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OCTOBER 9, 2003
By Diane Brady What's Really Banging Up Biovail? [Page 2 of 2] "UNDERESTIMATED POTENTIAL." One thing is for sure: Biovail has a lot riding on the success of Wellbutrin XL. Because it's a once-daily version of the popular antidepressant, analysts and company executives have anticipated a blockbuster. The twice-daily formulation, Wellbutrin SR (which Biovail doesn't manufacture), is the No. 1-prescribed antidepressant by U.S. psychiatrists, according to GlaxoSmithKline. And moving to a once-daily formulation could substantially boost interest in the brand as many doctors prefer the simpler dosage. Moreover, analysts say Wellbutrin doesn't carry the risk of reduced sexual function or weight gain associated with some other antidepressants. "[Wall] Street has underestimated the drug's potential," says David Lickrish, an analyst with Punk, Ziegel & Co. He points to GlaxoSmithKline's consumer ad campaigns, its 8,000-strong sales force, and the strength of the Wellbutrin brand as positive signs. "Investors should focus on the end-user demand for Wellbutrin XL." Until the accident, Biovail had been optimistic. On Feb. 7, it had predicted 2003 revenue of between $75 million and $150 million from the new drug. That estimate has now been reduced to between $60 million and $130 million. Howling says Biovail has so far generated $20 million in revenue from the drug. And investors had already started selling off Biovail shares before the accident. The stock peaked in June, at $51.30. WHY NOT ASK? Banc of America Securities Analyst David Marris wants more information about how much product was actually in the truck. On Oct. 8, Marris initiated coverage of Biovail with a sell rating, citing the accident as something that "bears further investigation as there are serious unanswered questions about Biovail's statements." Howling notes that all details of the accident are being explored. One might think the company could be more precise about how much was shipped on the last day of its quarter. Seems as though it would be easy enough to call Penner Trucking Co. in Manitoba and find out what the bill of lading shows. Says Howling: "We had just found out about the accident on a Thursday afternoon [a full day after it took place] and had a conference call the next morning.... We took a worst-case scenario." Unfortunately, the Wellbutrin truck incident isn't Biovail's only problem. Contributing to its lowered third-quarter guidance are a delay in filling a backorder of Cardizem CD hypertension treatment supplied by Aventis (AVE ) and credits issued to wholesalers by a distributor of a generic ulcer drug in which Biovail has a financial interest. WRINKLED BALANCE-SHEET. Also, the Center for Financial Research & Analysis has raised questions over Biovail's quality of earnings. The Rockville (Md.)-based independent research firm issued two recent reports on the company, expressing concern over issues such as its rising debt load and its use of one-time items like a settlement from Pfizer (PFE ) to boost earnings. The CFRA estimates that a substantial portion of Biovail's earnings in the first half came from one-time items, and it puts Biovail on a 5 rating, indicating "highest" concern over its numbers. "We are concerned by the company's balance sheet," the CFRA says in a September report. Howling responds that "items that stem from our normal operating activities are appropriately included in our results." He adds that Biovail will be in a better position to comment on the specifics of the truck accident as well as its financial guidance in its third-quarter earnings call on Oct. 30. In the meantime, investors may want to tread carefully when trying to determine this drugmaker's health.
 Brady is an associate editor for BusinessWeek in New York Edited by Beth Belton
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