 600-patient four arm study in mid-2010. The trial would compare the safety and efficacy among the four arms of the study, each with 150 patients. One arm will evaluate a 2-milligram dose of risperidone , another will look at a 6-milligram dose. A third arm will look at 20-milligram dose of Pimavanserin as monotherapy while the fourth arm will evaluate 2-milligrams of risperidone with 20-milligram of Pimavanserin as co-therapy. This study, which would include a long-term safety extension component, will likely cost $30 million to $40 million. Our expectation is that the entire study, including the long-term safety component, would take approximately 24 months to complete. We believe the opportunity for Pimavanserin as adjunctive therapy in schizophrenia is an attractive one.

risperidone , a powerful antipsychotic, generated over 12 million prescriptions and revenues of $1.4 billion in the 12 months ended December 2009, according to IMS Health despite having been genericized in 2008 and despite well know side effect issues. In Parkinson's Disease psychosis, or PDP, Biovail and Acadia have agreed on the study design for new Phase III trial. The new program will enroll approximately 200 patients in two arms in a one-to-one randomization. One group will be given 41-milligram doses of Pimavanserin over a six-week period, while the remainder will be given placebo. The study will be conducted entirely in the US and will incorporate centralized reviewing by an independent firm. Acadia expects to initiate this study in mid-2010. This new study will likely cost between $10 million and $15 million which Biovail will fund initially. Should Pimavanserin meet the primary endpoint, we will deduct approximately 50% of development costs against the milestone payable to Acadia. Should the study not be successful, Acadia is required to reimburse us 50% of our costs.

Turning now to fipamezole, or BVF-025, which is in development for the treatment of levodopa 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 intended to facilitate development and expedite review of a drug candidate that treats a serious or life-threatening condition and addresses an unmet medical need. We had an end of Phase II meeting with the FDA in December 2009 that went well. We intend to initiate some additional dose-ranging studies with fipamezole in the second quarter of 2010. We are also planning NDA enabling toxicology studies in 2010. Based on the outcome of these studies, the Phase III program is expected to be initiated in 2011.

Another product in our specialty CNS pipeline is BVF-018, a new formulation of tetrabenazine for which we have been granted orphan drug designation for the treatment of Tourette's syndrome, school aged children 5 to 16 years old. As such, if successfully developed, BVF-018 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.

In December, we entered into an agreement with MedGenesis and Amgen, for glial cell line derived neurotrophic factor, or GDNF. MedGenesis is a private Canadian pharmaceutical company based in British Columbia that have developed technology the may allow for more accurate delivery of GDNF to the putamen of the brain. This is an early stage program that has shown promise as a disease modifying agent in Parkinson's Disease. As has been our practice, we made a modest up front payment, $6 million in this case, for access to the opportunity, which is clearly high in clinic on a regulatory risk, but also high in its potential reward. Tech transfer activities from Amgen to MedGenesis are ongoing. MedGenesis anticipates having a pre IND meeting with the FDA in the second quarter of 2010. GDNF represent Biovail's first exposure to a biologic drug and further builds our credibility in specialty CNS markets.

Turning quickly to our legacy pipeline. The Phase III studies for BVP-324 in Europe are ongoing. However, enrollment is occurring slower than we had anticipated. This could impact our original assumptions and ton life for the product. The last pipeline product that I will discuss is RUS-350, a misnomer of tetrabenazine that showed certain safety advantages in early critical work.

We recently decided to terminate its further development based on the conclusion that the product was unlikely to provide meaningful benefits to patient beyond that provided by tetrabenazine. We believe the enhanced side effect profile we were seeing was a result of the product's lack of activity. We will allocate the resources originally intended for AUS-350 towards our more promising specialty CNS asset. We intend to continue to rigorously call development programs in our pipeline which do not meet development targets. That concludes my remarks. I will now turn the call over to Peggy Mulligan,

Thanks Gilbert, and good morning everyone. In accordance with US GAAP, Biovail reported net income of $73 million, or earnings per share of $0.46 in the fourth quarter of 2009. These figures are impacted by a number of specific items that, in the aggregate, had a negative impact on net income of $16.3 million, or $0.10 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 fourth quarter of 2009, diluted cash EPS was $0.82 compared to $0.47 in the fourth quarter of 2008. Excluding specific items consisting primarily of $2.7 million in cash restructuring costs, cash EPS was $0.84 in the fourth quarter of 2009. A reconciliation of GAAP EPS to cash EPS is provided in our fourth quarter earnings release issued this morning.

Total revenues for the three months ended December 31, 2009 were $241 million compared to $181 million for the fourth quarter of 2008, an increase of 33%. Product revenues in the fourth quarter of 2009 were $232 million compared with $171 million in the fourth quarter of 2008, a 35% increase that primarily reflects higher revenues from Wellbutrin XL and the inclusion of revenues from Biovail's tetrabenazine franchise and Aplenzin. Offsetting factors include lower revenues from Ultram ER and Cardizem LA. Wellbutrin XL revenues were $57 million in the fourth quarter of 2009 compared with $15 million in the 2008 period. A 286% increase that reflects the May 2009 acquisition of the full US rights to the product which offset the impact of the introduction of generic competition to the 150-milligram strength in May 2008.

The supply of Wellbutrin XL tablets to GlaxoSmithKline for distribution in Europe and other markets generated revenues of $3.5 million to Biovail in the fourth quarter of 2009 and $11.1 million in the full year of 2009. Biovail's new tetrabenazine franchise generated fourth quarter 2009 revenues of $18.5 million which includes US revenues of $15.4 million, Europe and rest of world revenues of $1.6 million and Canadian revenues of $1.5 million, which are included in BPC revenues. In the full year of 2009, Biovail's global tetrabenazine franchise generated revenues of $53.5 million compared with $4.2 million in 2008.

Ultram ER generated revenues of $4.7 million in the fourth quarter compared with $17.8 million in the 2008 period. This decrease reflects the November 2009 introduction of generic competition to the 100 and 200-milligram strengths of the product. The launch of a generic resulted in a 50% reduction in our supply price for 100 and 200-milligram dosage strengths. In November, concurrent with the generic launch by Par Pharmaceuticals, we launched an authorized generic through Ortho McNeil's Patriot division. Based on the latest IMS data, the authorized generic holds greater than 60% share of the generic Ultram ER market. We manufacture and supply the AG to Ortho McNeil. Aggregating brand and AG volumes, Biovail continues to supply approximately two-thirds of the US extended relief Tramadol market by volume.

With respect to Biovail Pharmaceuticals Canada, or BPC, fourth quarter revenues were up 45% year-over-year, reflecting the strong performance of Wellbutrin XL and Tiazac XC, as well as the positive impact of fluctuations in foreign currency exchange rates. As constant exchange rates, BPC's revenues were up 27% in the fourth quarter and 20% in full year of 2009 compared with the prior year period. Generic product revenues increased 9% year-over-year in the fourth quarter of 2009, reflecting the recognition of $4.4 million in product that was shift in the third quarter of 2009, but delayed due to customs clearance issues and also higher prescription volumes for generic formulations of Cardizem CD and Procardia XL, partially offset by lower pricing and lower prescription volumes for other products.

Turning to the expense side of the income statement, let me remind everyone of an important change to our inventory cost for Zovirax. As previously disclosed, since October 2002, Biovail has been entitled to purchase a predetermined quantity of the Zovirax inventory from GSK at reduced prices under a price allowance. We expect that any remaining inventory acquired at the reduced supply prices will be sold in the first quarter of 2010. After which time, the cost of inventory purchased from GSK at full price will have a material impact on the gross margin contributions from Zovirex product sales. While we haven't specifically quantified this impact, it will more than offset the benefit of closing the Company's Puerto Rico manufacturing facility.

Turning now to Biovail's selling, general and administrative expenses. In the fourth quarter of 2009, a number of factors affected this expense, including $2 million in indemnify obligations to certain former officers and an $11 million loss on the sale and lease back of our corporate headquarters in Mississauga , Ontario, which was largely offset by a $10.2 million reversal of a potential voluntary compliance undertaking, or VCU liability as a result of the closure of a review into the introductory pricing of Glumetza in Canada which determined that Biovail's prices for the product were appropriate. On a normalized basis for the full year, adjusting for these and other similar items as previously discussed, SG&A is down 1% in the full year of 2009 compared with 2008. This is a significant accomplishment given the integration costs associated with the June 2009 transaction with Cambridge Labs and higher costs associated with Biovail's extensive business development activity in 2009. And, as Gilbert mentioned, as we begin to unload our US sales force in the second half of 2010, our SG&A expenses will increase proportionately.

R&D expenses were $38.4 million in the fourth quarter compared with $16.1 million in the prior year period. This increase reflects a writeoff of $8 million of in process R&D related to the termination of the RUS-350 program, an up front payment of $4 million made Santhera and fipamezole transaction and $6 million to MedGenesis in the GD&F transaction. Adjusting for these payments, Biovail expects R&D expenses to remain above the level seen in the past several quarters to a level more reflective of a growth company. For example, in the coming quarters, we'll incur incremental costs for the new development plan for Pimavanserin, ongoing work with fipamezole, BVF-018 and GDNF in addition to the Phase III program for BVF-324. Of course, we hope to realize an attractive return on these R&D investments over time. As a reminder, we expect to invest $600 million in R&D, including up front and milestone payments from 2008 to 2012.

Biovail's balance sheet remains strong. At the end of the fourth quarter of 2009, the Company had cash balances of $114 million. The strong cash flow from operations, which I'll highlight in a moment, allowed us to pay down the entire $55 million that was drawn on our revolving credit facility at the end of the third quarter of 2009. As such, the entire facility, which provides up to $550 million in funding, including the $140 million accordion feature, is currently available to us.

At the end of the fourth quarter, long-term obligations, including the current portion, were $326 million, which includes the net present value of the remaining $30 million payable to Cambridge Labs over the next 18 months and $298 million representing the net present value of the debt component of the convertible note. As we've previously discussed, the value allocated to the liability components of the note will be accreted out to the face value of the notes over the five-year period to maturity and will be recognized as additional non-cash interest expense. In the fourth quarter, this added $2.7 million to GAAP interest expense. Another factor that impacts non-cash interest expense is the amortization of approximately $24 million in deferred financing costs associated with the convertible notes and the Company's new revolving credit facility. In the fourth quarter, this added $1.3 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 $127.6 million in the fourth quarter of 2009 compared with $107 million in the prior year period. Cash flow from operations before changes in working capital was a robust $131 million in the fourth quarter of 2009. For the full year 2009, the figure was $362 million. If you exclude $30.8 million in settlement fees related to legacy litigation and regulatory matters, cash flow from operations before changes in working capital was $393 million in 2009. Capital expenditures amounted to $4.7 million in the fourth quarter of 2009 compared with $683,000 in the prior year period. In 2010, Biovail anticipates capital expenditures to be approximately $10 million. For more comprehensive details pertaining to Biovail's financial and operational performance for the three and 12 months ended December 31, 2009, please refer to the earnings news release distributed by the Company earlier this morning.

Now let me give you a little perspective on 2010. We expect modest growth in revenues due primarily to increased contributions from Wellbutrin XL, our tetrabenazine franchise, diltiazem products and BPC. Gross margins will be affected positively by increased sales and efficiency gains from our restructuring initiatives and negatively by reduced Zovirax margins, growing sales of Xenazine and increased volumes of our generic diltiazem products. R&D expenses, excluding up front payments and cost of new business development activities, are expected to be approximately $130 million, including expenses of our contract research division. Establishing our US sales force as Gilbert described is expected to increase our SG&A costs. We'll also incur a full year's worth of interest expense, both cash and non-cash and a full year's worth of amortization of intangible assets associated with the acquisitions of Wellbutrin XL and worldwide rights to tetrabenazine.

Overall, based on our current portfolio, 2010 GAAP and cash EPS are expected to be below 2009 levels, primarily due to the significant investments being made in support of Biovail's future growth. As always, expenses associated with legacy issues and up front payments and costs related to business development activities are unpredictable. Of course, on the flip side, so too is a positive impact from accretive acquisitions. And as Bill mentioned, we're working on several of these. 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 April 5, 2010 to shareholders of record on March 8, 2010. The X dividend date is March 4, 2010. That concludes my comments.

Thanks, Peggy. I'm pleased with our strategic, operational and financial accomplishments in 2009. We are clearly ahead of where we thought we would be in implementing our strategy. We have over $650 million in available liquidity to aggressively pursue the many excellent business development opportunities available to us. Our clinical development pipeline is beginning to advance, and our business restructuring is delivering greater efficiencies. We have successfully built both out operating and development businesses and intend to do more. The creation of US specialty sales force is an important strategic next step. I am excited to be able to do it around a unique product with such great potential, Staccato loxapine. Transitioning Biovail to high growth remains our top priority. Also of note to investors, we continue to pay the highest dividend of any specialty pharma company, thus providing immediate cash returns, and we do not face any patent clips of any significance which might threaten our operating business.

Let me close by thanking all my fellow Biovail employees for your extraordinary efforts in 2009. Thank you for such a great year. I'm proud of you all. We'll now take questions. Operator?

We will now take questions from the listeners. (Operator Instruction) There'll be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Chris Schott from JPMorgan. Please go ahead.

Great, thanks. Maybe first question on business development. You mentioned several deals at the term sheet stage with a mix of AZ-004 type deals and products that might be more quickly accretive to earnings. At this point, what's your confidence on closing more near term accretive type of transactions? And maybe along the same lines, you've obviously making a large investment in your business, both R&D and SG&A side over the next couple of years, and this will obviously put some pressure on near term earnings. Can you talk about how you're balancing your near term prospects and desires for growth over the next couple years with your investments that ultimately may drive long-term growth? And I guess my question is, to reach a point where you need to slow down some of your investment stage deals until you are able to reach -- to close on some of these in-market transactions. I'll start with that and have one follow-up from there.

Sure, it's a very important sequence of questions. Let me give a little perspective. What I see happening in 2010 is an operating business which is performing extraordinarily well, and I think that's clear coming out of the results of 2009. That's providing a large stream of cash flow which we can use to build the the development business and to build our infrastructure as part of our strategy, as we go forward. What we have called out to you this morning, is just to highlight the fact that we are going to be stepping up the investments in future growth in the business, both in the form of increased spend on the development pipeline and also, the expenses around building the sales infrastructure. Looking at the status quo business, what that means is that we would have a down year in terms of cash and GAAP EPS if we don't do something else in terms of creating additional accretion.

Now we are working on a number of different opportunities which would be almost immediately accretive to the P&L, both from a cash perspective and also from a revenue perspective. We certainly hope that we would be able to bring some of those to fruition and consequently, offset in part, or perhaps even in whole, the additional expense which would be created by investing in the build out of infrastructure and in the development pipeline. But it's impossible for us to predict success in that. Now I think we have demonstrated over the last 21 months, with seven deals done successfully, that we have some pretty good capabilities here. So that gives me a certain degree of confidence that we'll be able to do something, but I'm never going to be able to predict success because it takes at least two parties to make these transactions happen.

Great, thanks. And along those lines, again, obviously, you're working on a number of these transactions, but how focused are you to the extent you saw more -- again, similar to the deal you just signed here. Products that may be a little bit dilutive to near term earnings, but are near to market and can drive growth. Do you reach a point where you put those on hold to close some of these? Or if you see a good deal, are you going to make the commitment and move forward with it?

Well, I've said before, and I will continue to say that I really don't want our investors to have to sacrifice short-term results in terms of cash EPS and revenue growth in order to develop the business over the long-term. I don't think that that's a wise strategy. So we're very focused on trying to build the short-term operating business which is why we are working on a number of these accretive transactions. If we got into a place where we were unable to close any of these deals which would bring short-term accretion, then I think we certainly would consider slowing down some of the investment in the longer term. Now the timing of these things is is not always entirely predictable and not always within our control. So there may be a couple of orders where you're investing more in the longer term business while you're trying to bring one of those accretive deals to fruition.

But if you look out over a longer period of time, it should all balance out, and that's what we're trying to do. I think if you look at 2009 as an example of how we're trying to manage this process, it's an extremely good example because we did five deals in 2009, two of those deals were acquisitions which were almost immediately accretive to sales and to cash flow, and they made a very substantial contribution during the year which helped offset some of the incremental expenses which were going into building the development pipeline. And so, 2009 represents exactly the kind of balance which we're trying to achieve as we take this forward. You couple that with how well the operating business is doing, if you look at numbers in terms of cash EPS in the fourth quarter, cash EPS was up approximately 75%, quarter-on-quarter versus 2008. So the operating business is clearly firing on all cylinders. It gives us a lot of flexibility as we manage this process going forward.

Great, that's very helpful. One final, very quick question. AZ-004, I think your partner cited $40 to $50 price range could be supported for the product. Just wondering, is that consistent with your view? Thanks.

I'm not going to comment on the on the overall price. Just to say that the, we think this product is has an extraordinary opportunity. It's a product which brings great benefit to patients. There's a very large unmet medical need.

The patient population, 8 million patients that can benefit from this, many of whom are having recurrent episodes of agitation, and there is no other product which is comparable to the kind of benefit that AZ-004 can bring. So, this is really the creation of an entirely new market, which is one of the reasons why we're so excited about it. I do think that there is a real value which is being created by this product and consequently, we should see that value reflected in an attractive price. And we do expect this product to produce a significant level of sales, particularly when we focus it on schizophrenia and bipolar with the potential of greater upside as we try to develop other indications because of the very long life span of the IP associated with the product. So we're really excited about it. It's a great product and I think represents an extraordinary opportunity for us.

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

Thank you, good morning. A couple just sort of quick questions with respect to gross margins and SG&A. Can you talk about, maybe with a bit more granularity, how many basis points were looking lower? Is it 2 to 400 or something like that? Secondly, on SG&A, what can we use as a base level going forward and how much legal expense would be included in that? Third question, just has to do with the sales force. If you were to acquire a sales force, can you talk about A&P versus the actual the sales force costs? Break that out when you think about the $40 to $70 million next year and what you expect to spend this year? And then finally, any commentary on your view of Huntexil, the data that came out, and would you view this as a competitive or complimentary product ultimately if it were to be approved in the US, thank you.

Doug, I think we'll pass the baton between us here, but I'll start. On the gross margin, there are of course, a number of moving parts. The Wellbutrin XL franchise, very, very strong margins. There is, as we noted, a substantial change with the inventory cost of Zovirax coming forward. And while we're not disclosing that amount, it does -- is not quite funded by the savings to the closure of the Puerto Rico plant. We are also seeing a tremendous uptick in our diltiazem product through the generic line, and that is lower margin business that is still very profitable. So dependant on how the mix of those roll out, 70 to 74 percentage is a reasonable tracking rate for gross margin.

Okay, thank you.

On the SG&A, I think we've been fairly good about pulling out a lot of the moving parts. I will tell you that in the current year, there was $19 million of in indemnity expenses in the SG&A line. The other ones are all identified in the certain items reconciliation schedule, so you should be able to normalize fairly cleanly on that on on base SG&A. And then I'll let Gilbert talk about the A&P versus sales component in the go forward SG&A line.

Thank you, Peggy. Good morning, Doug.

Good morning.

Actually, let me comment on a couple of levels with respect to the sales force. I think that early on and thinking terms of 2010, this would be a prelaunch year. And you should expect to see the split, probably be in two-third for the promotional or prelaunch elements and one-third for the initialization of the sales force that would culminate with the bulk of the hiring in the back end of the year. Moving beyond the launch timeframe, in other words, first full year of commercialization would be starting in 2011. That ratio's probably going to be inverted, could maybe go as high as three-quarter on the sales front and one-quarter on the promotional. So these are only indicative purposes, but I think they're quite reliable.

The other component that could augment the level of spending, of course, is the extent of the label that we may get early on. Will we be able to cater at first only to inpatient settings, meaning hospitals and institutions, or will we be able to cater to the inpatients but also the outpatient needs and therefore, bring the product into retail? Second question about Huntexil, we don't consider Huntexil to be a threat since it's not indicated in chorea -- in the treatment of chorea. It doesn't seem to have any benefit in treating those movement disorders associated with Huntington's Disease. Could it be used concurrently with Xenazine? Possibly. I think it remains to be seen. I think there would need to be a number of testing that would take place to make sure that these drugs can indeed be used synergistically or in parallel in the treatment to the various symptoms of the disease.

Thanks very much.

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

Hi, first question is, I just want to make sure I understand when you guys talk about 2010 EPS being below 2009, the GAAP number you're talking about was $1.11 and the cash is 256?

That's correct.

That's correct correct on both fronts.

Okay. As far as Wellbutrin XL, can you give us a flavor for how big are these coupons, what's going on with ASPs behind the scenes sell this model?

Okay, well, I think we commented in the past call on the nature of that program. It's one that's intended to support the brand. As you know, we're very pleased with the continued performance of the product. We've seen no sudden departure in scrip rates for the brand. There's a constant but very modest erosion, and shares currently are holding at that 6.5%, 7% rate. So the program that we are putting forward has two dimensions. The first one is to help physicians or loyal prescribers initiate treatment through provision of samples. Bill commented on the fairly enthusiastic response we've been getting. More than half the physicians that we contacted did indeed form a request for samples.

The couponing program started in about the middle of January, so it's too early to tell what the rate of redemption will be, but we will have a fairly clear read on this. Our intent is to make a material reduction in copay burden that is being experienced by patients that want to get the brand instead of the generic version of the product. So it's going to be case-specific, patient-specific, depending on what their plans are Mark, but it's going to be a fairly material reduction, if not a complete elimination of the difference between the two copays.

Just to switch gears to Xenazine, can you give us some behind the scenes info, what's going on back that, pricing, has that changed at all? Average pricing you talked about this quarter was basically doing exactly what you thought it was going to do and it is ramping towards your goals. Obviously, we started out around 2,150, went to 2,500 or so, and now this is 2,700 or so patients. So should we be expecting, just add 200 patients per quarter going forward? Is that how you're thinking about it?

Yes, well here again, we're quite pleased so far with Lundeck's efforts and what is permeating. We commented earlier this year and today, again on the lot of new patients that are occurring during the summer months, early fall. This was not expected. The penetration assumption, 4 to 6,000 patients are actually still well into our reach. We gain a bit more than 200 patients over the quarter. I think this is reflective of what we're currently encountering when visiting the broad base of prescribers, the patients that are also, hinted into the direction of treatment and also their natural caregiver.

This is a meaningful material drug. It's one that comes with a quite substantive ramps program that sometime will have patients step back and think really hard about the treatment and all its implications, and this is the time where the effort in the trenches is about providing a clear view of what the benefits can be, not only for the moderate to severe patients, but also the less severe cases and also patients that are at the later stage of the disease. So it really is about making sure that prescribers and patients will embrace these the benefits of the treatment and revert to it as as early as possible.

Pricing still about the same levels?

We have taken some price increases on Xenazine in the US. There was a price increase in the summer of last year. I think there was a price increase early this year. Mid-single-digits is the range.

Last question, just want to make sure that the cash number of $2.56 this year, I think you said it included $19 million of indemnity costs, right?

That's correct.

So that included. And then the 2010 number will include, you think roughly the same? Maybe a little bit below?

Impossible to say.

Yes, we have no idea.

Yes, we just don't have visibility into that.

When you make the comment that 2010 will be down from 2009, I just want to make sure -- you're assuming that the indemnity will be about the same or down? I just want to understand what you're assuming when you say.

Our assumptions is that the indemnity will be relatively similar between 2009 and 2010 The -- but that is not really the issues that we're trying to highlight for folks in the 2010 number. What we're trying to point out is that , even with the very strong operating business, we are going to be investing more and building the sales force. We are going to be investing more in the pipeline, and that would be what implies a down year in cash EPS and in GAAP

And Mark, I just want to clarify and make sure I heard you correctly. The $2.56, that is adjusted for items that we call out as certain items which do not include the indemnity payment. It includes other legal settlement, so I apologize as I misheard you.

Right, so $19 million is in the $2.56, you did not exclude it.

That is correct.

Okay, thanks.

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

Good morning, thanks. AZ-004, can you step us through the key events of the buildout of the sales and marketing infrastructure? Who leads that effort? What needs to be executed and when in order to be market ready for a Q1 2011 launch?

Okay, good morning, this is Gilbert. Actually, it's a fantastic opportunity as Bill described it earlier. Having said this, when come October, hopefully we'll be granted -- win approval, and that approval will be for inpatient and potentially for outpatients as well. So the task at hand here, fairly generic one. We need to create awareness for the treatment, and that implies awareness for a condition that had no highly valuable treatment to date. So a lot of the preparation will be to reach out to those stakeholders during the course of the next ten months and appraise them of the current stages of that product and it's hopefully likely approval in fall. The second component relates to what we refer to as access.

If this product is going to be approved in the hospital or in the institutional setting at first, we need to make sure that this product, here again, will be understood and accepted by the group of stakeholders in this institutional setting that will in the end bless it's use on the premises. So is this the pharmacy and therapeutic committee. This is the financial authorities of this site and of course, and most importantly, the physicians that will evaluate that this product has indeed, a very substantial benefit. The question of access in the retail world, is a bit different, but nonetheless important. And that's the one that requires that we convince payors, private and public payors that here again, the product has a, a very meaningful benefit in terms of interrupting what this otherwise a fairly escalating , risky, escalating process. People that are agitated, if not treated, will eventually -- could become threatening, could become violent and so on. And therefore, there are very concrete benefits to this product in terms of safety, but also in terms of the economics of that spiral if it's not

But just with respect to your internal seals and marketing infrastructure, what exactly do you need to execute and when? In terms of leadership, in terms of the buildout, in terms of headcount, et cetera. What milestones should we be looking to? What needs to happen?

Okay, well the core of the commercializing group in the US has been in existence. We have augmented some of our competencies specifically as they relate to the field of neuroscience over the last year and a half and therefore, that group is a varied group that has been making all of the evaluation of those opportunities that we've been acting on for a last 18 to 24 months. So that group will continue to augment. We will bring into place here, a number of people that can cater to the marketing of the brand. So a couple, three additional people in -- directly dedicated to marketing of the brand is something that will in the near term --

Near term, okay.

Then sales force component, which is obviously the high commitment will -- those decisions will happen in the back end or the second half of the year where first the infrastructure to support that sales force will continue to grow. This is the people that will supervise seven, eight, nine, ten territories in the United States and will eventually also, in the back end of the year, proceed with hiring of the people that we will deploy during the course of the first quarter of 2011. So , we will evaluate as the year proceeds. We will evaluate how well the review is proceeding with the agency. There will be frequent contacts over the next ten months, and it'll be a calculated risk to deploy -- hire and deploy our sales force on the basis of imminent

Then with respect to the Xenazine franchise, where exactly does your generic defense strategy stand, now that the isomer program has been terminated? Can you review that quickly for me, please?

You'll remember that we have another development program, which BVF-018, tetrabenazine for Tourette's syndrome, that program continues. And we're moving actively along in development of 018. We had a good meeting with the FDA, and we plan to launch our Phase II program towards the end of this year. So, in terms of a life cycle extension strategy, BVF-018 was really the next phase in life cycle extension. Though although we have cancelled RUS-350, I don't think it has any meaningful impact on the likely life cycle of tetrabenazine as a whole.

What remains in terms of exclusivity on Xenazine?

Approximately six years on the Xenazine today, and assuming we launch BVP-018 towards the end of tetrabenazine's life cycle, you would get another seven years.

Thanks very much.

Thank you, the next question will be from Annabel Samimy from Thomas Weisel. Please go ahead.

Hi, thanks for taking my call. Just a question on the ramp up for AZ-004, actually, rather, the approval process for AZ04, we understand that oxy loxapine is a known active ingredient. But can you give us a little color on the actual approval of the device and how that might go through the FDA.

Yes, the PDUFA date is October 11. The full NDA has been submitted. The NDA was submitted with extensive information related to safety and extensive information related to both inpatient and outpatient use.

The loxapine itself, as you know, is a very well known compound with a very well understood safety profile. The actual dose which is being used in Staccato loxapine is far smaller than the average daily dose which is used with oral loxapine. The device itself is, although it's an incredibly elegant device, very easy to use, literally just as easy as taking a short breath, the -- is relatively simple. So the actual electronics and so on behind the device, very easy to understand and so not a lot of complexity in the components in the device itself. The NDA is, in fact, being reviewed by the drug section of the FDA, it is not being reviewed by the device section of the FDA. The main issue that seems to pop up when people are talking about potential safety issues here with Staccato loxapine is because you have a drug which is being aerosolized and taken into the lungs, is there any possibility of irritation of the lungs with the drug? It's been extensively studied by Alexza .

All of that material is in the NDA filing. And in addition, we're talking about usage here on an acute basis, so it will be used a few times a year by patients who are suffering agitation. It's not going to be a daily use kind of thing. And so we think that also greatly diminishes any potential risk around irritation in the lungs. All of these factors are already in the NDA submission, and we've studied it extensively and feel pretty confident about

Okay, can you talk a little bit about the manufacturing and the capacity, if it actually gets approved at a broader label as well as the scalability of the device -- the whole device.

Yes, I've been out and visited the manufacturing sites personally, out in California, seen it operating. The manufacturing site has already produced many thousand of these devices, which were being used in various files and testing. The line itself is ready to go to produce, I think it's up to about 3 million devices. Beyond that level, we would need to invest some additional monies to have incremental capacity. We have already discussed that with Alexza , so there is a plan in place that, assuming we have a very successful launch, to make sure that we have the available

If I could ask one more question on Xenazine, you had mentioned that now that most of the patients have rolled over from the trials, you've got a little bit more of an effort to make in terms of training positions on the REMs, et cetera. Can you sort of help us understand what that barrier is and how difficult it might be to train the physicians or how long it might take and how it affects the ramp up?

Sure, one of the main issues with tetrabenazine, and this was a learning that we got in talking with physicians over the last six to eight months. We actually thought that tetrabenazine was much better understood by the physician community than it turns out to be. The one of the main issues is how you titrate tetrabenazine. It's somewhat unique. Physicians are used to titrating up to a certain level of efficacy. In the case of tetrabenazine, you don't do that. You actually titrate up to a side effect and then back off a little bit so the side effect disappears, and that's the level of dosage which is going to be tolerated by the patient. So it's a different titration regiment. Patients need -- doctors need to be educated in that.

There also is very clear that what's driving usage of tetrabenazine is a few centers of excellence in the US. And we've looked at all of the centers of excellence, and there are a number of them, probably about half of them which there's not a significant usage of tetrabenazine. And so we have very clear targets of where we need to get in, education the physicians who aren't in those centers of excellence, and it provides a significant opportunity for us. So as Gilbert said, this is basic blocking and tackling as you're building a product, and I think we're starting to see the the results of that in the study upward climb in patient numbers.

Okay, thank you. And just one other question regarding the dividend. Given that you're in a growth stage and investment stage of your business, what exactly was the rationale for reinstating the dividend?

Well, first, as a shareholder myself, I like that dividend. I like receiving a cash return every quarter. I think there are many of our shareholders who share that feeling, particularly in Canada. As you know, we have a large Canadian investment base, so people tend to be a little bit more yield oriented. And I personally believe that it is a good discipline for for a company that if you are distributing cash to your shareholders each quarter, it makes you even more focused in how you use cash and in ensuring you get appropriate cash on cash returns in your investments. So just as a fundamental discipline for a company, I think it's a good thing.

Okay, thank you

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

Yes, thank you. Bill, just a quick question on your sales force for loxapine, obviously it's going to be the first product for some period of time, but I'm just curious as to when you go out and end license additional products, how would you characterize the kind of products that you want as the number two and number three detailing positions for the sales force? Because I guess the sales force is going to be going into a very, I would say a unique niche kind of setting, into an emergency care setting of some kind. What kind of products would fit into that particular sales force? So maybe you can give us some color on that?

I think we've already got a great product in the pipeline area with Pimavanserin as adjunct therapy in schizophrenia. Certainly, that would fit very well with Staccato loxapine as it was being detailed on an outpatient basis, and I also think it would fit with the hospital sales force. There are several other opportunities that we're working on on the business development side that would fit very well with the sales force as well. Obviously, I can't go into details on those. But we're very aware of the fact that we need a second and a third position in the bag of the salesperson when they're also detailing Staccato loxapine, and our plan is to build that over time. I will say that we are also focused on more traditional neurology products. And so again, over time we would expect that we would be developing a more neurology focused dimension of that sales force as well.

That's great. Thank you

Thank you. The next question left side from David Amsellem from Piper Jaffray & Company. Please go ahead.

Hi, this is actually [Misha Dienerman] for David. Just a quick question on Xenazine . If you guys could talk a little bit about the portion of the patient mix which is off label and whether you're seeing more of that in Tourette's or tardive Dyskinesia? And also, for loxapine is there any reason to suspect that we might see an advisory panel? And can you give us your thoughts on pricing around that? Thank

Okay, first on tetrabenazine, we are seeing a substantial proportion of patients that are using the product off label, seems to be a bit more concentrated in Tourette's, but we're also seeing a number in tardive dyskinesia as well and also in dystonia.

The -- with regard to loxapine, first on pricing, as I mentioned earlier, we're not going to give any specific guidance around pricing. But we do believe this is a significant product that brings very significant benefit to patients. Also to caregivers and to medical personnel in terms of reducing risk to both caregivers and medical personnel. When you look at the pharmaco economics of the device, they are outstanding. You can imagine an emergency room visit, particularly that ends up involving ambulances or police when you have a severely agitated patient, the cost of that is extraordinary. If you can interrupt that cycle with a simple device, all a patient has to do is take one breath, and if it's on an outpatient basis, they can do that at home and avoid this whole drama. That's a huge benefit to patients, caregivers and also to the medical system. An so we don't actually think that when looked at in that context, prices are going to be such a major issue. The -- I'm sorry, I missed the other part of your question about loxapine.

I was asking whether there was any potential for an advisory panel in your opinion.

Always potential. That is, of course up to the FDA. The opinion of Alexza, and we share the opinion, is that we think it's less likely given the the well-known features of loxapine and the fact that the device and its usage is actually very simple. But that is, of course, at the FDA's discretion.

Okay, thank you very much

Thank you. The next question is from Tim Chang from CRT Capital. Please go ahead.

Thanks. Bill, could you talk a little bit about I guess the legacy business that you have in the Canadian pharmaceutical business? It seems like you're getting better than expected growth there. Do you expect that to continue in 2010? And how do you SG&A expenses to ramp this year? Will it be more heavily weighted to the back half of the year, or do you think the incremental $10 million to $20 million of spending for the loxapine product will be more evenly split this year?

I'll pass the SG&A question to Peggy, but with regard to legacy business and Canadian business, we do expect some growth in the in legacy business this year. We certainly expect growth for the Canadian business. Canada has been growing very well as you've seen, 20% growth in cost and currency last year. The other important point on Staccato loxapine is that this is a great product for Canada and fits very well with our existing sales force in Canada, and we will, of course, be moving forward as fast as we can to get it approved in Canada. And we believe that you can use the same data which has already been submitted to the FDA. And so this product alone would be a very meaningful product for our Canadian business and help to continue that growth in Canada. Let me pass it over to Peggy on the SG&A.

Sure, on the SG&A, Tim, very moderate increases, of course, going through Wellbutrin XL marketing campaign, and those of course will impact the first quarter. But I stress they're quite minor in nature. The spend on AZ--004, ZMPs is apt to start kicking in in the second quarter, so probably more heavily second, third quarter, so a bit more back end weighted.

Peggy, just to get a little bit more color on the SG&A spending, is it too simple to think that given the SG&A that you've done this year or in '09 was about $170 million, is it too simple to add $10 million to $20 million to that and use that as a new baseline for spending in 2010, or will there be other incremental costs that you expect?

I think if you look at the G&A portion, as I mentioned, I think to Doug, there's a number of things that you can normalize in our certain items that we've identified. As I mention, we do have $19 million of indemnity costs in that G&A component this year. And as Bill said, we have no visibility to that spend so can't make a call on it, and it can be quite lumpy. Once you normalize the G& A out, then really on the sales and marketed side, I think Gilbert gave the range on what we're expecting for AZ-004, 10 to 15?

10 to 20.

10 to 20, pardon me. And the Wellbutrin, I'll stress it's a very small number. And Bill, just one follow-up. When you look at the sales force that's going to be required for loxapine, how do you sort of look at, do you build it or do you buy it? And certainly you've been looking at other acquisitions that are potentially accretive. Are there a lot of companies that you have looked that have revenues, have a sales force and have profits that could be immediately tacked onto your business at this point?

In this particular case, the Staccato loxapine, our intention is to build the sales force. We are, however, looking at acquisition opportunities that do have sales force infrastructure associated with that and that would bring immediate revenues, immediate cash flow and would be accretive to our business. In some cases, perhaps accretive enough to entirely offset some of the impacts of investing in the future that we've been talking about this year. And certainly, we are going to try very hard to make those those opportunities happen. The sales force infrastructure that are in those acquisition opportunities, however, tends to be more focused in the neurology side and not so much in the psychiatry side which is where Staccato loxapine is focused.

Okay, great. Thanks.

Thank you. And our last question will be from Gregg Gilbert from Bank of America. Please go ahead.

Thank you, Bill, just a bigger picture question on your structural tax rate advantage relative to the rest of the US-based industry. Are you considering any near term opportunities for which the tax rate opportunity is a key driver of your interest? And as part of that, how would the tax rate opportunity be different for US asset that has sales already with operations based in the US versus a company that, let's say has some Phase III products, but no sales, also in the US. Thanks a lot.

Okay, the -- our opportunity with our lower tax rate, certainly in terms of cash taxes tends to be quite low. It is a very significant opportunity when we're looking at some of these various different projects. It's never the primary driver, however. The primary driver is fit with our strategy and how that opportunity can build either our operating business or our development business. But the tax advantage that we have certainly provides very nice juice in those transactions. The the actual experienced tax rate is going to be a little different in each case depending on the particular circumstances of the product. So for example, if we were acquiring a legacy product that there was no promotion of that product in the US market, the product was acquired by our Barbados subsidiary, we would experience a low effective cash tax rate, probably in that 5% to 7% range that we commonly experience today.

Let's take Staccato loxapine as another example. Here's a product which is actually going to be manufactured in the US, there'll be a -- our own US sales force which is promoting Staccato loxapine. It's likely that the product would end up being packaged offshore. We expect the cash tax rate that would be experienced in that case would be on the order of around 15%. So it's certainly higher than the 5% to 7% that we might experience on a legacy product, but it is still advantaged versus an a normal corporate tax rate in the US. And so, when we look at the different opportunities, that gives you a feel for the spectrum of the kind of range of rates we should be looking at.

Thank you very much.

Thank you. Now at this time, I'll return the meeting back to you.

Perfect , thank you very much operator. We appreciate everyone's attention. Obviously, we had a terrific year from an operating perspective and also from a business development perspective in 2009. We're very, very pleased about that. Also excited about our momentum going into 2010. We've already closed the first significant business development transaction of the year with the Staccato loxapine represents a big strategic next step with starting to build out our commercial infrastructure. We do anticipate solid performance from our operating business this year, but of course, additional investment in the future of our business. And we'll continue to be very focused on trying to do accretive deals which will help to offset some of that impact of additional investment in Biovail's future growth. With that, we will close. Thank you for joining us today, and we look forward to chatting with you next

Thank you, the conference call has concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation, and have a great day.