Valeant Pharmaceuticals International, Inc. 20-F 2007
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Washington, D.C. 20549
Commission file number 001-14956
7150 Mississauga Road
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 160,444,070 common shares, no par value, as of December 31, 2006.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ý No o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 20-F or any amendment to this Form 20-F. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 ý
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
This Amendment No. 1 on Form 20-F/A (the "Form 20-F") amends and restates the Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (the "Original Form 20-F"). In this Form 20-F, Biovail Corporation (the "Company") is restating its consolidated financial statements and other financial information for each of the fiscal years 2006, 2005 and 2004, and for each of the quarters in fiscal years 2006 and 2005, as well as other financial information for fiscal year 2003. Previously filed annual reports on Form 20-F and quarterly reports on Form 6-K affected by the restatements have not been amended and should not be relied upon.
As previously disclosed in the Company's quarterly report on Form 6-K for the three months ended March 31, 2007, during the 2007 first quarter financial statement close process, management detected a data error in a supporting schedule used to (a) track quantities of Zovirax® products that the Company may purchase at reduced supply prices from GlaxoSmithKline plc ("GSK"), and (b) calculate amortization expense on a related long-term asset that is being amortized to cost of goods sold. As a result of the error, cost of goods sold has been adjusted for an overstatement of amortization expense. At December 31, 2006, the cumulative effect of this adjustment was an increase of $17.3 million to previously reported net income. The reversal of the cumulative adjustment will affect net income negatively over the period that the long-term asset is being amortized, which is based on a revised amortization schedule that commences in fiscal 2007.
The restatement resulted from material weaknesses in internal control over financial reporting, namely, that the Company did not have adequate internal controls around the development and usage of spreadsheets in the location where the data error occurred, and around the review and related analysis of those spreadsheets by local management.
As a result of the preceding restatement, the Company is required to correct other known errors in prior periods that were previously deemed to be immaterial. Management identified two such instances one related to Cardizem® LA revenue recognition and the other related to foreign currency translation.
The Company has revised its previous accounting for a cumulative pricing adjustment related to Cardizem® LA sold to Kos Pharmaceuticals, Inc. ("Kos"). That adjustment resulted from price increases implemented by Kos during the period from May 2, 2005 to September 30, 2006. As previously disclosed, the Company originally recorded the entire amount of that adjustment in product sales revenue in the third quarter of 2006. The Company has now reallocated a share of that adjustment to each of the affected interim periods. At December 31, 2006, the cumulative effect of this reallocation on previously reported net income was zero.
The Company has also corrected the classification of certain foreign currency translation gains and losses from accumulated other comprehensive income to net income. Those gains and losses were primarily related to long-term intercompany balances between the Company and its Irish subsidiary group. At December 31, 2006, the cumulative effect of this correction was a decrease of $3.5 million to previously reported net income.
There was no income tax impact resulting from the foregoing adjustments.
Impacts of Adjustments
The following tables set forth the impacts of the foregoing adjustments on affected line items within the Company's previously reported net income or loss for each of the fiscal years 2006, 2005, 2004 and 2003, and for each of the quarters in fiscal years 2006 and 2005. The restatement has no effect on the Company's cash flows or
liquidity, and its impact on the Company's financial position at the end of each of the restated periods is immaterial.
Consolidated Balance Sheets
The following tables set forth the Company's previously reported and restated consolidated balance sheets for each of the quarters in fiscal years 2006 and 2005:
Consolidated Statements of Income (Loss)
The following table sets forth the Company's previously reported and restated consolidated statements of income for each of the fiscal years 2006, 2005 and 2004:
The following tables set forth the Company's previously reported and restated consolidated statements of income (loss) for each of the quarters in fiscal years 2006 and 2005:
Consolidated Statements of Cash Flows
The following table sets forth the Company's previously reported and restated consolidated statements of cash flows for each of the fiscal years 2006 and 2005:
The following tables set forth the Company's previously reported and restated consolidated statements of cash flows for each of the quarters in fiscal years 2006 and 2005:
Quarterly Results of Operations For 2006 and 2005
In each of fiscal years 2006 and 2005, the quarter-over-quarter increases in revenue were primarily due to the positive impact of the tiered supply price for Wellbutrin XL®, which is reset to the lowest tier at the start of each calendar year. In the second quarters in each of fiscal years 2006 and 2005, GSK's net sales of Wellbutrin XL® exceeded the sales-dollar threshold to increase the supply price from the first to second tier. Likewise, in the third quarters in each of fiscal years 2006 and 2005, GSK's net sales of Wellbutrin XL® exceeded the sales-dollar threshold to increase the supply price from the second to third and highest tier.
Income from continuing operations and net income in the successive quarters in each of fiscal years 2006 and 2005 reflected an increasing gross profit on Wellbutrin XL® product sales due to the tiered supply price, as well as increasing interest income on surplus cash available for investment. In addition, commencing in May 2005, income from continuing operations and net income were positively impacted by lower sales force and marketing costs, as a result of the Company's decision to exit the United States ("U.S.") primary-care pharmaceutical market.
The comparability of income from continuing operations and net income between each of the quarters of fiscal year 2005 was impacted by the following significant factors:
Amendments to the Original Form 20-F
The following sections of the Original Form 20-F have been revised to reflect the restatement: Item 3.A. Selected Financial Data; Item 3.D.III.1.j Risk Factors; Item 4.B. Business Overview (only the tables summarizing (i) revenues by category of activity and geographic market for each of the last three fiscal years, and (ii) product revenues for the fiscal years of 2006 and 2005); Item 5 Operating and Financial Review and Prospects (Management's Discussion and Analysis of Results of Operations and Financial Condition, insofar as it relates to the restatement); Item 15 Controls and Procedures; and Item 18 Financial Statements ("Revised Report of Management on Financial Statements and Internal Control over Financial Reporting", "Reports of Independent Registered Public Accounting Firm", "Consolidated Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements of Shareholders' Equity", Consolidated Statements of Cash Flows", Note 3 "Restatement", Note 6 "Accounts Receivable", Note 11 "Other Assets", Note 16 "Shareholders' Equity", Note 20 "Income Taxes", Note 22 "Earnings Per Share", Note 27 "Segment Information" and Note 30 "Canadian GAAP Supplemental Information" only).
Except as related to the restatement of the Company's financial statements and other financial and other information described in the above-referenced sections of this Form 20-F, this Form 20-F: (i) does not amend or update any results or information from that contained in the Original Form 20-F, (ii) speaks only as of the filing date of the Original Form 20-F and (iii) does not reflect any events or developments that have occurred
subsequent to the Original Form 20-F filing date. Accordingly, you should read this Form 20-F together with other documents that we have filed with and furnished to the Canadian securities regulators and the U.S. Securities and Exchange Commission subsequent to the filing date of the Original Form 20-F. Information in such documents updates and supersedes certain information contained in the Original Form 20-F and this Form 20-F. In addition, in accordance with U.S. Securities and Exchange Commission and Canadian Securities Administrators' requirements, this Form 20-F includes updated certifications from the Company's Chief Executive Officer and Chief Financial Officer as Exhibits 12.1, 12.2, 13.1, and 13.2. The filing of this Form 20-F shall not be deemed an admission that the Original Form 20-F, when made, included any known, untrue statement of material fact or knowingly omitted to state a material fact required to be stated or necessary to make a statement not misleading in the light of the circumstances in which it was made.
Basis of Presentation
Except where the context otherwise requires, all references in this Form 20-F to the "Company", "Biovail", "we", "us", "our" or similar words or phrases are to Biovail Corporation and its subsidiaries, taken together. In this Form 20-F, references to "$" and "US$" are to United States dollars and references to "C$" are to Canadian dollars. Unless otherwise indicated, the statistical and financial data contained in this Form 20-F are presented as at December 31, 2006.
Unless otherwise noted, prescription and market data are derived from information provided by IMS Health Inc. ("IMS") and are as of its December 31, 2006 report. IMS is a provider of information solutions to the pharmaceutical and health-care industries, including market intelligence and performance statistics.
The following words are trademarks of the Company and are subject of either registration, or application for registration, in one or more of Canada, the U.S. or certain other jurisdictions: Attenade®, A Tablet Design (Apex Down)®, A Tablet Design (Apex Up)®, Aplezin, Ativan®, Asolza, Biovail®, Biovail Corporation International®, Biovail & Swoosh Design®, BPI®, BVF®, Cardizem®, Ceform, Crystaal Corporation & Design®, Crystaal Pharmaceuticals, Ditech, Flash Dose®, Flashdose, Glumetza, Instatab, Isordil®, Jovola, Jublia, Mivura, Onelza, Onexten, Oramelt, Palvata, Smartcoat, Solbri, Tesivee, Tiazac®, Tovalt, Upzimia, Upziva, Vaseretic®, Vasocard, Vasotec®, Vemreta, Volzelo, Z-Flakes and Zileran.
Wellbutrin®, Wellbutrin® SR, Wellbutrin XL® (a once daily formulation of bupropion developed by Biovail), Zovirax®, and Zyban® are trademarks of The GlaxoSmithKline Group of Companies ("GSK") and are used by the Company under license. Ultram®, Ultram® ER, and Ultram® ODT are trademarks of Ortho-McNeil, Inc. and are used by the Company under license.
In addition, the Company has filed trademark applications for many of its other trademarks in the United States and Canada and has implemented on an ongoing basis a trademark protection program for new trademarks.
Caution regarding forward-looking information and statements and "Safe Harbor" statement under the U.S. Private Securities Litigation Reform Act of 1995:
To the extent any statements made in this Form 20-F contain information that is not historical, these statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning of the "safe harbour" provisions of applicable Canadian securities legislation (collectively "forward-looking statements"). These forward-looking statements relate to, among other things, our objectives, goals, strategies, beliefs, intentions, plans, estimates and outlook, including, without limitation, statements concerning the commercialization strategy in the U.S. and the increased focus on research and development, our manufacturing ability, the expected launch of Wellbutrin XR in Europe, the results of the Company's development efforts, the anticipated manufacturing and commercializing of all pipeline products that are successfully developed, including select products in global
markets, the expected finalization of supply contracts and the expected results of certain litigation, and can generally be identified by the use of words such as "believe", "anticipate", "expect", "intend", "plan", "will", "may" and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. An MD&A by its nature has many forward-looking statements and although we have indicated above certain of these statements set out herein, all of the statements in this Form 20-F that contain forward-looking statements are qualified by these cautionary statements. Although Biovail believes that the expectations reflected in such forward-looking statements are reasonable, such 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, including, but not limited to, factors and assumptions regarding prescription trends, pricing and the formulary and/or Medicare/Medicaid positioning for our products; the competitive landscape in the markets in which we compete, including, but not limited to, the availability or introduction of generic formulations of our products; timelines associated with the development of, and receipt of regulatory approval for, our new products; and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things: the difficulty of predicting U.S. Food and Drug Administration ("FDA") and Canadian Therapeutic Products Directorate ("TPD") approvals, acceptance and demand for new pharmaceutical products, the impact of competitive products and pricing, uncertainties associated with the development, acquisition and launch of new products, reliance on key strategic alliances, availability of raw materials and finished products, the regulatory environment, the unpredictability of protection afforded by our patents, successful challenges to our generic products, unanticipated interruptions in our manufacturing operations, the expense and uncertain outcome of legal proceedings, consolidated tax-rate assumptions, fluctuations in operating results and other risks detailed from time to time in the Company's filings with the U.S. Securities and Exchange Commission ("SEC"), the Ontario Securities Commission ("OSC"), and other securities regulatory authorities in Canada, as well as the Company's ability to anticipate and manage the risks associated with the foregoing. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found in the body of this document, and in particular under the heading "Risk Factors" under Item 3, Sub-Part D. Biovail cautions that the foregoing list of important factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. We undertake no obligation to update or revise any forward-looking statement.
Item 1 Identity of Directors, Senior Management and Advisors
A. Directors and Senior Management
Item 2 Offer Statistics and Expected Timetable
A. Offer Statistics
B. Method and Expected Timetable
Item 3 Key Information
A. Selected Financial Data
The following table of selected consolidated financial data of the Company has been derived from financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The data is qualified by reference to, and should be read in conjunction with, the consolidated financial statements and related notes thereto prepared in accordance with U.S. GAAP (See Item 18, "Financial Statements").
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Investment in our common stock involves a degree of risk. These risks should be carefully considered before any investment is made. The following are some of the key risk factors generally associated with our business. However, the risks described below are not the only ones that we face. Additional risks not currently known to us or that we currently deem immaterial may also impair our business operations.
I. COMPANY-SPECIFIC RISKS
1. Product Development
a. We are not assured of the successful development or acquisition of new products.
Our future financial position depends significantly on our ability to develop or acquire new products.
New product development is subject to a great deal of uncertainty, risk and expense. Development of pharmaceutical candidates may fail at various stages of the research and development process, often after substantial financial and other resources have been invested in their exploration and development. We have a number of products at various stages of development or which are not yet marketed. We have filed or intend to file several products for approval with U.S. and Canadian regulators. Approval may not be granted for any or all of these products and we may not be successful in submitting additional applications or obtaining regulatory approvals for the remaining pipeline products with the regulatory authorities. Once approved, the success of any new product will depend greatly on the ability to secure a third party marketing partner in the United States. Further, commercial success of the Company's new products will depend on their approval and acceptance by physicians, patients and other key decision- makers. The timing of the receipt of marketing approvals, relative to competitors in the same therapeutic areas, will also impact the viability of a new product. The scope of marketing approval as reflected in the product's label, the countries in which such approvals are obtained, the acceptance of price in those countries where price is negotiated, and safety, efficacy, convenience, and cost-effectiveness of the product as compared to competitive products will also have an impact on the ability to commercialize new products. If the Company is unable to commercialize new products successfully, there may be a material adverse effect on the Company's revenues, financial condition and results of operations. (See "Information on the Company Business Overview Product Development Pipeline").
Beyond our internal research-and-development efforts, we depend, and in future may continue to depend, on the acquisition, licensing or other access to products or technologies from third-party drug-development companies. Supplementing our product portfolio in this manner requires the commitment of substantial effort and expense in seeking out, evaluating and negotiating collaboration agreements. Competition for attractive product opportunities is intense, and may require us to devote substantial resources, both human and financial, to an opportunity with no assurance that such effort will result in a successfully developed, or commercialized product.
2. Intellectual Property
Inability on our part to establish or protect our intellectual property rights could result in significant negative impact on our profitability.
a. Our patents are subject to challenges.
There has been substantial litigation concerning the manufacture, use and sale of new products that are the subject of conflicting rights. When a third party files an Abbreviated New Drug Application ("ANDA") for a bioequivalent version of a drug for which a New Drug Application ("NDA") exists, they are required to certify to the FDA that any patent which has been listed with the FDA as covering the branded product has expired, or the date any such patent will expire, or that any such patent is invalid or will not be infringed by the manufacture, sale or use of the new drug for which the application is submitted. Final FDA approval of an ANDA is not effective until each listed patent expires, unless the applicant certifies that the patents at issue are not infringed or are invalid and so notifies the patent owner and the holder of the branded product NDA. A patent owner may challenge a notice of non-infringement or invalidity by suing for patent infringement within 45 days of receiving notice. Such a challenge prevents FDA approval for a period that ends up to 30 months after the receipt of notice, or sooner, if an appropriate court rules that the patent is invalid or not infringed. From time to time, in the ordinary course of business, we also face such challenges.
b. Wellbutrin XL
Biovail's product sales for Wellbutrin XL® were $450.3 million in fiscal 2006, representing approximately 42% of Biovail's overall revenues. In 2006, the Company was engaged in patent litigation proceedings against, Anchen Pharmaceuticals LLP ("Anchen"), Impax Laboratories, Inc. ("Impax"), Watson Pharmaceuticals, Inc. ("Watson") and Abrika Pharmaceuticals LLP ("Abrika") who filed ANDAs for generic equivalents to Wellbutrin XL®. A final decision of non-infringement or invalidity would have a material adverse impact on the financial results of the Company. On August 1, 2006, Judge James V. Selna of the United States District Court for the Central District of California issued an order granting Anchen's Motion for Summary Judgment holding that Anchen's product does not infringe the patent claims of the Company, but denied Anchen's motion alleging invalidity of the Company's patents. The Company has appealed the decision. In December 2006, the FDA issued final approval to Anchen for its generic equivalents of the 150 mg and 300 mg generic tablets of Wellbutrin XL and on December 15, 2006 to Impax on its 300 mg strength. Anchen forfeited its first-filer market exclusivity to Impax to market the 300 mg tablet. Teva Pharmaceuticals Industries Ltd. ("Teva"), in agreement with Impax and Anchen, subsequently launched Impax's 300 mg generic equivalent to Wellbutrin, XL in mid-December, 2006. In February, 2007, as a result of comprehensive settlements with Anchen, Impax, Watson, and Teva, the lawsuits against Impax and Watson have been dismissed. With certain defined exceptions, none of Teva, Anchen, Impax or Watson may market a generic version of the 150 mg dosage strength of Wellbutrin XL® until 2008. The launch of a generic equivalent to the 300 mg in December 2006 will have an adverse impact on Biovail's results going forward. The possibility of the launch of a 150 mg dosage strength of Wellbutrin XL® in 2007 would substantially erode revenue from this key product and have a material adverse impact on Biovail's financial condition and results. (See "Information on the Company Business Overview U.S. Regulation Abbreviated New Drug Application" and " Patent Certification and Exclusivity Issues" and "Financial Information Significant Changes Legal Proceedings Intellectual Property")
c. Patent protection is unpredictable and uncertainty can arise regarding the protection afforded by our patents.
Our success will depend, in part, on our ability in the future to obtain patents and to operate without infringing on the proprietary rights of others. To the extent we are unable to do so, it is likely to have a material adverse effect on our business, results of operations and financial condition. Our competitors may have filed patent applications, or hold issued patents, relating to products or processes competitive with those we are developing. Alternatively, our patent applications for a product or process may not be approved or may not be approved as desired. The patents of our competitors may impair our ability to do business in a particular area. Others may independently develop similar products or duplicate any of our unpatented products.
d. The generic portion of our business is subject to challenges.
In those instances where we develop generic versions of existing drugs, we similarly must file an ANDA and are subject to challenges by the patent owners and NDA holders for those existing products. The loss of such a challenge could adversely affect our ability to market such a generic product. (See "Financial Information Significant Changes Legal Proceedings Intellectual Property").
e. Patent litigation is expensive.
The expense of patent litigation, whether or not we are successful, could have an adverse effect on our business, results of operations, financial condition and cash flows. Regardless of FDA approval, should anyone commence a lawsuit with respect to any alleged patent infringement by us, whether because of the filing of an ANDA, challenging a third party's ANDA or otherwise, the uncertainties inherent in patent litigation make the outcome of such litigation difficult to predict. Such lawsuits may be brought and the ultimate outcome of such litigation, if commenced, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
f. Proprietary information may be accessed by third parties.
We rely on trade secrets, know-how and other proprietary information to provide additional legal protection to various aspects of our business, including information about our formulations, manufacturing methods, and analytical procedures, as well as information contained in our company documents and regulatory filings. Although we require our employees and other vendors and suppliers to sign confidentiality agreements, these confidentiality agreements may be breached, and we may not have adequate remedies for such breaches. Also, other persons may independently develop substantially equivalent proprietary information without infringing upon any proprietary technology. Third parties may otherwise gain access to our proprietary information and adopt it in a competitive manner. Our success will depend, in part, on our ability in the future to protect our trade secrets and other proprietary information. (See "Information on the Company Business Overview Patents and Proprietary Rights").
3. Manufacturing Operations
a. Interruption of our manufacturing operations.
Our manufacturing and other processes utilize sophisticated equipment, which sometimes requires a significant amount of time to obtain and install. Although we endeavour to properly maintain our equipment and have key spare parts on hand, our business could suffer if certain manufacturing or other equipment, or a portion of our facilities, were to become inoperable for a period of time. This could occur for various reasons, including catastrophic events, such as a hurricane or other natural disaster, an explosion, an environmental accident, equipment failures and/or delays in obtaining components or replacements, construction delays or defects and other events, both within and outside of our control. Any interruption in our manufacture of high-volume products, such as Wellbutrin® XL or Ultram® ER, could have a material adverse effect on our business and cash flows.
A portion of our pharmaceutical manufacturing capacity, as well as other critical business functions, are located in areas subject to hurricane and earthquake casualty risks. Although we have certain limited protection afforded by insurance, our business and our earnings could be materially adversely affected in the event of a major weather-related or catastrophic event.
b. We may have difficulty optimizing the utilization of our manufacturing facilities to meet market demand for our products.
We have, at times, operated some of our manufacturing facilities on a 24-hour-a-day, seven-day-a-week production cycle to meet the market demand for current in-market products and anticipated product launches. Operating on that basis and meeting the anticipated market demand requires minimal equipment failures and product rejections, but there can be no guarantee that these will not occur. In addition, we manufacture products that employ a variety of technology platforms. Some of our manufacturing capabilities may at times be
over-utilized, while others may be under-utilized, resulting in inefficiencies, equipment failures and rejection of lots. Until our manufacturing processes are fully optimized, and/or our manufacturing facilities are expanded, we may have difficulty at times fulfilling all of the market demand for our existing and future products, which could adversely affect our results of operations, financial condition and cash flows.
c. Our manufacture of products is subject to interruption and the risk of recall.
Although we endeavour to manufacture our pharmaceutical products to meet good manufacturing practices ("GMP") requirements, it is possible that there may be supply interruptions in our manufacture of products or that the product(s) we manufacture may need to be recalled and removed from the market. These circumstances could occur for various reasons, including failure of the product to meet and/or maintain specifications; stability issues; and/or our becoming aware of a product causing an adverse drug reaction(s) in patient(s). In turn, a supply interruption or the removal of a product from the market for any one of these reasons, or any combination thereof, could have a material adverse impact on the Company's financial results (See " Nature of Our Industry and Our Business"). The impact of this risk will vary based on the importance of the product recalled. For example, a recall of Wellbutrin XL® or Ultram® ER would have a more significant impact than in the case of a lower volume product.
d. Risks associated with product delivery could affect our financial results.
The supply of our product to our customers is subject to and dependent upon the use of transportation services. Disruption of transportation services could have a material adverse impact on our financial results.
A number of products that we sell are manufactured and supplied to us by third parties. Disruption in the supply of these products could have a material adverse impact on the Company's financial results.
As our manufacturing facilities are located primarily outside the continental U.S. and most of our sales are within the U.S., any change in policy or policy implementation relating to U.S. border controls may have an adverse impact on our ease of access to the U.S. marketplace and in turn, could cause a material adverse impact on our business, results of operations and financial condition.
e. Future inability to obtain components and raw materials or products could affect our operations.
Some components and raw materials used in our manufactured products, and some products sold by us, are currently available only from one or a limited number of domestic or foreign suppliers. In the event an existing supplier becomes unavailable or loses its regulatory status as an approved source and we do not have a second supplier, we will attempt to locate a qualified alternative; however, we may be unable to obtain the required components, raw materials or products on a timely basis or at commercially reasonable prices. To the extent such difficulties cannot be resolved within a reasonable time, and at a reasonable cost, or we are required to qualify a new supplier, our business, financial condition, results of operation and cash flows could be materially adversely affected.
Our arrangements with foreign suppliers are subject to certain additional risks, including the availability of government clearances, export duties, transport issues, political instability, currency fluctuations and restrictions on the transfer of funds. Arrangements with international raw material suppliers are subject to, among other things, FDA and TPD regulation, various import duties and required government clearances. Acts of governments outside the U.S. and Canada may affect the price or availability of raw materials needed for the development or manufacture of our products. Again, the degree of impact such a situation could have would in part depend on the product affected and, as such, interruption of supply for Wellbutrin® XL or Ultram® ER would have a more significant adverse impact than in the case of a less important product.
f. We may be unable to complete expansion and conversion projects, or adequately equip our facilities in a timely manner, or we may be subject to delays in receiving FDA and TPD approvals.
The continued increase in the number of our products in the market, and the NDAs and New Drug Submissions ("NDSs") we submit to or may have pending at the FDA and TPD, respectively may require us to continue to expand our manufacturing capabilities, including making changes to our manufacturing facilities
in Steinbach, Manitoba and Dorado, Puerto Rico. The timely completion of these efforts is necessary for us to have sufficient manufacturing capacity for the anticipated quantities of our existing products and the products we expect to manufacture for marketing by us or for supply to strategic partners in the future, and will require significant levels of capital investment. Our inability to complete our expansion and conversion projects, or adequately equip the facilities in a timely manner, or delays in receiving FDA and TPD approvals, could materially adversely affect our results of operations, financial condition and cash flows. (See "Information on the Company Property, Plant and Equipment Manufacturing Facilities").
g. Regulatory inspections could result in compliance actions that could interrupt continuity of supply of current products manufactured at Biovail's manufacturing facilities.
Regulatory inspections could result in compliance actions that could interrupt continuity of supply of current products manufactured at Biovail's manufacturing facilities. This interruption of supply could have a material adverse effect on our operations.
4. Income Tax
a. Our effective tax rates may increase.
We have operations in various countries that have differing tax laws and rates. A significant portion of our revenue and income are earned in a foreign country with low domestic tax rates. Dividends from such after-tax business income are received tax-free in Canada. Our tax structure is supported by current domestic tax laws in the countries in which we operate and the application of tax treaties between the various countries in which we operate. The effective tax rate may change from year to year based on the mix of income among the different jurisdictions in which we operate; changes in tax laws in these jurisdictions; changes in the tax treaties between various countries in which we operate; and changes in the estimated values of deferred tax assets and liabilities. (See "Information on the Company Business Overview Taxation").
Our provision for income taxes is based on certain estimates and assumptions made by management. Our consolidated income tax rate is affected by the amount of net income earned in our various operating jurisdictions and the rate of taxes payable in respect of that income. We enter into many transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments based on our knowledge and understanding of local and international tax rules determining our consolidated tax provision. For example, certain countries in which we operate could seek to tax a greater share of income than has been provided for by us. The final outcome of any audits by taxation authorities may differ from the estimates and assumptions we have used in determining our consolidated tax provisions and accruals. This could result in a material adverse effect on our consolidated income tax provision, financial position and the net income for the period in which such determinations are made.
We have recorded a valuation allowance on deferred tax assets primarily relating to operating losses, future tax depreciation and tax credit carry forwards. We have assumed that these deferred tax assets are more likely than not to remain unrealized. Significant judgment is applied to determine the appropriate amount of valuation allowance to record. Changes in the amount of the valuation allowance required could materially increase or decrease the provision for income taxes in a given period.
5. Dependencies on Third Parties
a. A relatively small group of products and customers represent a significant portion of our net revenues and net earnings from time to time, making us dependent on the activities and success of third parties over which we have no control.
Sales of a limited number of our products represent a significant portion of our net revenues and net earnings, with Wellbutrin® XL being the most significant of these (See "Wellbutrin XL®" under "Information on the Company Business Overview Revenue Sources Products"). If the volume or pricing of our most significant products decline in the future, our business, financial condition, cash flows and results of operations could be materially adversely affected.
A significant portion of our net revenues is derived from sales to a limited number of customers or third parties and is therefore dependent on the activities and success of such customers or third parties. Any significant reduction or loss of business with one or more of these customers could have a material adverse effect on our business, financial condition, cash flows and results of operations.
b. Our business could suffer as a result of actions by third parties who have marketing rights to our products.
Our recently announced restructuring makes us more dependent on third parties to commercialize our products. Actions by third parties who control the pricing, trade rebate levels, product availability and other items for products we have licensed to them could have a material adverse impact on our financial results. Similarly, we have appointed Sciele Pharma Inc. ("Sciele") as the exclusive promoter of our Zovirax® product line; making us dependent on Sciele's performance for the continued success of those products and upon its compliance with contractual requirements.
c. We rely on various third-party estimates in our financial reporting.
We are dependent upon third parties to provide us with various estimates as a basis for our financial reporting. While we undertake certain procedures to review the reasonability of this information, we cannot obtain absolute assurance over the accounting methods and controls over the information provided to us by third parties. As a result, we are at risk of third parties providing us with erroneous data, which data could then result in errors in our financial reporting, which could have a material adverse impact on our business.
d. For certain products we rely on third party suppliers.
For certain products that we market and distribute, including Cardizem® CD, Vasotec®, Zovirax®, Ativan® and Isordil®, we rely on third parties to supply such product. As a result, we are vulnerable to an interruption of supply to us should our manufacturers suffer an interruption for any reason, including without limitation, due to manufacturing or shipping problems, regulatory inspections or difficulty in sourcing components or raw materials. We are also vulnerable to a supply interruption should we be unable to renew or replace, or successfully transfer, such supply arrangements when our current agreements expire. Any such supply interruption could have an adverse impact on our operations.
a. We are subject to claims under U.S. and Canadian securities laws.
The Company and certain of our officers and directors are defendants in various securities actions, which may be certified as class actions in 2007 (See "Financial Information Significant Changes Legal Proceedings Securities Class Actions"). We and the other defendants believe that there are meritorious defenses to the claims asserted in these actions and we, together with the other defendants, intend to defend ourselves vigorously. However, it is possible that these actions could result in the award of substantial monetary damages against the Company. The outcomes of these actions could negatively impact the market price of our securities. In addition, we expect to continue to incur expenses associated with the defense of these actions, regardless of the outcome, and the pending actions may divert the efforts and attention of our management team from normal business operations.
We are also a party to several other actions that could similarly impact our business (See "Financial Information Significant Changes Legal Proceedings").
b. We could be subject to counterclaims or other suits in response to our complaint against various parties alleging a stock market manipulation scheme.
On February 22, 2006, Biovail filed a lawsuit, seeking $4.6 billion in damages, from 22 defendants who, the complaint alleges, participated in a stock-market manipulation scheme. The defendants in this complaint may file counterclaims or take other actions in their defence that may require us to respond and which could have an adverse impact on Biovail.
c. We could be subject to counterclaims or other suits in response to other actions the Company may initiate.
From time to time, the Company also initiates actions or files counterclaims. We could be subject to counterclaims or other suits in response to other actions the Company may initiate. The Company believes that the prosecution of these actions and counterclaims is important to preserve and protect the Company, its reputation and its assets. The Company cannot reasonably predict the outcome of these proceedings, some of which can involve significant legal fees.
7. Regulatory Investigations
a. We could be subject to fines, penalties, or other sanctions as a result of ongoing investigations and inquiries by the SEC, the OSC and the United States Attorney's office for the Eastern District of New York.
On November 20, 2003, we received a letter from the SEC indicating that the SEC would be conducting an informal inquiry relating to our financial performance and certain accounting matters for the fiscal year 2003. In March 2005, the SEC advised us that it had issued a formal order of investigation related to the previously disclosed informal inquiry initiated in November 2003 which sought historical financial and related information, including, but not limited to, the Company's accounting and financial disclosure practices. The formal investigation continues to focus primarily on accounting practices; however, the scope of the investigation is broader than it was initially and includes certain transactions associated with a corporate entity that was subsequently acquired by the Company in 2002. The period under review is January 2001 through May 2004. On March 17, 2006, the Company received a subpoena from the SEC related to, among other things, the trading and ownership of Biovail shares, which appears to be consistent with matters the OSC is investigating as previously disclosed and described below. The Company has received additional subpoenas from the SEC requesting additional documents, including documents relating to the Company's production of documents to date.
On Sept. 28, 2006, Dec 5, 2006, and Jan. 10, 2007, the Company signed tolling agreements (agreements to extend limitation periods) with the SEC. The current tolling period ends July 31, 2007. The Company continues to cooperate fully with the SEC by providing responsive documents and making Company representatives available.
Biovail has been fully cooperating with the SEC, and will continue to do so in an effort to bring the investigation to a conclusion as expeditiously as possible though the outcome or timing of when this matter may be resolved cannot be predicted.
Recently, the Company was contacted by the United States Attorney's Office for the Eastern District of New York, who informed the Company that they were conducting an investigation into the same matters that the SEC is investigating. The Company is cooperating fully with the investigation.
Since 2003, the OSC has been conducting an ongoing review of our disclosure and a review of certain trading activities related to our common shares. OSC staff has now clarified that it is investigating, among other things, two issues relating to our accounting and disclosure matters in 2003. The first is whether we improperly recognized revenue for accounting purposes in relation to our interim financial statements for each of the four quarters in 2003. The second is whether we provided misleading disclosure in our press release, dated October 3, 2003, concerning the reasons for our forecast of a revenue shortfall in respect of the three-month period ending September 30, 2003. The OSC has further advised us that it is also investigating whether the Company has improperly recognized revenue for accounting purposes in relation to the financial statements filed by the Company in 2001 and 2002 and related disclosure items. We are co-operating fully with the OSC's investigations and will continue to do so though the outcome or timing of when these matters may be resolved cannot accurately be predicted.
OSC staff has also advised that it is investigating four issues relating to trading in our common shares. These issues include whether certain of our insiders ("insiders") complied with insider reporting requirements, and whether persons in a special relationship with us may have traded in our shares with knowledge of undisclosed material information. OSC staff is also investigating whether certain transactions may have resulted in, or contributed to, a misleading appearance of trading activity in our securities during 2003 and 2004, and
whether certain registrants (who are our past, or present, officers and directors) may have been in a conflict of interest in relation to trading of our shares.
On July 28, 2006, the OSC issued a Notice of Hearing and a Statement of Allegations to Mr. Melnyk, the Chairman of the Board of Directors and President of BLS, and another former director of Biovail, in respect of its investigations into trading issues and reporting and disclosure issues in relation to the trading of Biovail common shares in several accounts in which Mr. Melnyk may have direct or indirect beneficial ownership of, or control or direction over. A hearing on these issues is set to commence on May 23, 2007.
Should any of these matters reach an adverse conclusion, the Company, or individual officers or directors we could be subject to fines, penalties or other sanctions which may have, or the reaching of such a conclusion could cause us to suffer, a material adverse effect on our business or financial condition. (See "Financial Information Significant Changes Legal Proceedings" and "Governmental and Regulatory Inquiries").
b. We could be subject to fines, penalties, or other sanctions as a result of the Justice Department investigation into the PLACE program.
In July 2003, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts requesting information related to the promotional and marketing activities surrounding the commercial launch of Cardizem® LA. In particular, the subpoena sought information relating to the Cardizem® LA Clinical Experience Trial, titled P.L.A.C.E. (Proving L.A. Through Clinical Experience). The Company believes it has acted properly in connection with the P.L.A.C.E. program and is working diligently to resolve this matter, although it cannot predict the outcome or the timing of when this matter may be resolved. Should this investigation reach an adverse conclusion, the Company could be subject to fines, penalties or other sanctions which may have a material adverse affect on our business, or financial condition. (See "Financial Information Significant Changes Legal Proceedings Governmental and regulatory inquiries").
8. Dividend Policy
a. The payment of dividends is not guaranteed and will depend on various factors, many of which are beyond the Company's control.
Despite current positive business trends and healthy cash flows, there can be no assurance regarding the amounts of future cash flows generated by the Company which would be available to support the payment of dividends, whether in accordance with the current dividend policy or otherwise. Our ability to pay dividends, and the actual amounts of the dividends, will be dependent on numerous factors, including:
many of which are beyond the Company's control and all of which are susceptible to a number of risks and other factors beyond the control of the Company.
b. Restrictions on potential growth.
The increased dividend payments made by the Company under the dividend policy may make the payment of capital and operating expenditures, including those required by the Company to execute on its strategy, dependent on increased cash flow or additional financing in the future. Lack of, or an inability to access, those funds could limit the future growth of the Company and its ability to execute on its strategy.
c. Uncertainty concerning liquidity and capital requirements.
As a result of the adoption of the new dividend policy, we may in the future need to incur debt or issue equity to satisfy the payment of dividends. We may be unable to renew our existing credit facility or to do so on terms as or more favourable to us or to otherwise raise new debt or capital, and, as a result, we may be unable to maintain the dividend policy. If we are only able to raise funds on less favorable and/or more restrictive terms, this may have a material adverse effect on our revenues, financial condition and results of operations. If we raise funds through the issuance of debt or equity, any debt securities or preferred shares issued will have rights and preferences and privileges senior to those of holders of our common shares. The terms of the debt securities may impose restrictions on our operations that may have an adverse impact on our financial condition. If we raise funds through the issuance of equity, the proportional ownership interests of our shareholders could be diluted.
d. Requirements for additional capital.
Although the increased dividend payout is not expected to impact our commitment to research and development, future cash flows may be less than we currently projected, in which case we may need to raise additional funds from lenders and equity markets. In addition, we may choose to raise additional funds in order to capitalize on perceived opportunities in the marketplace that may accelerate our growth objectives. Our ability to arrange such financing in the future will depend in part on the prevailing capital market conditions as well as our business performance. There can be no assurance that we will be successful in our efforts to arrange additional financing, if needed, on terms satisfactory to us. If additional financing is raised by the issuance of equity, our shareholders may experience dilution in their equity interest in the Company.
e. The Board may make changes to or may discontinue the dividend policy.
Although the Board of Directors currently intends to continue with the current dividend policy, there can be no assurance that the policy will continue on its present terms or at all. In the future, the Board of Directors may seek other ways by which to create or enhance value for shareholders and, as a result, dividend payments may be reduced, or even eliminated, at times when the Board of Directors determines it to be necessary or desirable to do so.
II. NATURE OF OUR INDUSTRY AND OUR BUSINESS
1. Pharmaceutical Industry Risks
a. We face steep competition and rapid and significant technological change.
The pharmaceutical industry is highly competitive and is subject to rapid and significant technological change that could render certain of Biovail's products obsolete or uncompetitive. Many of our competitors are conducting research and development activities in therapeutic areas targeted by our products and our product development candidates. The introduction of competitive therapies as alternatives to our existing products may negatively impact our revenues from those products, and the introduction of products that directly compete with products in development could dramatically reduce the value of those development projects or chances of successfully commercializing those products, which could have a material adverse affect on the long term financial success of the Company.
Unexpected ADRs by patients to any of our products could negatively impact utilization or market availability of our product and could result in product liability claims against the Company which could have material adverse impact on the Company. Similarly our Contract Research Division ("CRD") operations could suffer a loss of business or be subject to liability should a serious ADR occur during the course of their conduct of a study.
c. We are subject to exposure relating to product liability claims.
We face an inherent business risk of exposure to product liability and other claims in the event that the use of our products results, or is alleged to have resulted, in adverse effects. While we have taken, and will continue to take, what we believe are appropriate precautions, there can be no assurance that we will avoid significant product liability claims. Although we currently carry product liability insurance that we believe is appropriate for the risks that we face, there can be no assurance that we have sufficient coverage, or can in the future obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the growth of our business or the number of products we can successfully market. Our obligation to pay indemnities, the withdrawal of a product following complaints, or a product-liability claim could have a material adverse effect on our business, results of operations, cash flows and financial condition.
d. Our ability to obtain third-party reimbursement for the cost of products and related treatment may not be adequate.
Our ability to successfully commercialize our products and product candidates even if FDA or TPD approval is obtained depends, in part, on whether appropriate reimbursement levels for the cost of the products and related treatments are obtained from government authorities and private health insurers and other organizations, such as Health Maintenance Organizations ("HMOs"), Managed-Care Organizations ("MCOs") and provincial formularies.
Third-party payors increasingly challenge the pricing of pharmaceutical products. In addition, the trend toward managed health-care in the U.S., the growth of organizations such as HMOs and MCOs, and legislative proposals to reform health-care and government insurance programs, could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in product demand. Such cost-containment measures and health-care reform could affect our ability to sell our products and may have a material adverse effect on our business, financial condition, cash flows and results of operations.
Uncertainty exists about the reimbursement status of newly approved pharmaceutical products. Reimbursement in the U.S., Canada or foreign countries may not be available for some of our products. Any reimbursement granted may not be maintained, or limits on reimbursement available from third-parties may reduce the demand for, or negatively affect the price of, those products. We are also unable to predict if additional legislation or regulation impacting the health-care industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business. These issues could have a material adverse effect on our business, financial condition, cash flows and results of operations.
e. The publication of negative results of studies or clinical trials may adversely impact our sales revenue.
From time to time, studies or clinical trials on various aspects of pharmaceutical products are conducted by academics or others, including government agencies. The results of these studies or trials, when published, may have a dramatic effect on the market for the pharmaceutical product that is the subject of the study. The publication of negative results of studies or clinical trials related to our products or the therapeutic areas in which our products compete could adversely affect our sales, the prescription trends for our products and the reputation of our products. In the event of the publication of negative results of studies or clinical trials related to our products or the therapeutic areas in which our products compete, our business, financial condition, results of operation and cash flows could be materially adversely affected.
2. Competitive Environment
a. The pharmaceutical industry is highly competitive and is subject to rapid and significant technological change, which could render our technologies and products obsolete or uncompetitive.
Our products face competition from conventional forms of drug delivery and from controlled-release, drug-delivery systems developed, or under development, by other pharmaceutical companies. We compete with companies in North America and internationally, including major pharmaceutical and chemical companies, specialized contract research organizations, research-and-development firms, universities and other research institutions. Many of our competitors have greater financial resources and selling and marketing capabilities, have greater experience in clinical testing and human clinical trials of pharmaceutical products, and have greater experience in obtaining FDA, TPD and other regulatory approvals. Our competitors may succeed in developing technologies and products that are more effective or less expensive to use than any that we may develop or license. These developments could render our technologies and products obsolete or uncompetitive, which would have a material adverse effect on our business and financial results. (See "Information on the Company Business Overview Industry Overview").
a. New legislation or regulatory proposals may adversely affect our revenues and profitability.
A number of legislative and regulatory proposals aimed at changing the health-care system, and changes in the levels at which pharmaceutical companies are reimbursed for sales of their products, have been proposed. While we cannot predict when or whether any of these proposals will be adopted, or the effect these proposals may have on our business, the pending nature of these proposals, as well as the adoption of any proposal, may exacerbate industry-wide pricing pressures and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Changes to Medicare, Medicaid or similar governmental programs or the amounts paid by those programs for our services may adversely affect our earnings. These programs are highly regulated, and subject to frequent and substantial changes and cost-containment measures. In recent years, changes in these programs have limited and reduced reimbursement to providers. In the U.S., The Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("MMA"), created a new, voluntary prescription drug benefit under the Social Security Act. For the first time, a substantial drug benefit is now available to Medicare participants as of January 2006. This program enhancement utilizes commercial market entities to market Medicare Advantage and stand-alone, prescription drug-plan options to the approximately 40 million people eligible for Medicare. The impact of the MMA implementation remains uncertain and therefore its implementation could be adverse to our business.
b. Our business is subject to limitations imposed by government regulations.
Government agencies in the U.S., Canada and other countries in which we conduct business regulate pharmaceutical products intended for human use. Regulations require extensive clinical trials and other testing, and government review and final approval, before we can market these products. The cost of complying with government regulation can be substantial. Governmental authorities in the U.S. and Canada and comparable authorities in foreign countries regulate the research and development, manufacture, testing and safety of pharmaceutical products. The regulations applicable to our existing and future products may change. There can be long delays in obtaining required clearances from regulatory authorities in any country after applications are filed. (See also "Information on the Company Business Overview Regulation").
Requirements for approval vary widely from country to country outside of the U.S. and Canada. Whether or not approved in the U.S. or Canada, regulatory authorities in other countries must approve a product prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer or shorter than in the U.S. or Canada.
Any failure or delay in obtaining regulatory approvals could materially adversely affect the marketing of any products we develop and therefore our business, financial condition, cash flows and results of operations.
Similarly, our CRD business is subject to strict regulation by Canadian governmental authorities. These regulations may change and these regulatory bodies periodically conduct audits. The outcome of such an audit, should it be unfavourable, could result in an adverse affect on our CRD business including, without limitation, costs to remmediate deficiencies, reputational impact of an adverse audit and our ability to solicit work for our CRD business.
c. We may incur significant liability if it is determined that we are promoting the "off-label" use of drugs.
Companies may not promote drugs for "off-label" uses that is, uses that are not described in the product's labelling and that differ from those approved by the FDA, TPD or other applicable regulatory agencies. Physicians may prescribe drug products for off-label uses, and such off-label uses are common across medical specialties. Although the FDA, TPD and other regulatory agencies do not regulate a physician's choice of treatments, the FDA, TPD and other regulatory agencies do restrict communications by pharmaceutical companies or their sales representatives on the subject of off-label use. The FDA, TPD and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. Notwithstanding the regulatory restrictions on off-label promotion, the FDA, TPD and other regulatory authorities allow companies to engage in truthful, non-misleading, and non-promotional speech concerning their products. Although we believe that all of our communications regarding all of our products are in compliance with the relevant regulatory requirements, the FDA, TPD or another regulatory authority may disagree, and we may be subject to significant liability, including civil and administrative remedies, as well as criminal sanctions. In addition, management's attention could be diverted from our business operations and our reputation could be damaged.
III. GENERAL BUSINESS
1. Ongoing Business Considerations
a. There is no assurance that we will continue to experience success related to product development, supply and marketing.
Certain of our products are marketed by third parties. Such third-party arrangements may not be successfully negotiated in the future. Any such arrangements may not be available on commercially reasonable terms. Even if acceptable and timely marketing arrangements are available, the products we develop may not be accepted in the marketplace, and even if such products are initially accepted, sales may thereafter decline. Additionally, our clients or marketing partners may make important marketing and other commercialization decisions with respect to products we develop that are not within our control. As a result, many of the variables that may affect our revenues, cash flows and net income are not exclusively within our control.
b. The success of strategic investments, partnerships or development alliances we make depends upon the performance of the companies in which we invest, or with which we partner or co-develop product.
Economic, governmental, industry and internal company factors outside our control affect each of the companies in which we may invest or with which we may partner or co-develop product. Some of the material risks relating to such companies include:
We may have limited or no control over the resources that any such company may devote to develop the products for which we collaborate with them. Any such company may not perform as expected. These companies may breach or terminate their agreements with us or otherwise fail to conduct product discovery and development activities successfully, or in a timely manner. If any of these events occurs, it could have a material adverse effect on our business and our financial results.
c. We are exposed to risks related to our investments in other companies.
We are exposed to risks in the value of our investments in other companies. The fair value of our investments are subject to significant fluctuations due to stock market volatility and changes in general market conditions. We regularly review the carrying values of our investments and record losses whenever events and circumstances indicate that there have been other-than-temporary declines in their fair values. A significant change in the aggregate fair values of our investments could have a material effect on our consolidated results of operations; however, it would not have a material effect on our consolidated financial position or cash flows.
d. We are subject to the risk of not being able to successfully integrate businesses or products we acquire or will acquire in the future.
We pursue product or business acquisitions that could complement or expand our business. However, there can be no assurance that we will be able to identify appropriate acquisition candidates in the future. If an acquisition candidate is identified, there can be no assurance that we will be able to successfully negotiate the terms of any such acquisition, finance such acquisition or integrate such acquired product or business into our existing products and business. Furthermore, the negotiation of potential acquisitions and integration of acquired companies and product lines could divert management's time and resources, and require significant resources to consummate. If we consummate one or more significant acquisitions through the issuance of common shares, holders of our common shares could suffer significant dilution of their ownership interests.
e. We depend on key scientific and managerial personnel for our continued success.
Much of our success to date has resulted from the particular scientific and management skills of personnel available to us. If these individuals are not available, we might not be able to attract or retain employees with similar skills. In particular, our success to date in developing new products has resulted from the activities of a core group of research scientists. The continued availability of such a group is important to our ongoing success.
f. We may not have sufficient cash and may be limited in our ability to access financing for future capital requirements, which may prevent us from expanding our business and our portfolio of products.
We may in the future need to incur additional debt or issue equity to satisfy working capital and capital expenditure requirements, as well as to make acquisitions and other investments. To the extent we are unable to renew our existing credit facility or raise new capital, we may be unable to expand our business. If we raise funds through the issuance of debt or equity, any debt securities or preferred shares issued will have rights and preferences and privileges senior to those of holders of our common shares. The terms of the debt securities may impose restrictions on our operations that have an adverse impact on our financial condition. If we raise funds through the issuance of equity, the proportional ownership interests of our shareholders could be diluted.
g. We are exposed to risks relating to foreign currencies.
We operate internationally, but a majority of our revenue and expense activities and capital expenditures are denominated in U.S. dollars. Our only other significant transactions are in Canadian dollars. We do not have any material non-U.S. dollar denominated obligations. We also face foreign currency exposure on the translation of our operations in Canada, Ireland and France from their local currencies to the U.S. dollar. Currently, we do not utilize forward contracts to hedge against foreign currency risk. A significant change in foreign currency
exchange rates may have a material effect on our consolidated results of operations, financial position or cash flows.
On February 27, 2007, we issued a Notice of Redemption advising holders of our 77/8% Senior Subordinated Notes due April 1, 2010 (the "Notes") that we will redeem all outstanding Notes effective April 1, 2007. This redemption will result in a foreign exchange gain for Canadian income tax purposes. The amount of this gain will depend on the exchange rate between the U.S. and Canadian dollars at the time the Notes are redeemed. At March 19, 2007, the unrealized foreign exchange gain on the translation of the outstanding Notes to Canadian dollars for Canadian income tax purposes was approximately $141 million. If all of our outstanding Notes had been paid at March 19, 2007, one-half of this foreign exchange gain would be included in our taxable income for 2007, which would result in a corresponding reduction in our available Canadian net operating losses and tax credit carryforward balances (with an offsetting reduction to the valuation allowance provided against those balances).
h. We are exposed to risks related to interest rates.
The primary objective of our policy for the investment of temporary cash surpluses is the protection of principal and, accordingly, we invest in investment-grade securities with varying maturities, but typically less than 90 days. As it is our intent and policy to hold these investments until maturity, we do not have a material exposure to interest rate risk.
Currently, we do not utilize interest rate swap contracts to hedge against interest rate risk. A significant change in interest rates could have a material impact on our consolidated results of operations, financial position or cash flows.
We may be exposed to interest-rate risk on borrowings under our credit facility. This credit facility, which is currently undrawn, bears interest based on London Interbank Offering Rates, U.S. dollar base rate, Canadian dollar prime rate or Canadian dollar bankers' acceptance rates.
i. Our securities are subject to price volatility.
Market prices for the securities of pharmaceutical and biotechnology companies, including our own, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as fluctuations in our operating results, concern as to the safety of drugs and general market conditions, can, among other things, have an adverse effect on the market price of our securities. Any inability to bring our pipeline products to market profitably may also have an adverse effect on the market price of our securities.
j. We are exposed to risks if we are unable to comply with laws and future changes to laws affecting public companies, including the Sarbanes-Oxley Act of 2002, and also to increased costs associated with complying with such laws.
Any future changes to the laws and regulations affecting public companies, as well as compliance with existing provisions of the Sarbanes Oxley Act of 2002 ("SOX") in the U.S. and Part XXIII.1 of the Securities Act (Ontario) and related rules, may cause us to incur increased costs as we evaluate the implications of new rules and respond to new requirements. Delays, or a failure to comply with the new laws, rules and regulations could result in enforcement actions, the assessment of other penalties and civil suits. The new laws and regulations make it more expensive for us under indemnities provided by the Company to our officers and directors and may make it more difficult for us to obtain certain types of insurance, including liability insurance for directors and officers; as such, we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, or as executive officers. We may be required to hire additional personnel and utilize additional outside legal, accounting and advisory services all of which could cause our general and administrative costs to increase beyond what we currently have planned. We are presently evaluating and monitoring developments with respect to these laws, rules and regulations, and we cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.
The Company is required annually to review and report on the effectiveness of its internal control over financial reporting in accordance with SOX section 404 and Multilateral Instrument 52-109 of the Canadian Securities Administrators. The results of this review are reported in our Annual Report on Form 20-F and in our Management's Discussion and Analysis of Results of Operations and Financial Condition. Our registered public accounting firm is also required to report on the effectiveness of management's review and on the effectiveness of the Company's internal control over financial reporting.
In connection with the restatement of the Company's previously issued financial statements (as described in the "Explanatory Note" preceding Part I, Item 1 of this Form 20-F), management has concluded that the Company's internal controls over financial reporting are ineffective as of December 31, 2006. Management's review is designed to provide reasonable assurance, not absolute assurance that all material weaknesses existing within the Company's internal controls are identified. Material weaknesses represent deficiencies existing in the Company's internal controls that may not prevent or detect a misstatement occurring which could have a material adverse affect on the quarterly or annual financial statements of the Company. In addition, management cannot assure you that the remedial actions being taken by the Company to address the material weaknesses identified will be successful, nor can management assure you that no further material weaknesses will be identified within its internal controls over financial reporting throughout 2007.
If the Company fails to maintain effective internal controls over its financial reporting, there is the possibility of errors or omissions occurring or misrepresentations in the Company's disclosures which could have a material adverse effect on the Company's business, its financial statements, and the value of the Company's common shares.
k. Environmental matters
As a business, we are subject to the laws and regulations in the jurisdictions in which we carry on business, including environmental regulations. If our operations were found to have failed to comply with environmental standards or regulations, or are otherwise assessed by environmental authorities, such event could have a material adverse effect on the Company, including the cost of any remediation and any reputational impact.
l. Rising insurance costs could adversely impact our business.
The cost of insurance, including insurance for directors and officers, workers' compensation, property, product liability and general liability insurance, may increase in future years. In response, we may increase deductibles and/or decrease certain coverages to mitigate these costs. These increases, and our increased risk due to increased deductibles and reduced coverages, could have an adverse impact on our results of operations, financial condition and cash flows.
m. Our operations could be disrupted if our information systems fail or if we are unsuccessful in implementing necessary upgrades.
Our business depends on the efficient and uninterrupted operation of our computer and communications systems and networks, hardware and software systems and our other information technology. If our systems were to fail or we are unable to successfully expand the capacity of these systems, or we are unable to integrate new technologies into our existing systems, our operations and financial results could suffer.
Item 4 Information on the Company
A. History and Development of the Company
Biovail was formed under the Business Corporations Act (Ontario) on February 18, 2000 as a result of the amalgamation of TXM Corporation and Biovail Corporation International ("BCI"). The Company was continued under the Canada Business Corporations Act (the "CBCA") effective as of June 29, 2005.
Our principal executive office is located at 7150 Mississauga Road, Mississauga, Ontario, Canada, L5N 8M5, telephone (905) 286-3000. Our agent for service in the U.S. is CT Corporation System, located at 111 Eighth Avenue, New York, New York, 10011, telephone number (212) 590-9338.
A description of our principal capital expenditures and divestitures and a description of acquisitions of material assets is found in our Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") and in the notes to our consolidated financial statements included elsewhere in this annual report.
B. Business Overview
We are a specialty pharmaceutical company that applies advanced drug-delivery technologies to improve the clinical effectiveness of medicines. We drive business growth by commercializing these products both directly (as is the case in Canada) and through strategic partners. Our main therapeutic areas of focus are central nervous system disorders ("CNS"), pain management and cardiovascular disease.
Our core competency lies in our expertise in the development and large scale manufacturing of pharmaceutical products incorporating oral drug-delivery technologies. We have a broad portfolio of proprietary drug delivery technologies that represent the foundation upon which the Company's strategy is based. These drug-delivery technologies are used to develop (1) enhanced formulations of existing drugs that confer meaningful therapeutic benefits to patients, (2) combination products that incorporate two or more different therapeutic classes of drugs, and (3) difficult-to-manufacture generic pharmaceuticals. Enhancement of existing in-market products (or brands), also described as a product line-extension strategy, is currently being pursued by many large pharmaceutical companies as they look for ways to expand upon the significant clinical and marketing investments they have made in establishing high-value brands. Combination therapy is also gaining in prominence within the medical community, as physicians seek to capitalize on the synergistic effects and potential superior side effect profiles of combination products. In addition, these products provide the opportunity to lessen the 'pill burden' on patients. With respect to generic pharmaceuticals, Biovail focuses and intends to continue to focus its efforts exclusively on difficult-to-manufacture products, where competition is more limited, and consequently, commercial pricing and gross margins potentially higher.
Our broad portfolio of oral drug-delivery technologies includes controlled release, graded release, enhanced absorption, rapid absorption, taste masking and oral disintegration, among others. These technologies can be combined to develop, for example, a controlled release, orally disintegrating, taste masked tablet. Our drug-delivery technologies are applicable to a wide range of molecules, and can, in many areas, address the pharmaceutical industry's more complex drug-delivery challenges.
As a result, to prioritize those products with the highest market potential, we employ a market driven selection process for our drug-development pipeline candidates. We seek to identify disease states and medical disorders for which there are unmet medical needs, or in which therapeutic gaps exist in the treatment of those conditions. We then review the currently available treatment options, and in conjunction with our research-and-development team, assess the feasibility of using our drug-delivery technologies to develop a product that improves upon those options, potentially providing clinically meaningful benefits to patients. Product candidates that meet our screening criteria are then considered for addition to our development pipeline.
We have historically spent between 8%-12% of our total revenues on research and development ("R&D") activities. However, going forward, we intend to increase our R&D spending, and are targeting a $500 million investment through 2010. (See "Company Strategy" and "Research and Development"). To this end, following a comprehensive review of all of our pipeline programs, we are focusing on a number of core research-and-development programs to drive business growth. These include novel formulations of bupropion and venlafaxine, combination products incorporating bupropion and tramadol, and a number of undisclosed, earlier stage programs.
In 2006, our R&D efforts resulted in the submission of an NDA to the FDA for BVF-033, our novel bupropion salt formulation; and the initiation of the Phase III clinical program for BVF-146, a combination product incorporating our once-daily tramadol formulation with an undisclosed, non-steroidal anti-inflammatory drug, or NSAID.
In an effort to remain at the forefront of the industry, in addition to our internal R&D efforts, we often seek to gain access to promising new and/or complementary technologies through agreements with third party,
drug-development companies. To this end, we have an agreement with Ethypharm S.A. ("Ethypharm") (originally signed in 2002, and modified in December 2006) for the development of four undisclosed products, and a license agreement with Depomed, Inc. ("Depomed") (signed in February 2007) that provides Biovail with access to Depomed's proprietary AcuForm drug-delivery technology for the development of up to two undisclosed products.
Biovail regards its drug-delivery technologies as key differentiators and core competencies given our past success with the development, large-scale manufacture and commercialization of a number of products such as Wellbutrin® XL, Tiazac®, Tiazac® XC, Cardizem® LA and, more recently, Ultram® ER.
Biovail has numerous and complementary drug delivery technologies that have enabled us to overcome significant product-development challenges. These technologies have in the past provided enhancements to existing compounds that have included reducing the number of doses a patient must take per day (once-daily dosing versus multiple doses per day), a reduction in potentially adverse side-effects and/or less variability of a drug in a patient's blood stream over the course of 24 hours. Once-daily dosing has been shown to provide higher levels of patient compliance due to a simplified dosage schedule as compared to that of medications that must be dosed multiple times per day. (See " Industry Overview"). Beyond these benefits, the primary objective of our R&D efforts is to develop products with clinically meaningful benefits over existing treatment options.
We continuously explore opportunities to further exploit our drug-delivery technologies through targeted product development activities. These products, if successfully developed, may then be commercialized in Canada through the Biovail Pharmaceuticals Canada ("BPC") sales force, or in the U.S. through strategic alliances with third parties that have established sales-and-marketing infrastructures. Outlined below are a number of examples of the successful execution of such commercialization.
In November 2005, we entered into a 10-year supply agreement with Ortho-McNeil, Inc. ("OMI") for the distribution of our extended release and orally disintegrating formulations of Ultram®. With respect to the extended-release formulation (Ultram® ER), we manufacture and supply the product to OMI for distribution in the United States and Puerto Rico. Ultram® ER is the first once-daily tramadol product available in the United States for the treatment of moderate to moderately severe chronic pain. OMI launched Ultram® ER in the United States in February 2006. Our contractually determined supply prices range from 27.5% to 37.5% of OMI's net selling price for Ultram® ER, depending on the year of sale. The supply price was at the lowest end of the range in 2006, and is and will be at the highest end of the range in each of 2007 and 2008. Upon closing of the agreement, OMI paid us a supply prepayment of $60 million, which is being amortized through credits against one-third of the aggregate amount of our future invoices for product manufactured and supplied to OMI. At the end of 2006, $39.7 million remained to be amortized.
Ultram® ODT (orally disintegrating tablet) has not yet been launched, as OMI focuses on driving growth for Ultram® ER.
In May 2005, we entered into a strategic alliance with Kos Pharmaceuticals, Inc. ("Kos") for the distribution of Cardizem® LA in the U.S. (See " Three-Year History Material Developments"). We manufacture and supply Cardizem® LA to Kos at contractually determined supply prices (in excess of 30% of net sales) over an initial seven-year supply term. Kos was acquired by Abbott Laboratories in December 2006.
In October 2001, GSK acquired the global marketing rights (excluding Canada) to our once-daily formulation of bupropion. We currently manufacture and supply our product to GSK pursuant to a tiered pricing supply agreement. GSK successfully launched the product in the U.S. in September 2003 under the brand name Wellbutrin XL®, with plans to launch in other markets as regulatory approvals are received. In February 2006, GSK announced that they had submitted applications for regulatory approval of Wellbutrin XL® in several European markets. In January 2007, GSK announced that Wellbutrin XR ® had been granted a marketing license in The Netherlands for the treatment of adult patients with major depressive episodes. The
medicine is also considered approvable by the regulatory agencies of 21 other countries under the decentralized procedure, a procedure that permits regulatory approval to be obtained from multiple members of the European Union ("EU"). Under this procedure, an application is filed seeking regulatory approval in several European Union member states. One member state is designated as the reference member state, which circulates its regulatory assessment to the other designated EU member states. Each designated EU member state generally adopts the assessment, thereby permitting regulatory approval in every designated EU member state without having to seek national approval in each EU member state. It is expected that Wellbutrin XR® could begin to be available to patients in Europe as early as April 2007.
In 2006, Wellbutrin XL® was our key growth driver, accounting for approximately 42% of our overall revenues. In 2006, the Company was engaged in patent litigation proceedings against Anchen, Impax, Watson and Abrika, who filed ANDAs for generic equivalents to Wellbutrin XL®. On August 1, 2006, in the United States District Court for the Central District of California, Judge James V. Selna issued an order granting Anchen's Motion for Summary Judgment on the Wellbutrin XL® patent infringement case, and denied it on the invalidity issue. The Company appealed the decision. In December 2006, the FDA issued final approval to Anchen for it to market its generic equivalent of the 150mg and 300mg generic tablets of Wellbutrin XL® and to Impax to market the 300mg tablet. (See "Financial Information Significant Changes Legal Proceedings"). Subsequently, Teva, in agreement with Impax and Anchen, and as a result of Anchen's relinquishment in favour of Impax of its first-filer marketing exclusivity, launched Impax's 300mg generic equivalent to Wellbutrin, XL in mid-December, 2006. In February, 2007, as a result of comprehensive settlements with Anchen, Impax, Watson, and Teva, the lawsuits against Impax and Watson have been dismissed and, with certain defined exceptions, none of Teva/Anchen/Impax/Watson may market a generic version of the 150mg dosage strength of Wellbutrin XL® until 2008 (See "Financial Information Significant Changes Legal Proceedings").
The Company has a manufacturing and distribution agreement, originally signed in 1997, with a subsidiary of Teva for a portfolio of bioequivalent (generic) products developed by us. We manufacture and sell these products to Teva for distribution in the U.S. In 2004, the agreement with Teva was expanded and extended by four years (on a product-by-product basis), and Biovail's share of the gross margins associated with the products was increased for the balance of the extended term. The key products of this agreement include generic formulations of Cardizem® CD , Procardia® XL and Adalat® CC.
In September 1995, Forest Laboratories, Inc. ("Forest") acquired the U.S. marketing rights to a once-daily formulation of diltiazem developed by us. The product was launched in February 1996 under the brand name Tiazac®. In April 2003, upon the product's genericization, Forest ceased promotional support for Tiazac® and now distributes a Tiazac® generic on our behalf.
Biovail Pharmaceuticals, Inc.
In the U.S., our wholly-owned subsidiary, Biovail Pharmaceuticals, Inc. ("BPI"), distributes a number of pharmaceutical products. Through most of 2006, BPI employed an 85-member specialty sales force that promoted certain products mainly to women's healthcare practitioners and dermatologists. However, in December 2006, we announced that we would leverage strategic partners to promote our products to specialist physicians in the U.S., which is consistent with our approach to commercializing products in the U.S. primary-care market since May 2005. As a result, the BPI specialty sales force and related support functions were eliminated. Following this decision, BPI ceased its promotion of Zovirax® and its co-promotional efforts for Ultram® ER and Zoladex® 3.6mg. On December 20, 2006, we entered into an exclusive promotional services agreement with Sciele whereby Sciele's sales force will promote Biovail's topical antiviral line, Zovirax® Ointment and Zovirax® Cream, to U.S. physicians.
In May 2005, we had similarly realigned our U.S. marketing and sales operations, changing the manner in which we commercialized products to the primary-care segment of the U.S. market. Following this realignment, we ceased promoting our products directly to a broad audience of primary-care physicians in the U.S. and entered into a multi-faceted transaction with Kos with respect to certain products being promoted to the U.S. primary-care market. Under the agreements with Kos, Biovail manufactures, supplies and sells Cardizem® LA to Kos for distribution at contractually determined prices, which exceed 30% of Kos's net selling
price. Biovail also divested all of its rights to Teveten® and Teveten® HCT to Kos. (See "Three Year History Material Developments Kos Transaction").
BPI also distributes a number of branded off-patent products. These products which we refer to as our "Legacy products" include the well-known brands Cardizem® CD, Ativan®, Vaseretic®, Vasotec® and Isordil®. These products are not actively promoted by Biovail and represent non-core assets for which patent protection has expired. While the products remain well-respected by the medical community, their prescription volumes are in decline due to the availability of several competing generic formulations.
Biovail Pharmaceuticals Canada
In Canada, where the market dynamics are much different than in the U.S., we have maintained a direct-selling commercial presence through Biovail Pharmaceuticals Canada ("BPC") that successfully targets both specialist and primary-care physicians. BPC has established itself as a leading pharmaceutical marketing and sales operation in the Canadian market. Market research indicates that BPC is the largest independent pharmaceutical company that markets to physicians in Canada. In 2006, BPC expanded its sales force to 96 territories to support a number of new product launches. BPC currently promotes a well-respected portfolio of products to approximately 10,900 physicians across the country. Products include Tiazac® XC, Wellbutrin XL® and Glumetza. BPC also promotes the Lescol® franchise, pursuant to an agreement entered into with Novartis Pharmaceuticals Canada, Inc. in May 2006. In addition, we are evaluating a number of product marketing opportunities and acquisitions that have a strategic fit for further growth to BPC's commercial operations.
We currently operate three pharmaceutical manufacturing facilities located in Steinbach, Manitoba; Dorado, Puerto Rico; and Carolina, Puerto Rico. All of these facilities meet FDA-mandated and TPD-mandated GMP. Through these facilities we manufacture branded products that are commercialized by our partners that include Wellbutrin XL®, Ultram® ER and Cardizem® LA and several branded products that are distributed by BPI and BPC, as applicable. We also manufacture generic products that are distributed by Teva and Forest in the United States and by Novopharm Limited ("Novopharm"), a subsidiary of Teva, in Canada.
We maintain on site quality control and experienced manufacturing supervision at these sites so that manufacturing, packaging and shipping activities are undertaken in compliance with GMP requirements. Efforts are undertaken to maintain equipment parts or replacements so that they can be readily available to avoid any interruptions in supply where possible.
We source raw materials for our manufacturing operations from various FDA-approved companies worldwide. It is our practice, wherever reasonably possible, to have a minimum of two suppliers for all major active pharmaceutical ingredients ("API") for our manufactured products. This facilitates both the continuity of supply of raw materials and best pricing from suppliers based on volume and time period.
The pharmaceutical industry is highly competitive and subject to rapid and significant technological change. Our products face competition from both conventional forms of drug delivery and controlled release drug-delivery systems developed, or under development, by other pharmaceutical companies. Many of these competitors have greater financial resources and marketing capabilities than us. Our competitors in the U.S. and abroad are numerous and include, among others, major pharmaceutical and chemical companies, specialized contract research and research-and-development firms, universities, and other research institutions. Additionally, we have, or may in the future have, manufacturing-and-supply agreements or other relationships with some of our competitors.
Nevertheless, we believe that our portfolio of oral drug-delivery technologies is among the broadest in the industry, which provides us considerable flexibility when selecting pipeline candidates. Our drug-delivery technologies are applicable to a wide range of molecules, and have the potential, in many areas, to address the
pharmaceutical industry's more complex drug-delivery challenges. Our selection process is largely driven by intellectual property and market opportunity considerations. Our technologies include controlled release, graded release, enhanced absorption, rapid absorption, taste masking, and oral disintegration, among others. Importantly, these can be combined to develop, for example, a controlled release, orally disintegrating, taste masked tablet. Our technology portfolio also includes those that are amenable to combination products, by allowing for, among other advantages, a high payload of active ingredient, which minimizes the required tablet size. Additionally, we have technologies that are generally resistant to interactions with alcohol, an issue that has increasingly gained in prominence in recent years.
Biovail strives to be at the forefront of the industry through internal R&D, as well as through licensing agreements with third party drug-delivery companies, whereby we seek to gain access to promising new and/or complementary technologies. A recent example of this is the February 2007 license agreement with Depomed, that provides Biovail with access to Depomed's proprietary AcuForm drug-delivery technology for the development of up to two Biovail products.
Since our R&D efforts are largely focused on developing novel formulations of existing drugs by providing clinically meaningful benefits and advantages to patients over existing formulations where safety and efficacy profiles are well known and established the development risk we face is typically lower relative to companies pursuing new chemical entities ("NCEs"). For the same reasons, the development costs we incur and our development timelines to bring products to market are also lower. Upon receiving approval from the FDA, the enhanced medication typically receives three years of market exclusivity (depending on the clinical program upon which approval was based), compared with NCEs, which typically receive five years of market exclusivity. Nevertheless, patents can often extend the lifecycles of these products beyond the expiry of exclusivity periods. (See " U.S. Regulation" and " Canadian Regulation").
One of our competitive advantages, and what differentiates us from a number of our peers in the drug-delivery industry, is our demonstrated ability to transfer technologies from the concept stage to full-scale commercial manufacturing of products incorporating those drug-delivery technologies. Our record of success in this regard includes products such as those within our generic pharmaceuticals portfolio, and branded products, such as Cardizem® LA , Tiazac® and Tiazac XC® (anti-hypertensives), Wellbutrin XL® (anti-depressant) and more recently, Glumetza (diabetes) and Ultram® ER (chronic pain). We regard our manufacturing expertise as it relates to our drug-delivery technologies as an integral component of our success, and as such, we anticipate manufacturing and commercializing all of our pipeline products that are successfully developed.
As a result of Biovail's strategic planning process, the Company has developed a commercialization strategy that leverages relationships with strategic partners with established infrastructures and marketing capabilities to commercialize its products in the U.S. In Canada, our commercialization strategy is focused on marketing to specialists and high-prescribing primary-care physicians because we are able to effectively target a broad audience of physicians with relatively few sales representatives.